Buy Va Tech Wabag; target of Rs 1,770: Sharekhan

Sharekhan's research report on Va Tech Wabag

Va Tech Wabag’s adjusted net profit increased 19.6% y-o-y to Rs. 66 crore. Revenue of Rs. 734 crore grew 17.2% y-o-y and Operating profit of Rs. 96 crore was up 17.6% y-o-y. Order backlog stands strong at Rs. 15,750 crore. The company is also preferred bidder for Rs. 3,500 crore worth of projects. Va Tech’s focus on technologically advanced EP projects, industrial and international projects, and increasing share of O&M contracts would improve margins, cash flows, and working capital cycle. Company has guided for a revenue growth CAGR of 15% and margin guidance of 13-15% for the next 3-5 years.

Outlook

The company’s order book is robust and, with a promising order pipeline, it aims to deliver a healthy 15% revenue CAGR over the next few years and maintain the margin at 13-15%. The company is optimistic about growth opportunities present in desalination, ultrapure water, and water treatment solutions in both domestic and export markets. A well-funded and strong order book of Rs. 15,750 crore (4.6x TTM revenue) provides good visibility. We maintain a Buy rating on the stock with a revised price target of Rs. 1,770, valuing it at 23x FY27 EPS. At CMP, the stock trades at a P/E of 25x/20x its FY26E/27E earnings.

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