va tech wabag ltd isin...wabag won rs. 5200 mn worth of orders under namami gange, repeat order from...

Document code: FOTL_160420183_3 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved

VA TECH WABAG LTDResult Update (CONSOLIDATED BASIS): Q3 FY18

CMP: 511.20 APR 16th, 2018

Overweight ISIN:INE956G01038

Index DetailsSYNOPSIS

VA Tech Wabag Ltd provides a completerange of Water and Waste Water Treatmentsolutions, around the world.

During Q3 FY18, consolidated revenue jumpsto Rs. 8647.00 mn as against Rs. 7183.20 mnin Q3 FY17.

Consolidated Net Profit for the quarter stood atRs. 300.60 mn in Q3 FY18.

During Q3 FY18, consolidated EBIDTA is Rs.785.10 mn against Rs. 829.30 mn in Q3 FY17.

During Q3 FY18, consolidated PBT stood atRs. 599.50 mn as compared to Rs. 645.50 mnin Q3 FY17.

EPS of the company stood at Rs. 5.51 a shareduring the quarter.

VA Tech Wabag won Rs. 5200 mn worth oforders Under Namami Gange, repeat orderfrom KMDA and HMEL (Oil & Gas).

The company order book stands at Rs. 72000mn including Framework contracts of aboutRs. 6800 mn.

Nine months ended on 31st Dec, 2017, Netsales of the company were Rs. 24198.00 mn ascompared to Rs.20761.70 mn in correspondingnine months of the previous year.

In 9M FY18, PAT of the company grew169.44% to Rs. 718.60 mn from Rs. 266.70 mnin corresponding period of the previous year.

Net Sales and PAT of the company areexpected to grow at a CAGR of 14% and 9%over 2016 to 2019E, respectively.

Stock DataSector Utilities:Non-Elec.BSE Code 533269Face Value 2.0052wk. High / Low (Rs.) 749.00/462.00Volume (2wk. Avg.) 24000Market Cap (Rs. in mn.) 27885.96

Annual Estimated Results(A*: Actual / E*: Estimated)Years (Rs. in mn) FY17A FY18E FY19ENet Sales 32079.10 36476.74 41401.10EBITDA 3078.50 3114.01 3520.72Net Profit 1024.00 1204.97 1407.54EPS 18.77 22.09 25.80P/E 27.23 23.14 19.81

Shareholding Pattern (%)

As on Dec 2017 As on Sep 2017

Promoter 24.69 24.72

Public 75.31 75.28

Others -- --

1 Year Comparative Graph

VA TECH WABAG LTD S&P BSE SENSEX


QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q3 FY18,

(Rs. in million) Dec-17 Dec-16 % Change

Revenue 8647.00 7183.20 20.38%

Net Profit 300.60 (25.60) --

EPS 5.51 (0.47) --

EBIDTA 785.10 829.30 (5.33)

The consolidated net profit stood at Rs. 300.60 million as against a net loss of Rs. 25.60 million in the corresponding

quarter ending of previous year. Revenue for the 3rd quarter rose by 20.38% to Rs. 8647.00 million from Rs. 7183.20

million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.5.51 in Q3

FY18. Profit before interest, depreciation and tax is Rs. 785.10 million as against Rs. 829.30 million in the corresponding

period of the previous year.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q3 FY18 Q3 FY17 %Change

Cost of Sales &Services 6822.50 5476.70 25%

Employee BenefitsExpense 668.60 657.80 2%

Depreciation &Amortisation Expense 43.30 46.40 -7%

Other Expenses 351.10 330.70 6%


Revenue Segment

Latest Updates:

Wabag won Rs. 5200 Mn worth of orders under Namami Gange, repeat order from KMDA and HMEL (Oil &Gas):

VA Tech Wabag Limited (WABAG), a leading pure play water technology Indian Multinational Company has beenawarded an order for Rs. 1470 Mn by Bihar Urban Infrastructure Development Corporation Ltd. The project will bejointly financed by World Bank and NMCG.

WABAG has won a repeat order for Rs.830 Mn towards design, build and operation of 124 MLD Water TreatmentPlant (WTP) at Rajpur-Sonarpur in Kolkata from Kolkata Metropolitan Development Authority (KMDA). The plantwill be designed using space saving plate settler technology with rapid gravity filters.

Continuing its success in Oil & Gas sector, WABAG secures an order worth Rs. 2900 Mn from HPCL — MittalEnergy Limited (HMEL) towards design and build of Effluent Treatment Plant at Guru Gobindh Singh Refinery,Bathinda, Punjab.

The company order book stands over Rs. 72000 Mn including Framework contracts of about Rs. 6800 Mn.

COMPANY PROFILE

Around the world, the WABAG name stands for innovative and successful solutions in the water engineering sector. Asan internationally respected expert group, company act as a systems specialist and full service provider with a focus on theplanning, installation and operation of drinking and wastewater plants for local government and industry in the growthmarkets of Asia, North Africa, Middle East, the Central and Eastern Europe states.

The WABAG Group represents a leading multinational player with a workforce of over 1,600 and has companies andoffices in more than 20 countries. It disposes over unique technological knowhow, based on innovative, patentedtechnologies and long-term experience. Since 1995, WABAG has completed over 900 water and wastewater plantsworldwide. Through the conservation and ecological use of the world's most valuable resource, WABAG has made asustained contribution to an improvement in the quality of life of well over a hundred million people. WABAG is thus oneof the world's leading partners for investments in a future that is worth living.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2016 -2019EFY16A FY17A FY18E FY19E

ASSETS1) Non-Current Assets

a) Property, plant and equipment 1084.20 1053.00 1074.06 1117.02b) Capital Work in Progress 24.20 0.00 0.00 0.00c) intangible assets 670.70 691.40 670.66 690.78d) Intangible assets under development 18.70 31.30 28.17 32.68e) Financial assets

i) Investments 185.90 1.70 1.62 1.81ii) Trade receivables 2858.80 3877.30 4303.80 4648.11iii) Bank balances 160.00 0.00 0.00 0.00iv) Other financial assets 116.10 20.50 18.86 20.75

f) Deferred tax assets(net) 248.70 246.80 255.44 268.21g) Income Tax assets (net) 359.60 537.40 591.14 656.17h) Other non-current assets 43.50 43.10 44.82 47.07Sub - Total Non- Current assets 5770.40 6502.50 6988.57 7482.58

2) Current Assetsa) Inventories 976.20 385.00 462.00 512.82b) Financial assets

i) Investments 117.80 191.60 0.00 0.00ii) Trade receivables 16565.10 21237.60 24635.62 26976.00iii) Cash and bank equivalents 3070.30 2390.50 1673.35 1740.28iv) Bank Balances 555.80 226.90 249.59 272.05v) Loans 138.90 51.20 0.00 0.00vi) Other financial assets 134.10 357.50 336.05 356.21

c) Other current assets 1887.10 2163.00 2935.47 3172.44Sub - Total current assets 23445.30 27003.30 30292.07 33029.81

Total Assets (1+2) 29215.70 33505.80 37280.64 40512.39EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capital 109.00 109.10 109.10 109.10b) Other equity

i) Share premium 2739.60 2753.60 2781.14 2808.95ii) Reserves and surplus 6354.20 7068.60 8273.57 9681.11iii) Share application money pending 0.40 0.10 0.00 0.00

Total Equity 9203.20 9931.40 11163.81 12599.162) Minority interest 82.10 172.50 181.13 190.183) Non Current Liabilities

a) Financial liabilitiesi) Borrowings 501.20 632.20 518.40 544.32ii) Trade Payables 1499.20 1426.90 1355.56 1409.78iii) Other financial liabilities 23.90 21.50 20.43 19.40

b) Provisions 169.50 135.80 130.37 139.49c) Deferred tax liabilities (Net) 30.70 30.70 40.52 43.36d) Other non -current liabilities 0.00 448.10 376.40 357.58Sub - Total Non Current liabilities 2224.50 2695.20 2441.68 2513.94

4) Current Liabilitiesa)Financial liabilities

i) Borrowings 3272.10 2458.60 4425.48 3938.68ii) Trade payables 10287.30 12574.40 13203.12 14391.40iii) Other financial liabilities 438.70 481.80 409.53 442.29

b) Other Current liabilities 2776.80 4161.50 4452.81 5343.37c) Provisions 471.80 521.40 443.19 483.08d) Current tax liabilities (net) 459.20 509.00 559.90 610.29Sub - Total current liabilities 17705.90 20706.70 23494.03 25209.10

Total Equity and Liabilities (1+2+3+4) 29215.70 33505.80 37280.64 40512.39


Annual Profit & Loss Statement for the period of 2016 to 2019E

Value(Rs.in.mn) FY16A FY17A FY18E FY19E

Description 12m 12m 12m 12mNet Sales 25082.50 32079.10 36476.74 41401.10Other Income 79.00 112.30 39.12 43.03Total Income 25161.50 32191.40 36515.86 41444.13Expenditure -22752.70 -29112.90 -33401.85 -37923.41Operating Profit 2408.80 3078.50 3114.01 3520.72Interest -457.40 -525.80 -567.92 -619.03Gross profit 1951.40 2552.70 2546.09 2901.70Depreciation -204.90 -191.10 -178.57 -192.85Profit Before Tax 1746.50 2361.60 2367.53 2708.85Tax -668.00 -666.60 -1008.26 -1132.30Profit After Tax 1078.50 1695.00 1359.27 1576.55Minority interest -15.70 -98.40 -178.29 -196.11Share of Profit & Loss of Asso & joint venture -175.40 -572.60 23.99 27.11Net Profit 887.40 1024.00 1204.97 1407.54Equity capital 109.00 109.10 109.10 109.10Reserves 6354.20 7068.60 8273.57 9681.11Face value 2.00 2.00 2.00 2.00EPS 16.28 18.77 22.09 25.80

Quarterly Profit & Loss Statement for the period of 30th Jun, 2017 to 31st Mar, 2018E

Value(Rs.in.mn) 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18EDescription 3m 3m 3m 3mNet sales 6685.60 8865.40 8647.00 12278.74Other Income 19.60 2.30 8.40 8.82Total Income 6705.20 8867.70 8655.40 12287.56Expenditure -6267.40 -8090.50 -7870.30 -11173.65Operating profit 437.80 777.20 785.10 1113.91Interest -133.20 -143.00 -142.30 -149.42Gross profit 304.60 634.20 642.80 964.49Depreciation -45.20 -44.60 -43.30 -45.47Profit Before Tax 259.40 589.60 599.50 919.03Tax -160.00 -220.30 -248.40 -379.56Profit After Tax 99.40 369.30 351.10 539.47Minority Interest -17.90 -42.10 -57.70 -60.59Share of Profit & Loss of Associate 2.30 7.00 7.20 7.49Net Profit 83.80 334.20 300.60 486.37Equity capital 109.10 109.10 109.10 109.10Face value 2.00 2.00 2.00 2.00EPS 1.54 6.13 5.51 8.92


Ratio Analysis

Particulars FY16A FY17A FY18E FY19E

EPS (Rs.) 16.28 18.77 22.09 25.80EBITDA Margin (%) 9.60% 9.60% 8.54% 8.50%PBT Margin (%) 6.96% 7.36% 6.49% 6.54%PAT Margin (%) 4.30% 5.28% 3.73% 3.81%P/E Ratio (x) 31.40 27.23 23.14 19.81ROE (%) 16.69% 23.61% 16.22% 16.10%ROCE (%) 25.53% 31.84% 24.71% 26.02%Debt Equity Ratio 0.58 0.43 0.59 0.46EV/EBITDA (x) 11.58 9.15 9.93 8.62Book Value (Rs.) 118.59 131.58 153.67 179.47P/BV 4.31 3.89 3.33 2.85

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 511.20, the stock P/E ratio is at 23.14 x FY18E and 19.81 x FY19E respectively.

Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs. 22.09 and Rs. 25.80

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 9% over 2016 to 2019E,

respectively.

On the basis of EV/EBITDA, the stock trades at 9.93 x for FY18E and 8.62 x for FY19E.

Price to Book Value of the stock is expected to be at 3.33 x and 2.85 x for FY18E and FY19E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

Water is vital to economic growth. Almost all of society’s commercial activities, from agriculture and electricity

generation to the production of consumer goods depend on the availability of water. Demand for water resources is

growing rapidly but supply is limited. Globally, the volume of renewable water per capita has declined by 40% in the last

22 years. Among all natural resources, water faces one of the most serious threats both in terms of demand and supply. On

the demand side, agricultural, industrial and municipal/ residential usage is set to grow fast over the next 20 years. On the

supply side, the world is facing a combination of insufficient freshwater, uneven distribution, widely varying quality,

water losses and also adverse impacts due to climate change.

Global water challenges

Rising demand According to UN data, around 1.2 billion people, or almost one-fifth of the world’s population, live in

areas of physical scarcity and 500 million people are likely to face this situation in the near future. Another 1.6 billion


people, or almost one quarter of the world’s population, face economic water shortage (where countries lack the necessary

infrastructure to take water from rivers and aquifers).The increase in the number of people without access to water and

sanitation in urban areas is directly related to the rapid growth of urban population in the developing world and the

inability of local and national governments to provide adequate water and sanitation facilities in this regard.

Water in a rapidly urbanizing world

Urban cities are where development challenges and opportunities directly come face-to-face. In 2014, 3.9 billion people or

54% of the global population lived in cities and by 2050; two-thirds of the global population will be living in cities.

Furthermore, most of this growth is happening in developing countries, which have limited capacity to deal with this rapid

change. Rapid urbanization, increased industrialization and improving living standards combine to increase the overall

demand for water in cities. As easily available surface water and groundwater sources have depleted in many urbanized

areas, cities will have to go further or dig deeper to access water, or will have to depend on innovative solutions or more

advanced technologies such as reverse osmosis for desalination, or reclaimed water to meet their water demands.

Insufficient freshwater

Freshwater accounts for 2.5% to 3% of the total water on the planet, most of which is locked in the two polar ice caps.

Groundwater, a critical source of potable water for the world’s major cities, makes up about 30% of freshwater resources.

Lakes, rivers, wetlands and different soil types account for only 1.2% of freshwater. Nevertheless, humans rely on these

sources more than any other; Freshwater availability will be increasingly strained going forward. There is clear evidence

that groundwater supplies are diminishing, with an estimated 20% of the world’s aquifers being over-exploited.

Indian wastewater scenario

The wastewater market, currently in a growth phase, holds immense potential in India. With rapid expansion of cities and

domestic water supply, quantity of wastewater generated is increasing. The per capita wastewater generation by Tier-I

cities and Tier-II towns, representing 72% of India’s urban population, is around 98 LPCD (Liters per capita per day). For

instance, Delhi NCR alone contributes 220 LPCD wastewater. As per Central Pollution Control Board (CPCB) estimates,

the total wastewater generation from Tier I cities (498) and Tier II (410) towns in the country is around 35,558 and 2,696

MLD respectively.

Indian Water and Water Treatment Industry

Water is a finite resource. Therefore, conserving and recycling every drop of water is critical for humanity. India accounts

for 18% of the world population and about 4% of the world’s water resources. The challenge to provide clean drinking

water to a growing population is enormous and policy action to tackle this is critical for the sustainable growth of the

country. The Indian water sector, which comprises the drinking water segment and the wastewater treatment segment, is

growing at a rate of 20% every year, according to a Ministry of Water Resources (MoWR) study in 2014. India spends

less than USD 5 per person on providing water as compared to USD 28 per person in the US, as per Avalon Global

Research.


With India’s high population growth and intensifying water consumption, per capita availability of water, has declined

steadily over the years. There is an urgent need to generate water from all available alternate sources including wastewater

by recycling, reuse, recharging, and storages. There is increased awareness among the Indian Environment and Pollution

Control Boards and the norms are getting stricter by the day. Desalination of seawater, wastewater treatment and usage of

recycled water for the industries is being tapped into by a few states which is providing a sustainable solution to the water

issues. Although there has been increased focus on wastewater treatment over the last few years, there is still a big gap

between generation and treatment which needs to be addressed on priority with policy actions.

Outlook

There are significant opportunities around water treatment and wastewater reuse with less than 3% of water globally being

recycled. Water treatment covers the processes used to make water more acceptable for a desired end-use, such as

drinking water, usage or re usage by industry, and irrigation. Moreover, this market is barely tapped with insufficient

wastewater treatment around the world. For instance, wastewater reuse stands at only 2.41% of all water withdrawals

globally. On the municipal side, the increasing scrutiny of environmental regulations and the need to extract more value

from the water cycle is driving the market.


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The information and opinions in Firstcall Research was prepared by our analysts and it does not constitute an offer orsolicitation for the purchase or sale of any financial instrument including any companies scrips or this is not an officialconfirmation of any transaction. The information contained herein is from publicly available secondary sources and dataor other secondary sources believed to be reliable but we do not represent that it is accurate or complete and it should notbe relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damagethat may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/or its affiliates and/or employees will not be liable for the recipients’ investment decision based on this document.

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The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best oftheir knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Theanalyst qualifications, sectors covered and their exposure if any are tabulated hereunder:

Name of the Analyst Qualifications SectorsCovered

Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

Dr.C.V.S.L. Kameswari M.Sc, PGDCA,M.B.A,Ph.D (Finance)

Pharma &Diversified

No Interest/ Exposure

U. Janaki Rao M.B.A CapitalGoods


B. Anil Kumar M.B.A Auto, IT &FMCG


M. Vijay M.B.A Diversified No Interest/ ExposureV. Harini PriyaMD. Naveed M.B.A Diversified No Interest/ ExposureA. Bikshapathi M.B.A Diversified No Interest/ Exposure

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va tech wabag ltd isin...wabag won rs. 5200 mn worth of orders under namami gange, repeat order from...

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