ICICI Direct recommended hold rating on VA Tech Wabag with a target price of Rs 260 in its research report dated August 14, 2019.
ICICI Direct's research report on VA Tech Wabag
VA Tech reported a fall in revenue by 34% YoY to Rs 456.5 crore largely on account of poor execution from India international units (-37% YoY) and European cluster. Decent execution from domestic market arrested decline, to a certain extent. The India revenue was up 21% YoY to Rs 229.5 crore. EBITDA margins expanded 220 bps YoY to 8.2% resulting in an EBITDA fall of 9% YoY to Rs 37.5 crore. The improvement in operational performance was led by better margins from domestic market along with India international units. India business & India international units OPM remained at 7.3% & 7.1%, respectively, against operational loss in Q1FY19. PAT fell 80% YoY to Rs 2.62 crore due to higher tax outgo (106% vs. 44% in Q1FY19) and interest expenses (up 83% YoY).
We believe any progress in realising legacy receivables can reduce leverage of the company and thereby interest outgo. We value the company at 11x PER of FY21E earnings and arrive a target price of Rs 260. We maintain HOLD rating on the stock.
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