VA Tech Wabag (Wabag) bagged a mammoth order of INR 27bn (equivalent to its FY24 revenue) from the Middle East for a desalination plant – the entire order is for EPC. As a result, Wabag’s EPC order book (OB) is now close to INR 79bn or >3x book to bill ratio. Order inflow (OI) has been a concern for the last 18 months – FY24/Q1FY25 OI undershot Street’s expectations (lower than revenues). At the beginning of the fiscal, management had indicated a good bidding pipeline from Middle East. It had also pre-qualified to bid for Egyptian desalination contracts to bid up to 1000mld. Note – Middle East/Egypt have a strong pipeline of desalination contracts. Wabag has shed the flab, cleaned up its balance sheet and improved its margin over the last 24 months. Retain BUY; TP revised to INR 1,541 (vs. INR 1,445).
A significant win; the wait is over
Wabag received an OI from the Middle East for a 300MLD desalination plant. The plant shall be developed on a greenfield site located in the west coast of the KSA, south of the Red Sea-facing city Yanbu al-Bahr. It is slated to be completed within a 30- month period. The total contract is worth INR 27bn (>FY24 EPC revenues of INR 23bn).
Book to bill ratio > 3x
As a result, we estimate Wabag’s EPC OB to improve to INR 78bn; the book to bill ratio improves to 3.4x (of EPC revenues). In addition, the O&M OB is at INR 45bn, or 10x. We increase our revenues estimates for FY26E to be at 20% (vs. earlier growth of 15%).
Pipeline remains strong in middle east
Wabag earlier indicated that it has bid for USD 1bn worth of projects. It has also pre-qualified for a desalination project of up to 1000mld desalination plant. We note that Egypt and Middel East have a strong pipeline of desalination projects.
Maintain HOLD; TP revised to INR 1,541 (from INR 1,445)
Wabag is a pureplay on the water segment. We maintain BUY with a revised TP of INR 1,541 per share (vs INR 1,445 per share earlier) valued at revised 25x FY26E earnings.
Leave a Reply