Remembered the VA-Ter company!
Porinju’s eagle eye caught the obscure news item that Infrastructure major Larsen & Toubro sees Rs 20,000-crore opportunity in water solutions.
“Remembered the VA-Ter company!” he exclaimed with excitement in his tone.
Remembered the VA-Ter company!https://t.co/4BKymQCyN8
— Porinju Veliyath (@porinju) August 30, 2018
A careful study of the news item reveals that the story is not so much about the prospects of the water sector but that L&T has already barged into the sector and is aggressively grabbing orders.
In fact, L&T announced on Monday, 27th August 2018, that it has won an EPC order worth Rs 1,394 crore from the Madhya Pradesh government for the execution of an irrigation project.
The company has booked orders worth Rs 12,000 crore under the Water & Effluent Treatment vertical so far in the present financial year.
The total order by the end of FY18 in this vertical amounts to Rs 28,000 crore.
S Rajavel, Senior Vice President of L&T, is gung-ho about the potential for the water business.
“We are positive about the prevailing market scenario. There is great potential. There is a huge need for waste water treatment, drip irrigation and other solutions. Several government schemes are being introduced. The growth story is unstoppable for the next few years,” he said.
How does this impact Va Tech Wabag?
Va Tech Wabag is one of Porinju’s high conviction stock picks.
His Equity Intelligence PMS Fund holds a colossal quantity of 27,35,711 shares of Va Tech Wabag comprising of 5.01% of its equity.
Va Tech Wabag Equity Intelligence Buys Addl 0.3% Stake On March 16, Stake Now At 5.01% pic.twitter.com/E4eCJZMRQv
— CNBC-TV18 (@CNBCTV18Live) March 18, 2018
— Kush Katakia (@kushkatakia) March 16, 2018
The reason for Porinju’s bullishness for Va Tech Wabag is because he believes that the Company is a big beneficiary of the infra boom and will blossom into a magnificent 5x or 10x multibagger in the foreseeable future.
Over a dozen Infra cos at inflection point – stronger balance sheet, better visibility & exciting operating environment; potential 5x & 10x
— Porinju Veliyath (@porinju) July 26, 2017
At least 5 Infra companies with mktCap <10,000 Cr currently, heading for >30,000 Cr mktCap in 5 years in a favorable operating environment.
— Porinju Veliyath (@porinju) August 13, 2017
I see 25 listed 10x ( in next 5 Yrs) stocks in this picture! pic.twitter.com/T2y9Ng1nbQ
— Porinju Veliyath (@porinju) October 28, 2017
Big-ticket orders gush in but stock price slumps
Va Tech Wabag has been snaring a number of big-ticket orders especially in the light of the ambitious ‘Namme Gange’ project of the Government.
— Business Standard (@bsindia) April 12, 2018
— ET NOW (@ETNOWlive) April 11, 2018
VA TECH WABAG secures repeat order worth Rs. 296 crores from Delhi JAL Board towards rehabilitation and up-gradation of the 182 MLD Waste Water Treatment Plant at Rithala under the Yamuna Action Plan.
— ShareDunia (@shareduniaindia) May 9, 2018
VA TECH WABAG secures order worth Rs. 253 crores from Bihar Urban Infrastructure Development Corporation under Namami Gange scheme. The project will be jointly financed by World Bank and NMCG.
— ShareDunia (@shareduniaindia) April 19, 2018
— India TV (@indiatvnews) August 30, 2018
According to the Business Standard, Va Tech Wabag’s long-term prospects look encouraging since there is a huge opportunity in desalination projects, treatment of waste water and sewage, and recycling of water and sludge management for industrial and sewage water.
It is pointed out that projects worth around Rs 500 billion, of which 80-85 per cent are from public sector undertakings, are expected in the next 2-3 years.
However, it was also stated that execution challenges and delay in finalising large infrastructure projects are coming in the way of its growth.
Unfortunately, the stock has so far not lived upto the multibagger potential foreseen by Porinju.
It is down 36% on a YoY basis and 31% over 24 months.
Presumably, this is because the contracts are awarded by the Government at wafer-thin margins which leaves very little on the table for the Company.
|VA TECH WABAG LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||2,128|
|EPS – TTM||(Rs)||[*S]||20.35|
|LATEST DIVIDEND DATE||01 AUG 2018|
|BOOK VALUE / SHARE||(Rs)||[*S]||167.74|
[*C] Consolidated [*S] Standalone
|VA TECH WABAG LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2018||JUN 2017||% CHG|
(Source: Business Standard)
Va Tech Wabag will have to pull up its socks: MMB Punters
The punters at MMB are obviously dismayed at the poor show of the stock on the Bourses. They expressed nervousness that Va Tech Wabag’s prospects would take a further hit in the light of L&T’s entry into the sector.
“Now L&T mulling to enter water segment. That will be in competition with vatech (in foreseeable future). Vatech will have to pull up its socks & will have to show improved performance,” a distinguished bronze member observed.
A similar sentiment is expressed by others on twitter.
VA Tech is performing very poor operationally. No chance of coming to normal financial health in coming years. Water is a great opportunity but the story of EPC companies in the last boom cycle could be repeated
— Kishore Vaid (@KishoreVaid) August 30, 2018
Plus the coming of L&T in this biz will impact the future order book of Wabag, is'nt it?
— Mayank Sharma (@mayank0007) August 30, 2018
Correct. L& T is much more professional in Engineering & construction business than any other tier 2 players
— Kishore Vaid (@KishoreVaid) August 30, 2018
It is obvious that few can match the pricing power and execution capabilities of a behemoth like L&T. Whether Va Tech Wabag will outwit the Goliath and delivered the multibagger gains foreseen by Porinju requires to be carefully watched!