What Led VA Tech Wabag’s Stock To Gain For Four Straight Sessions

Shares of VA Tech Wabag Ltd. rose after the sewage and water treatment solutions provider bagged a new order.

The company secured an engineering and procurement order worth 18 million euros (Rs 149 crore) from Korean firm DL E&C, according to an exchange filing. The order pertains to a water treatment package for the eurochem methanol production facility in Kingisepp, Russia.

The scope of the project includes design, engineering and supply, installation, pre-commissioning, commissioning and start-up of the plant. It's scheduled to be completed over 15 months. The project, the filing said, will employ softening, ultra-filtration and reverse osmosis technologies to treat brine water (water with high-concentration solution of salt), which will be reused as process water at the facility.

“While being vigilant about the geopolitical situation, we remain positive about the Russian Federation as a market opportunity,” Pankaj Sachdeva, Chief Executive Officer-India cluster at Va Tech Wabag, was quoted as saying in the filing. “Wabag strengthens its position in the industrial wastewater segment with this order.”

Nomura, however, cut its FY23 and Y24 EPS forecasts for Va Tech Wabag by 31% and 29%, respectively, to factor in an impact of stalled execution in Russia and slow pace of order wins in FY22. “Russia sales have come to a standstill since the start of the war in Ukraine due to payment mechanism issues,” the brokerage said in a report. Russia accounted for Rs 1,100 crore of the company's Rs 8,980-crore order book before the war.

While Nomura reiterated its ‘buy' call on the stock, it lowered the target price. Still, that's the highest target among all the five analysts tracking the company.

Va Tech Wabag also announced its results for the quarter-ended March on May 27. Since then the stock has gained.

Analysts expect securing of the Chennai desalination tender, increased allocation towards Jal Jeevan mission and Namami Gange Phase-II, tightening of ESG regulations, rise in demand for water-related projects, ramp up in execution and operational efficiencies, and focus on improving intake of international orders to benefit the company.

The stock's trading volume is more than quadruple the 30-day average. Of the five analysts tracking the company, four recommend a ‘buy' and one suggests a ‘hold', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 54.8%.

Here's what brokerages have to say...

Nomura

• Maintains ‘buy', cuts target price to Rs 448 from Rs 634 apiece, still an implied upside of 77.57%.

• Strong order book is supportive of growth over FY22-24F.

• Sees stability on the margin front and net cash balance sheets as positive factors.

• Cuts FY23F/24F EPS by 31%/29% to account for the impact of stalled execution in Russia and slow pace of order wins in FY2021-22.

• Q4 sales miss highlights a slowdown in execution in overseas order.

• Sees the order inflows at Rs 3,650 crore in FY22 as ‘weak' and ‘disappointing'.

• The company's policy of selective bidding led to weak growth.

• Expects significant upside to sales estimate if the company secures the Rs 6,000-crore Chennai desalination tender.

• Policy of selective bidding in global markets may lead to order inflows in the range of Rs 3,000-3,500 crore over FY23-25F.

• Weakness in sales momentum could be due to lack of contribution from Russia.

• Insists that the cash collections were robust in FY2021-22 and gross margins remained strong despite commodity price rise.

• Values the firm at 14x FY24E EPS of Rs 29.8 and roll forward to June 2024 to arrive at the target price of Rs 448.

ICICI Securities

• Upgrades to ‘buy' from ‘add', reduces target from Rs 352 to Rs 337—still an implied upside of 36.33%.

• While the execution remains muted, the growth outlook is ‘stable'.

• The Chennai desalination bids are close to completion and expected to be awarded in the current financial year.

• Ratings upgrade takes into account the recent 15% correction in the last one month and healthy order book.

• Expects the company to benefit from the increased allocation towards Jal Jeevan mission, Namami Gange Phase-2, due to the strong niche in water treatment segment.

• Tightening of ESG regulations and rise in demand for water-related projects to aid industrial order inflow.

Yes Research

• Reiterates ‘buy' with a target at Rs 391, an implied upside of 60.15%.

• Water treatment sector is well placed for a secular, long-term growth.

• Expects the company to capitalise on growth opportunities due to its robust order book, market leadership, ramp up in execution and operational efficiencies.

• Focus on improving intake of international orders will help the company's cash flow.

• Bid pipeline continues to remain robust in both domestic and overseas segments.