Motilal Oswal believes large order inflows and a significant margin expansion could fuel Va Tech's valuation re-rating in the near to medium term.
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Motilal Oswal Report
After delivering a CAGR of 4%/18%/28% in revenue/Ebitda/PAT over FY21-25, we estimate them to clock a CAGR of 17%/22%/23% over FY25-28E.
VA Tech Wabag Ltd.'s current order book of ~Rs 137 billion (4.2x FY25 revenue) and a strong bid pipeline of up to Rs 200 billion provide 15-20% revenue growth visibility.
Greater focus on executing large-scale projects in the high-margin segments (engineering and procurement, operations and maintenance and Industrial) augurs well for the overall margins of the company.
Outlook of strong free cash flow generation, net-cash status and expansion in return ratios make VA Tech's scrip attractive at ~20x FY27E EPS on current market price.
We initiate coverage on VA Tech with a Buy rating and a target price of Rs 1,900, based on 26x FY27E P/E (premium to historical average of 18x on improved outlook).
We believe large order inflows and a significant margin expansion could fuel valuation re-rating in the near to medium term.
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