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Julius Baer
VA Tech Wabag (Buy)
Target ₹200
CMP: ₹136.50
VA Tech Wabag’s Q4-FY 2020 results were a mixed bag. Order inflow was weak at ₹290 crore, taking the total order book, ex.framework, to ₹10,350 crore (4x FY 2020 revenues).
The global, water treatment sector remains a secular growth opportunity, led by urbanisation, population growth, rapid industrialisation and changing consumption patterns. VA Tech, with its presence across the value chain, long operating history, marquee reference list, project management skills and technology, remains well-positioned to benefit.
However, the Covid-19 pandemic can result in some near-term uncertainties, which has prompted management to refrain from providing any guidance for FY 2021.
VA Tech Wabag’s balance sheet deterioration due to stretched working capital and a delay in realisation from GENCO* has weighed on its stock price. However, the Q4 performance in terms of revenue pickup and improvement in cash flows/net debt provide some comfort.
The improvement in execution, especially given a healthy order book build-up, and management of the WC cycle (especially receivables) remain key monitorables, while valuations remain attractive. Maintain Buy with a revised target of ₹200 from earlier ₹250.
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