VA Tech Wabag, the integrated water management multinational headquartered in Chennai, has put behind it a challenging financial year as its major markets were hit following the socio-political disturbances in West Asia. But this has opened up other opportunities that will contribute to growth, says its Managing Director, Mr Rajiv Mittal. The domestic markets too have had their share of issues but the forecast is good and the company is adapting to the changes.
In this interview he shares some of the developments with the company and the reasons for his optimism.
VA Tech Wabag has completed a year after its IPO in September 2010, how was the performance in 2011-12 as compared with expectations?
As compared with our forecast to markets, I think we should more or less achieve it on dot. Initial indications of the results in India are looking good as are those from our international subsidiaries despite the challenges.
We expected the order backlog to be about Rs 4,000 crore. But one or two orders were not closed by March-end. We will achieve that number late by a month.
The target was to achieve a top line growth of 12-15 per cent, about Rs 1,400-1,450 crore, and a bottom line increase of 30-35 per cent which would mean close to about Rs 70 crore. Last year we did about Rs 52-53 crore.
In October we complete the second year after our IPO. We went to the market to improve systems and IT, fund the construction of our corporate office in Chennai – civil construction is done – and for working capital requirement. All have been done.
Even the working capital funds have been partly utilised. We have more than Rs 300 crore cash intact in the balance sheet. We call it strategic cash.
But some of your major international markets were hit. What are the concerns?
There were lots of challenges, particularly in North Africa and West Asia, where we were active, right at the start of the 2011-12 fiscal. There was the Arab Spring. Everything came to a standstill in our markets in Yemen, Syria, Oman, Tunisia, Libya and Egypt.
That was a big shock. But as God closes one door, He opens another. The resources that were freed from all those countries were redeployed in new markets such as Turkey, the Philippines, Sri Lanka, Saudi Arabia and Romania. This worked really well.
Turkey was a great success. We set up a team; we are bidding and getting orders. In Saudi Arabia, we bagged some prestigious orders; in Romania we are close to getting orders; in Sri Lanka we are executing a project and in the Philippines we have three projects. .
The third challenge was vey local – in Chennai, cash flow in the Rs 1,000-crore Nemili desalination project funded by the Government of India. In the last 6-8 months, funds have not come to the State Government and to the Chennai Metrowater, the water utility for which we are doing the work. But, thankfully, the State has put in funds to keep the project going. The Centre, too, is bound to release funds. That will be a relief for us.
Are these issues still a worry this year?
Coming year… the international scene is improving. In Tunisia, work has restarted and we are the preferred bidders in some projects; in Oman, we are executing a project and things are stable.
But in the main market in Libya, things will take some time to stabilise, possibly 6-8 months. In the domestic market, the policy changes that are in the offing are positive on water. There is a definite willingness on the part of the government to make changes.
You have said earlier the company will focus on large BOOT projects…
In India, we got two projects… the Ulhas Nagar and Aurangabad water management projects of over 190 million litres a day each, and in Namibia, we have bagged a waste water project.
Financial closure has been achieved for the Ulhas Nagar and Namibia projects. We will soon achieve financial closure for the Aurangabad project. We definitely see this as an area – the draft water policy and the new JNNURM talk of PPP and privatisation – that will keep us well-positioned on future projects.
BOOT projects are long term, annuity projects which give visibility and predictability to our numbers and performance. Companies like ours' are in a lumpy business and this smoothens out that lumpiness with steady cash flows and revenues.
Like, we get in one year a project like Nemili… Suddenly, there is Rs 1,000 crore and the next two years' revenue is based on that. Next if there is no such project the numbers are skewed. There will be too many peaks and troughs. With BOOT projects, I can say every year the revenue will be this, as these are 30-year, long term projects. Any investor can say these projects will generate this revenue. But how can we say when the next Nemili will come up?
But with one Nemili, we will have annual revenue of Rs 70 crore for seven years from operating and maintaining the facility. The Ulhasnagar project represents a construction contract component of Rs 100 crore and an operation and maintenance component of Rs 230 crore over 30 years. The Aurangabad water treatment project includes Rs 55 crore construction contract and Rs 72 crore operations and maintenance for 17 years.
Your tie up with Sumitomo was aimed at large investment projects. Has there been any progress?
These take time but the cooperation is working well. The CEO of Sumitomo was in the office a couple of weeks. That is the kind of commitment.
In three projects we are in the bid stage, bid evaluation is on... more West Asian side focussed.
These are mega projects – one is about a billion dollar and in others the investment will be in the order of about $400-500 million. One such project a year can change the company's fortunes completely. Funding will be by Sumitomo and technical support by VA Tech Wabag. We will also bring in construction partners and others.
On the Nemili project
Yes, our flagship project and the largest for the company. As scheduled, in September we will commission the plant, we will supply drinking water.
It means a lot. Earlier, we did not have a track record of handling a Rs 1,000 crore project. All apprehensions of our investors will go away. We will be showing the ability to handle mega project.