Hold VA Tech Wabag; target of Rs 260: ICICI Direct

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).

Outlook

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.