Hold VA Tech Wabag; target of Rs 295: ICICI Direct

ICICI Direct's research report on VA Tech Wabag

VA Tech Wabag (Wabag) reported dismal Q3FY19 numbers Wabag’s revenues fell 23.5% YoY to Rs 661.9 crore. Lower topline was due to muted execution in both domestic (down 2.3% YoY) & overseas segment (down 23.4%YoY). Overseas segment contributed ~66% whereas domestic segment contributed ~33% to the topline Absolute EBITDA declined 36.5% YoY to Rs 49.3 crore. EBIDTA margins came in at 7.4% vs. 9% YoY. Lower margins were mostly on account of provisioning of doubtful debts in ‘other expenses’ in addition to forex (translation) loss during the quarter Wabag’s finance cost increased 32% YoY on account of higher interest cost for working capital. Accordingly, Wabag’s net profit declined 48.9% YoY to Rs 15.4 crore.

Outlook

With strong execution capabilities, we expect revenue, EBITDA and PAT CAGR of 15.4%, 13.7% and 15.1%, respectively. We value the company at 8x FY21E earnings to arrive at a target price of Rs 295. We maintain HOLD rating on the stock.