Va Tech Wabag reported robust results for the third quarter ending December with EBITDA margins improving. Strong debt reduction, >10% EBITDA margin and a focus on securing tech-focused orders are key positives, as per Nomura, which has reiterated its Buy rating on the stock.
Despite commodity inflation, a focus on securing orders with higher engineering and design components against construction appears to have led to the rise in EBITDA margin. Nomura’s Buy rating on Va Tech Wabag shares come with a target price of ₹634, implying over a 100% upside.
“Management believes that the EBITDA margin level of 10%+ can be sustained into FY23 (we have not incorporated this into our estimate yet, and will monitor the sustainability of this trend over the next few quarters ), and if this is realized it could lead to meaningful upside to our estimates,” the note added.
The company’s management has further stated that focus will be on securing tech-focused orders with low civil component . This philosophy, if implemented, could improve both margins and cash flows, in Nomura’s view.
The thrust is on key schemes like Jal Jeevan that envisages supply of piped drinking water (100% coverage) to villages, AMRUT and Namame Gange schemes. This provides a strong pipeline of centrally funded projects that could improve the collection cycle for Va Tech materially, believes Nomura.
“Management expects strong budget allocations by the Ministry of Jal Shakti with a thrust on river-cleaning projects extended to other major rivers besides the Ganges under Namame Gange 2. VATW is also pre-qualified for the INR61bn Chennai desalination tender as well,” it added.
As per the BSE shareholding pattern, ace investor Rakesh Jhunjhunwala’s wife Rekha Jhunjhunwala has 8.04% stake in the water treatment company as of December 2021 quarter.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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