VA Tech Wabag Targets 15-20% Revenue Growth Over Next Five Years

Water treatment company VA Tech Wabag is targeting an annual revenue growth of 15% to 20% over the next five years. However, the company is currently focusing on cash flow rather than revenue as part of its “Wriddhi” strategy.

“We will have a growth of almost 15% to 20% and that is the output we have given for the next three to five years. So, don't expect that 20% will happen this year. Again, I said revenue is not important for us. The bottom line, cash flow, valuation and working capital reduction, are the important parameters. Revenue is just an outcome of what we execute,” said Rajeev Mittal, the Chairman and Managing Director of VA Tech Wabag, in an interview with NDTV Profit.

Mittal emphasised that cash flow is now the company’s top priority. Its goal is to convert all profits into cash to reflect “real earnings”, rather than mere profit booking.

“Our focus has been on cash, no more on the top line. Yes, profits are important, but profits converted to cash are most important and that's the trend we are seeing for the last 3 years. Even last year, our cash generation was far higher than the profits we made,” the top executive underlined. 

A key pillar of VA Tech Wabag’s strategy is reducing working capital days, which have already seen a decline from FY24 to FY25. Mittal attributed this to a deliberate shift from traditional engineering, procurement, and construction (EPC) contracts towards engineering and procurement (EP) projects, where the company can leverage its technological expertise.

“Being a technology company, we want to focus on technology and engineering and not so much on construction. That's not our domain expertise. We used to always subcontract and let it out and it was a pass-through for us,” the CMD said.

The company is pivoting towards industrial contracts, operation and maintenance (O&M) agreements and international projects, particularly those funded by multilateral agencies such as the World Bank or Japan International Cooperation Agency (JICA). These contracts typically offer better payment terms and fewer delays compared to some Indian government projects, he said.

These contracts, often backed by letters of credit (LC), offer more reliable payment schedules compared to some Indian government contracts, which can face delays.

While Mittal refrained from providing an absolute target for working capital reduction, he indicated a downward trend from the current 110 days.

He said the O&M business offers the highest margins due to its service-based model, unaffected by commodity price fluctuations. “Yes, it's not a topline business but definitely a bottom line and a cash flow business.”

The company aims for O&M to constitute at least 20% of its topline, having already reached 18% in the last financial year.

The water technology solutions provider is also expected to gain from this segment with contracts of higher durations. "Earlier we used to get three to five years and five to 10 years, now we are talking about anything between 10 to 20 years," he said.

Geographically, the company is pinning hopes on the Middle East and Africa, which Mittal described as the "next growth engine." He anticipates that this region will soon rival the Indian market in its contribution to the company's revenue.

When questioned about regional instability, Mittal asserted that projects funded by multilateral agencies are insulated from such disruptions. "In fact, the oil prices will go up and there will be more affordability for GCC (Gulf Cooperation Council) countries to invest in infrastructure.”

Shares of VA Tech Wabag Ltd. closed over 1% lower at Rs 1,468 per share on Friday, compared to a 1.29% rise in the benchmark Nifty50 at 25,112.40.