va tech wabag1

8/9/2019 VA Tech Wabag1

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VA Tech Wabag

Equity Valuation of

VA Tech WABAG

Submitted by:

DoMS, IIT Madra

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VA Tech Wabag

Rating Outperform (Target Price Rs 1766)

Latest Price (BSE/NSE) Rs. 1591.90/ Rs. 1593.9052 Week Range (Low/ ig!) Rs. "#0/ Rs. 1$"#BSE/ NSE ticker 5332%9/ W&B&'SN o*e NE95%'0103#+ace ,a-e o Eit S!are Rs. 2S!ares tstan*ing 2%.5 Narket a4ita-iation Rs. "3."# BNP/E Ratio (66) 35.%17i8i*en* ie-* 0.50:

Introduction:

,& 6ec! W&B&' is one o t!e -ea*ing co;4anies in t!e wor-* w!ic! is 4resent in t!e

water treat;ent n*str. ts ke co;4etenc -ies in *esign< co;4-etion an* o4eration

o *rinking an* waste water treat;ent or =ot! in*stria- an* ;nici4a- sector. t is a

;a>or 4-aer in a sector w!ic! !as not seen ;c! *e8e-o4;ent an* 4rocee*ings in t!e

contr. &s a res-t wit! t!e a*8ent o ti;e ,& 6ec! W&B&' !as esta=-is!e* itse- as

t!e ;arket -ea*er in water treat;ent in*str in n*ia.

n*ia w!ic! is t!e secon* ;ost 4o4-os contr in t!e wor-* is !o;e o ;ore t!an 1.25

=i--ion 4eo4-e. t is growing at a rate o 1.3: anna-- an* is e?4ecte* to =eco;e t!e;ost 4o4-os contr in t!e wor-* = o8erco;ing !ina = 2025. &ter getting

in*e4en*ence in 19"$ n*ia !as witnesse* co-ossa- i;4ro8e;ent in its econo; an*

'7P =t 4ro8i*ing =asic reire;ents to 4eo4-e to sstain -ie< i.e.< c-ean water sti--

re;ains a 8ision t!at is et to =e rea-ie*. E8en now ;an states are sering ro;

8arios water a-it isses. 6!e scenario is 4ictoria-- *e4icte* in +igre 1. rrent-

on- %0: o in*stria- an* 2%: o *o;estic water is treate* in n*ia. 6!is sitation< i

not i;4ro8e*< wi-- ine8ita=- create a scarcit o res! water< w!ose *e;an* is e?4ect to

rise = 50: in t!e ne?t *eca*e. &-- t!ese actors !a8e -e* n*ia to =e ;arke* as a water

stresse* nation = 2025. owe8er t!e contr !as witnesse* so;e *e8e-o4;ents in t!e

ie-* o water treat;ent in recent ti;es.

6!is srge in 4riication can =e attri=te* to two reasons@

i) 6a? =reak or in*stries t!at sa8e water

ii) En8iron;enta- concerns



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VA Tech Wabag

Figure 1: States suffering from water quality issues (Source: Ministry of drinking water andsanitation)

Arsenic

Fluoride

Salinity

Iron

Nitrate

! 1 1! 2 2!

"

1#

1!

21

12

No. of Suered States

No$ o% Su&ered States

W!ate8er =e t!e reason 8arios in*stries in t!e contr !a8e starte* taking water

4riication as a gra8e ;atter. n*ian go8ern;ent is a-so encoraging 4ri8ate

in8est;ent in wastewater treat;ent sector. 6!e go8ern;ent !as starte* s44orting PPP;o*e- in t!e water sector an* is -en*ing a !an* o assistance to state go8ern;ents to

i;4ro8e t!e inrastrctre o water treat;ent in t!eir res4ecti8e 4ro8inces.

6!e ra4i* *e8e-o4;ent o ;e*i; an* s;a-- sie* cities in t!e contr a=ricates a !ge

*e;an* or wastewater treat;ent in*str in n*ia. Tis in!ustry is e"pecte! to

grow at a rate of 1#$%&' annually till %&1# . 6!e rise in t!e *e;an* o water wit!

increase in r=aniation is s!own in +igre 2. 6!e ;nici4a- cor4orations contine to

=e t!e ;a>or sers o t!e water A sewage treat;ent 4-ants. Bt recent *e8e-o4;ents

!a8e in*icate* an increase in t!e in*stria- sers o water A sewage 4-ants. 7e to

scarcit o water 8arios in*stries across t!e contr< inc-*ing Power< 6e?ti-esector o--owe* = t!e contr. &-- t!ese acts are ;aking t!e tre 4ros4ect

o t!e wastewater treat;ent in*str ;ore 4=eat or t!e water treat;ent 4-ants.

owe8er t!e crrent stats o t!is in*str *oes not gi8e t!e ;arket o=ser8ers ;an

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reasons to c!eer a=ot. 6!ere are 8er ew co;4anies w!ic! are o4erating in n*ia in

t!is 4artic-ar seg;ent. &;ong t!ose co;4anies on- a ew are n*ian co;4anies. ,&

6ec! W&B&'< an n*ian co;4an o4erating in t!is 4artic-ar in*str< !as ;anage* to

car8e a nic!e or itse- in it. ,& 6ec! W&B&' !as not witnesse* ;c! co;4etition in t!e

ie-* it o4erates in. &=sence o ot!er signiicant 4-aers -ea8es a !ge o44ortnit or

ot!er 4-aers to enter into t!is ;arket an* ca4tre ;arket s!are.

Figure %: eman! of water!ay *s+ Population (Source: Bureau of Indian Standards)

$2$($)$"$

1$12$1($1)$1"$

#$

1'$

1*$

Litres per day

+itres er day

Industry Analysis: Water Treatment Industry

6o ana-e t!e ;arket co;4etition in t!is 4artic-ar seg;ent we !a8e *e8e-o4e* t!e

o--owing Porters +i8e +orces o*e-.

Bargaining 4ower o S44-iers

6!reat o New Entrants 6!reat o S=stittes

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Industry

-i.alry


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Bargaining 4ower o Bers

Treat to ,ew -ntrants: 6!e ;a>or =arrier to entr in t!e water treat;ent in*stris t!at t!is in*str is !ig!- ca4ita- intensi8e. 6!e !ig! a;ont o ca4ita- reire* to

set 4 t!e 4-ant< carr on t!e *ai- o4eration o it =eore ina-- !an*ing it o8er to t!e

c-ient is t!e ;ain !in*rance =e!in* t!e -ack o *o;estic 4-aers in t!is sector. n t!e

ot!er !an* t!e -ack o ;a>or 4-aers is enticing ca4ita- ric! oreign 4-aers to co;e

orwar* an* n* sc! 4ro>ects. So t!e entr =arrier 4resent in t!is seg;ent is re*cing

wit! t!e a*8ent o ti;e. owe8er a4art ro; ;one t!is in*str a-so ca--s or tec!nica-

e?4ertise w!ic! a-so acts as an entr =arrier. &ter ana-ing a-- t!e actors t!e entr

=arrier o t!is in*str can =e set at me!ium-e8e-.

Treat of Su.stitutes:Wit! t!e e?4ansion o r=aniation o n*ia< t!e *e;an* orres! water is a-so on t!e rise. 6!is in trn ca--s or ;ore wastewater treat;ent 4-ants.

6ec!no-ogies a*a4te* in t!ese 4-ants are a-so e8o-8ing on a continos =asis. 6!ese

tec!no-ogies a44ea- to t!e in*stria-ists or a-it 4r4oses. owe8er t!ere arent

a-ternate ;eans o treating t!e wastewater a4art ro; t!ese -atest tec!no-ogies t!at are

=eing a*a4te* in t!e 4-ants. So t!e t!reat o s=stittes in t!is in*str is 8er low i

not a=sent.

/argaining power of /uyers: 6!e ;a>or cons;ers o t!ese 4-ants are go8ern;ent

an* ;nici4a-ities. 6!ere is a constant 4ressre on t!ese co;4anies ro; its 8arios

stake!o-*ers to re*ce its 4roit ;argin. 6!e constant 4ressre to 4gra*e its

tec!no-og to t!e -atest a8ai-a=-e tec!no-og a-so re*ces t!e 4roit ;argin o t!ese

co;4anies. oreo8er< in t!ese 4ro>ects t!e cons;ers en>o t!e -i=ert to c!oose ro;

8arios =i*s ro; ;-ti4-e co;4anies. 6!is a-so acts as an o=strction or t!ese

co;4anies to !ig!er its 4roit ;argin. &ter ana-ing t!ese actors< t!e t!reat to t!e

co;4anies in t!is seg;ent can =e 4t in t!e me!ium-e8e-.

0n!ustry Rialry: n*ia wit! its !ig! rate o growt!< !ig! 4o4-ation an* !ig! rate o

;o*erniation is 4osing as a -crati8e ;arket or in8estors in t!is seg;ent =ot!

*o;estic an* oreign a-ike. 6!e n;=er o 4-aers in t!is sector is a-so increasing

gra*a-- an* ;an ca4ita- intensi8e oreign in8estors !a8e starte* ana-ing t!e tre

4ros4ect o t!is sector. &-so !ig! ca4ita- cost =orne = t!ese co;4anies ;akes switc!ing

8er *iic-t. So t!e co;4anies in t!is sector enconter a ig*egree o co;4etition

an* ri8a-r a;ong t!e;se-8es to sstain in t!is sector.

/argaining power of Suppliers: 6!e ;a>or co;4onents or *e8e-o4ing< rnning

an* ;aintaining o water treat;ent 4-ants are ei4;ents< inrastrctre to treat water

an* inrastrctre to s44- water to en* sers. &s t!e co;4anies are in constant

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4ressre ro; its co;4etitors to 4gra*e to -atest tec!no-ogies on a continos =asiso a ig*egree o =argaining 4ower. 6!e !;an resorces

w!o a-so 4-a a 8er critica- ro-e in t!is in*str en>o aig=argaining 4ower.

Competitive Analysis: Indian Market

,& tec! Wa=ag aces a sti co;4etition =ot! in n*ia as we-- as a=roa*. 6!og! in n*ia

it !as ;ono4o- = e?tensi8e- o4erating in a-- ;a>or seg;ents o water treat;ent

in*str< it is tring to ;ake its 4resence 8isi=-e in internationa- arena = aggressi8e

e?4ansion.

Water treat;ent in*str 4ri;ari- consists o o--owing seg;ents@

1) Ei4;ent S44-@ Cir-oskar is t!e arket Lea*er< rrent- ,& 6ec! is a=sent

ro; t!is seg;ent< it can e?4an* its 4roi-e to a 3%0 *egree = entering t!is

seg;ent.2) Water s44- an* inrastrctre@ t inc-*es constrction o treat;ent 4-ant< its

;aintenance an* s44-.,& tec! !as its 4resence in t!is seg;ent =t not ;c! ocs on t!is seg;ent as

constrction is a ;c! ca4ita- intensi8e an* -ong wait to retrn 4ro>ect. t!er =ig

*o;estic 4-aers inc-*e 6!er;a?.3) Waste Water treat;ent@ ,arios s= seg;ents n*er t!is inc-*e treat;ent o

*rinking water< ;nici4a- waste water< sea an* =rackis! water< in*stria- an*

4rocess water< an* in*stria- waste water. ,& 6ec! o4erates in a-- t!ese s=

seg;ents. 8era-- its 4ri;ar ocs is on t!is seg;ent. n- ew 4-aers -ike

6ri8eni< 6!er;a?< on E?c!ange o4erates n*er a-- t!ese seg;ents< =t re8ene

wise (ro; t!ese seg;ents on-) ,& tec! is ;c! a!ea*.

ere ocs on nici4a- contracts is t!e ke to growt! or *o;estic =siness.") 4eration A aintenance@ Lot o 4otentia- in t!is seg;ent< ost o t!e

;nici4a-ities owne* treat;ent 4-ants are =eing otsorce* or A. &-- ;a>or

ir;s are ta44ing in t!is seg;ent.5) 7esa-ination@ 7esa-ination 4-ant is a new =siness to enter in water treat;ent

in*str. ,& 6ec! a-so entere* in t!is seg;ent recent- an* crrent-

constrcting a 4-ant in !ennai or water *esa-ination. a>or co;4etition !ere is

= ,RL w!ic! is !a8ing in>r *esa-ination 4-ant.

Company Analysis: VA Tech Wabag

&ter ana-ing t!e ;arket orces an* co;4etitions< we trie* to ana-e t!e 8arios

t!reats an* o44ortnities e?4erience* = t!e co;4an itse-. +or t!at we carrie* ot a

S2OT 3nalysisw!ic! is e?4-aine* =e-ow.

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Strengts: ,& 6ec! W&B&' !as =een in e?istence or nine *eca*es *ring w!ic! it

!as ;anage* to create a 8er strong =ran* re4tation or itse-. 6!e na;e ,& 6ec!

W&B&' !as a-;ost =eco;e snon;os to water treat;ent in n*ia. +ro; t!is 4oint o

8iew it !as gaine* a ;a>or a*8antage ro; its co;4etitors w!o are a-so o4erating in t!is

sector. t is a-so 4resent in t!e entire 8a-e c!ain o t!e in*str. Besi*es n*ia< ,& 6ec!

W&B&' !as esta=-is!e* its 4resence in Ero4e< &sia Paciic< i**-e East an* &rica. So

its internationa- seg;ent !as t!e a=i-it to s44-e;ent *o;estic growt!. 6!e co;4an

!as a-so *istingis!e* itse- ro; its co;4etitors wit! its s4erior 4ro>ect ;anage;ent

ski--s an* re-ations!i4 wit! its s44-iers. &-so on 8irte o =eing a ;arket -ea*er it !as

access to -atest tec!no-ogies in t!e ;arket. &-- t!ese actors !a8e ren*ere* ,& 6ec!

W&B&' an e*ge o8er its co;4etitors.

2ea4nesses: o;4an !as encontere* s-ggis!ness in or*er =ooking in t!e -ast

inancia- ear. &n rt!er s-ggis!ness in or*er =ooking can 4ose a serios t!reat in t!e

s!are 4rice o t!e co;4an w!ic! !as 4eror;e* e?tre;e- we-- ti-- now. E8en t!og!

,& 6ec! W&B&' is known or its *istingis!e* 4ro>ect ;anage;ent< it !as ace* so;e

4ro>ect e?ection isses in t!e recent 4ast. &-so t!e co;4an !as a*o4te* an assetD-ig!t

strateg w!ic! !as a;asse* 4ositi8e res-ts or t!e co;4an. owe8er it ;ig!t ace

*iic-ties in t!e tre i an c!ange in t!e ;arket tren* orces it to o--ow a ;ore

ca4ita-De?tensi8e strctre.

Treats: n*ia growing econo; an* 4o4-ation !a8e -re* 8arios in8estors in

in8esting in 8arios ie-*s. Water treat;ent is no e?ce4tion to it. t !as a-so attracte*

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;an ca4ita- intensi8e in8estors to n* ;an 4ro>ects in t!e wastewater treat;ent

seg;ent. &-so recent *e8e-o4;ent !as seen ;an s;a-- 4-aers 4artnering wit! ;an

oreign 4-aers to start a 8entre. Wit! t!e 4resence o a ;e*i; -e8e- o entr =arrierect to c-ean its water = i;4ro8ing its

sewage sste;. 6!is creates a !ge o44ortnit or t!e water treat;ent 4-ants to e?4an*

its =siness. &4art ro; go8ern;ent< 8arios in*stries -ike Power< Stee- an*

Petroc!e;ica- etc. are 8ast- *e4en*ent on water treat;ent 4-ants to ;eet its water

reire;ents. Wit! t!e growt! o n*ian econo; t!e 8o-;e o t!ese in*stries are

a-so e?4ecte* to rise w!ic! in trn is e?4ecte* to rise ;ore =siness o44ortnities or

t!ese co;4anies. Barring n*ia< water treat;ent an* sanitation 4resent a !ge

o44ortnit g-o=a-- as we--. &s 4er +rost A S--i8an t!is ;arket was 1#0 Bi--ion FS7 in

2010. t is a-so e?4ecte* to !a8e a !ig! rise 4ercentage =etween 2010 A 2020. So t!ere isa !ge o44ortnit -ing or t!ese co;4anies to a;4-i its =siness an* growt!.

So;e o t!e Ce 4ro>ects e?ecte* = ,& 6ec! Wa=ag

India Municipal

Ne;;e-i 7esa-ination P-antWaste water Recc-e A Rese P-ant at ,iag Stee- 4-ant

India IndustrialBEL kosti S*an

RL aira

Overseas6ata-on S6P< P!i-i44inesBaraki WW6P< &-geria

Environmental Analysis Water Treatment Industry

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& n;=er o en8iron;enta- con*itions are 4osing a goo* o44ortnit or t!e watertreat;ent sector. ncreasing 4o4-ations an* e8o-8ing cons;4tion 4atterns arestraining res!water resorces. & growing ga4 =etween s44- an* *e;an*< e?acer=ate*= c-i;ate *isr4tions an* e?tre;e weat!er e8ents< wi-- -ike- reire s=stantia- ca4ita-

in8est;ents in water treat;ent tec!no-ogies an* *istri=tion inrastrctre. 6!is o4ens4otentia- in8est;ent o44ortnities in co;4anies 4ro8i*ing new was to s44-orit is sa-t water. n- 2.5: o water is consi*ere* res!. t!at< -ess t!an1:< or 0.025: o a-- water on eart! is accessi=-e srace water. W!i-e res! waters44-ies are re-ati8e- static< t!e g-o=a- 4o4-ation is e?4ecte* to increase ro; aron*se8en =i--ion to an esti;ate* nine =i--ion = 2050. Secon*-< t!ere co-* =e enog!water to ;eet !;anits nee*s i it was e8en- *istri=te* =t nortnate- it is not.

Fn*er a Gcrrent =siness as sa- scenario


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VA Tech Wabag

Nationa- an* -oca- go8ern;ents are seeking to raise awareness an* *e8e-o4 -ong an*s!ort ter; initiati8es to in* a so-tion. +or e?a;4-e !inas crrent 12t!i8e ear 4-anseeks to re*ce water sage = 30: or e8er new *o--ar o in*stria- ot4t. 6!is wo-*reire =i-*ing 1200 new water treat;ent 4-ants = 2015. Sc! strong regiona-

reg-ations are *ri8ing water in8est;ent.

-"treme 2eater -ents an! limate ange:

-i;ate c!ange is aecting raina--< rno an* e8a4oration 4atterns as we-- as t!e snow4ack< -akes< wet-an*s< soi-< gron*water an* g-aciers. n sot!ern Ero4e raina-- !as*ecrease* in recent ears. S;;er rains are 4re*icte* to =eco;e scarcer. 6!e 8o-;e owater store* in g-aciers an* snow 4ack wi-- *ec-ine o8er t!e corse o t!e ne?t centr.&ter an initia- 4!ase o increase* *isc!arge t!ere wi-- =e -ess water a8ai-a=-e in regionss44-ie* = ;e-tDwater rnDo w!ere ;ore t!an oneDsi?t! o t!e wor-*s 4o4-ationcrrent- -i8es.

!ey "actors o# Water Treatment $ector

n t!is section< we e?a;ine ke actors an* t!e 4otentia- o water sector in8esting< sc!as@

Water in8est;ents wit! strong growt! 4otentia- !a8e =siness ;o*e-s t!at area**ressing s44-D*e;an* i;=a-ances. & =a-ance* 4orto-io o water in8est;ents can=e constrcte* wit! e?4osre to ear- cc-e< -ate cc-e an* *eensi8e =siness ;o*e-s. 6osi;4-i !ow in8estors can categorie t!e in8esti=-e water ni8erse< consi*er t!e sectoras t!ree s=Dsectors@ water inrastrctre< water treat;ent< an* water ti-ities. We wi--rt!er e-a=orate on t!e water treat;ent sector t!at is ;ore a44-ica=-e to t!e ir; n*erconcern.

2ater treatment

J !e;ica- treat;ent K !e;ica-s se* or t!e treat;ent o ;nici4a-/ti-it watersorces (water an* wastewater) as we-- as in*stria- water an* wastewater !a8e agrowt! 4roi-e o 1: to 2: a=o8e '7P growt!. Water c!e;ica- co;4anies ten* to !a8ec-ear earnings 8isi=i-it *e to t!e i;4ortance o t!eir 4ro*ct in e?isting 4rocesses.

J +i-tration< ;e;=rane tec!no-og< *esa-ination K &s a r-e t!ese =sinesses are -esscc-ica- t!an water inrastrctre co;4anies< =t ne8ert!e-ess are e?4ose* to =ot!in*stria- an* ti-it a44-ications. +i-ters wear ot an* nee* re4-acing !ence a--;e;=rane or i-trationD=ase* =sinesses oer in8estors a=o8eDa8erage earnings8isi=i-it *e to t!e !ig! 4ro4ortion o recrring cons;a=-es re8enes generate*.'-o=a- growt! rates are aron* 15: to 20:) Reenue

o;4ans re8ene can =e *i8i*e* into *ierent c-assiications@

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o;4an is ;ain- into two t4e o =siness in t!e Water 6reat;ent Seg;ent. Base* onEP an* A. rrent- EP is t!e ;ain sorce o Re8ene or t!e co;4anco;4rising o near- #0: =t Re8ene ro; t!e A !as a-so increase* signiicant-ro; 15: to 20:. 6!e re8ene s4-it is s!own in +igre 9.

Figure orit o t!e re8ene o t!e co;4anco;es ro; t!e nici4a- or4orations A t!e 4ercentage co;4onent o t!e sa;e isincreasing in t!e continos =asis.

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F512 F51' F51(

/

2/

(/

)/

"/

1/

12/

!#/ )/ )!/

(1/ (/ '!/

Revenue Split

Industrial

Municial

=+) Or!er /oo4

r*er =ook o t!e co;4an !as =een increasing continos- on t!e ear on ear =asis@r*er =ook o t!e co;4an !as increase* = near- 25: =ase* as co;4are* o +13 Astan*s at Rs 535" rores = t!e en* o 31starc! 201". S4-it o t!e r*er Book is s!own=e-ow w!ic! ;ain- co;4rises o EP contracts A 4ercentage o it is increasing in t!econtinos =asis. Bt t!ere were so;e serios signs as in M1 o +15 o;4an !ass-ig!t *ec-ine in t!e r*er Book t!en t!e !a8e e?4ecte*. o;4an is e?4ecting sa;e too8erco;e in t!e tre.

F512 F51' F51(

/

2/

(/

)/

"/

1/

12/

)!/ ))/ */

'!/ '(/ '/

Order Book Split

06M

3P7

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VA Tech Wabag

Valuation

We carrie* ot or 8a-ation o ,& 6ec! W&B&' = 7+ ;et!o*. +or t!at 4r4ose we!a8e consi*ere* t!e crrent s!are 4rice (Rs. 1590) o t!e co;4an as its air 8a-e. 6!eke ass;4tions or t!e 8a-ation are gi8en =e-ow.

ost o Eit 12.$$:

ost o 7e=t 10.50:6a? Rate 32."55:ost o 7e=t (ater ta?) $.09:W& 11.22:6er;ina- 'rowt! Rate %:

No. o s!ares otstan*ing 2%.5 N

We !a8e a-so *one a sensiti8it ana-sis o t!e air 8a-e o t!e co;4ans s!ares< res-tso w!ic! are -iste* =e-ow.

Terminal 5rowt Rate

5: 5.50: %: %.50: $.00:

2377 10.22 12"9 1315 1392 1"#1 15#5

10.$2 1219 12#" 1359 1""5 15"$

11.22 1191 125" 1%

7

1"11 1509

11.$2 11%3 122" 1295 13$$ 1"$3

12.22 113% 119% 12%5 13"" 1"3#

+or t!e Sensiti8it &na-sis we !a8e ;easre* t!e sensiti8it o t!e air 8a-e o ,& 6ec!W&B&' s!ares wit! t!e c!anges o W& an* 6er;ina- 'rowt! Rate. 6!e c!ange inW& is taken as 0.50: (ro; 10.22: to 12.22:) an* t!e c!ange in 6er;ina- 'rowt!Rate in a-so taken as 0.50: (ro; 5: to $:). 6!e ;o8e;ent o t!e air 8a-e wit! t!ese-ctations is ca4tre* in t!e a=o8e ta=-e.

6o ana-e t!e 8a-e o t!e co;4an we !a8e a-so ana-e* t!e 8a-ation ;-ti4-es o

n*ian an* nternationa- co;4anies t!e res-ts o w!ic! are s!own =e-ow.

P/ E (?) P/B,(?) RE 7i8i*en*

ie-*

Peer 'ro4 o;4an + 1" + 1" +1" + 1"n*ian 4-aerson E?c!ange 59.#0? 1.$0? 3.0: 0.0:Prati=!a n* 32.$0? 1.%0? 2.0: 0.":



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6!er;a? Lt* "2.03? 5.1#? 11.3: 0.$:e*ian "2.03? 1.$0? 3.0: 0.":t!er '-o=a- P-aers o;4aniesWaste anage;ent 21.30? 3.$0? 1$.0: 3.1:,io-ia En8i. 31."0? 2.10? 3.0: 5.2:Se En8i. 20."0? 1.90? $.0: 5.0:Son* '-o=a- 2".00? 3.00? 15.0: 0.0:Crita Water 31.30? 1.#0? ".0: 1.#:e*ian 2".00? 1.90? 0.0$? 0.03?

ean 33.##? 2.52? $.25: 1.#":8era-- e*ian 31."0? 3.00?

Oerall Performance of te ompany (3ctual 9 -"pecte!)

Partic-ars

+ 13& +1"& +15E +1%E +1$E

nco;e State;entRe8enes 1%3


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Net nc / Book ,a-e o

Eit REO

12.52: 13.51: 15.5$: 1%.29: 1%.9":

Lii*it Ratios

rrent Ratio 0.09? 0.09? 0.0$? 0.0%? 0.0%?+inancingEB67& / Net nterest $.9? #.0? 13.%? 1".2? 1".$?6ota- 7e=t / EB67& 0.$? 1.1? 0.9? 0.$? 0.%?EB6 / Net nterest $."? $."? 12.$? 13.2? 13.$?6ota- 7e=t / 6ota-

a4ita-iation

0.0%? 0.09? 0.09? 0.0#? 0.0$?

Financial Performance of te ompany:

Proit A Loss +13& +1"& +15E +1%E +1$E

*evenue : Re8ene ro; o4erations 1%1


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$ome !ey ,ighlights:

o;4an !as got E?4ertise in 6i;e- Pro>ect o;4-etion o;4an !as witnesse*rising Re8ene< P&6 in t!e a*8erse econo;ic con*ition A !as t!e growt! rate w!ic! is

a=o8e t!e a8erage in*str growt! rate< o;4an is E?4an*ing its arket s!are

geogra4!ica--< o;4an !as got ea-t! or*er =ook or t!e co;ing ear w!ic! is t!e

'oo* or t!e co;4an in t!e tre.

Wa=ag Pro8i*e tota- water so-tion to its 8a-e* csto;ers< o;4an is ;anage* =

e?4erience 4roessiona-s A 4ro;oters w!o !a8e got t!e e?4erience in t!e seg;ent o

;ore t!an 30 ears< Lea*ers o Sc! !ig! e?4erience is =e!in* t!e sccess o t!e ,&

6ec! Wa=ag

o;4an !as got ;ore t!an 20 s=si*iaries 4resent in ;an contries across t!e g-o=e

w!ic! is catering to t!e 6ota- Water So-tion o;4an a-was tries to go or taking o8er

new s=si*iar o 7o;estic contr =ecase ;ost o t!e re8ene o t!e co;4an co;es

ro; t!e go8ern;ent =o*ies.

Wa=ags Strengt! -ies in 4ro8en engineering ca4a=i-ities A continos tec!no-ogica-

inno8ation.

!a--enges 4ertaining to reg-ator isses A 7e4en*ence on t!e Po-itica- sste; o t!e

contr< Recession in Ero4e -ea*s to -essening o *e;an*< as ;ost o t!e =siness o

Wa=ag takes 4-ace t!rog! go8ern;ent =o*ies.

So;e o t!e ;ain reasons or co;4ans sccess are inno8ati8e strategies< *ierentiate*

Pro*cts oerings< eecti8e cost ;anage;ent< tec!no-ogica- e*ge< s4erior cas! -ow

;anage;ent etc< o;4an is 6ec!no-og ocse* wit! ;ore t!an 100 Patents.

+irst ;o8er a*8antage in t!e *e8e-o4ing contries A ot!er *e8e-o4e* contries t!rog!

s=si*iaries. o;4an !as got ro=st =siness ;o*e- wit! &sset -ig!t =a-ance s!eet A

access to strong n*ian engineering ta-ents. o;4an ;ain- otsorce its i8i-

onstrction ;ain- to ;aintain its &sset Lig!t Bsiness o*e-.

o;4an !as got 4ast recor* o strong 4ro>ect e?ection across t!e geogra4!ies< an*o;4an was sccess- in *oing t!is wit! t!e !e-4 o t!ere 4roessiona- e?4erience

e;4-oee.

o;4an goa- is to ;ake !ig!er re8enes A ;aintain t!e &sset -ig!t in t!eir Ba-ance

S!eet< 6!rog! = A S4oke ;o*e- w!ere !ennai wi-- ser8e as t!e =. o;4an a-so

wante* to *ecentra-iing it *ecision ;aking 4ower A e;4owering t!e -oca- =o*ies or

DoMS, IIT Madras Page 2'


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*ecision ;aking. o;4an !as got ric! 4ast e?4erience o ;ore t!an 3 *eca*es A

co;4-ete* ;ore 2250 Pro>ects.

o;4an !as 4ai* t!e *i8i*en* o "00: on t!e Eit 7i8i*en* o Rs # was gi8e to

eac! s!are!o-*er in 2013D1".o;4an !as e?4erience* goo* increase in t!ere EPS ro;Near- Rs 3" to Rs "2 w!ic! is e?4ecte* to increase rt!er in t!e tre.

Ra>i8 itta- E o t!e o;4an !o-*s t!e 1#: S!ares o t!e o;4an A t!e !ig!est

n*i8i*a- S!are!o-*er.

Pro8ision or =a* A *o=t- *e=t !as increase* consi*era=- w!ic! is not goo* or

=siness A co;4an !as incrre* oreign crrenc -osses. o;4an !as incrre* !ig!er

4ercentage e?4ense o Re8ene in t!e ear 2013D1"as co;4are* to ear-ier ears A t!s

res-te* in t!e re*ction in t!e Proita=i-it.

6ra*e recei8a=-es !a8e increase* consi*era=- ro; near- Rs $#0 rore to Rs 920

rore w!ic! increases t!e *ea-t risk. Long ter; tra*e recei8a=-es !a8e a-so increase*

consi*era=- ro; 3%.00 to 119.50 rore in t!e ear 2013D1".

o;4ans 6angi=-e assets !a8e increase* consi*era=- ro; Rs 2$ to Rs 92 rore in t!e

ear 2013D1"< w!ic! is against co;4ans 4o-ic o ;aintaining t!e &sset Lig!t o*e-.

ontingent Lia=i-it !as a-so increase* consi*era=- in t!e ear 2013D1" as co;4are* to

2012D13< w!ic! increases t!e in!erent risk w!ic! is 4resent.

Assumption #or Target %rice:

We !a8e gi8en t4eror; (B) Reco;;en*ation A Set 4 6arget 4rice o Rs 1766@=ase* on P/E -ti4-e A e*ian P/E -ti4-e o t!e Peer 9 ompetitors in teSame /usiness (6aking 7o;estic A nternationa- P-aers). 6!e P- 8ultiple was1+%" A we se* t!e Forecaste! -PS o t!e +15 to get t!e Target Price of Rs1766. &s crrent- t!e stock is tra*ing at Rs 159" as on 2#t!cto=er< 201" so we !a8egi8en a /uy Recommen!ationo ,& 6ec! W&B&' stocks.

DoMS IIT Madras Page 2(

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