VA Tech Wabag - Initiating Coverage - CSEC Research

Tapping the scarce resource

Strong order Book provides revenue visibility

VTWL has an order book of about INR 37.3 bn(table in page 5) as on 31st, March, 2012 which is 2.5x its FY12 Sales. The execution of this order book will enable the company to deliver about 16% and 17% revenue growth in FY13 and FY14 respectively. The strong execution capabilities and order book provides the company with revenue visibility for the next couple of years. Apart from this the company has got frame work (explained in Page 4) orders to the tune of INR 8.3bn which enhances revenue visibility.

Diversified Order Book reduces geographic risk

The domestic order book constitutes about 66% (INR.24.5 bn) while the overseas order book constitutes the remaining 34% (INR 12.8 bn). Within the overseas order book Austria tops the list with order book of INR7.72bn (60% of overseas order book), Switzerland at INR 2.3bn (18%) and Romania at INR 0.97bn (7%) and others constitute 15% of overseas order book.

Outlook & Valuation

We initiate coverage on VTWL that has leadership status in the water treatment space, strong order book, back up of frame work orders, diversified geographical locations and presence in high growth markets which provides earnings visibility for the stock. We assign a target price of INR 530 valuing the company at 13X its FY14E EPS and initiate coverage on the stock with a Outperformer rating. Key Risks to our recommendation include cancellation of orders, slower than expected order execution, delayed / non-receipt of payments and excessive dependence on municipal clients.

Source : Equity Bulls

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