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IIFL
VA Tech Wabag (Buy)
CMP: ₹499.35
Target: ₹827
VA Tech Wabag is an MNC with headquarters in Chennai, Tamil Nadu. Founded in 1924, the company is a pure-play water technology company focussed on water treatment for municipal and industrial users.
We hosted VA Tech Wabag at IIFL’s Enterprising India Conference last week in Mumbai. Management mentioned that: 1) order pipeline remains strong; 2) FY17 is likely to see order inflow from India as well as overseas; 3) VA Tech Wabag should benefit from opportunities from Namami Gange, desalination and smart cities; and 4) uptick in margins in FY17 and beyond. Working capital likely to remain high but stable.
Despite West Asia concerns, we believe there is enough reason to be optimistic about the company, and fears of a slowdown/ margin erosion have been prevalent for some time, but they haven’t played out. The company may not win all the orders that are about to be given out in the next 12-24 months in India, but is definitely one of the front runners, especially in the desalination space. Maintain ‘buy’.
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