On
May 26, 2016, VA Tech Wabag Limited (NSE: WABAG, INR 577.70, Market
Capitalization: INR 32.2 billion) reported its Q4’16 results. Wabag reported revenues of INR 8.6 billion
in Q4’16, down 5.5% YoY against consensus estimate of INR 11.2 billion, while
standalone revenues declined 2.6% YoY to INR 5.5 billion. The decline
in revenues was primarily due to Euro depreciation of 7% and delay in engineering
approvals in Europe. EBIDTA increased 2.9% YoY to INR1.2 billion in Q4’16, a 110
bps expansion in EBITDA margin due to lower employee costs and other expenses.
Standalone EBITDA (Indian operations) was up 6.8% YoY with 140 bps increase in
EBITDA margin to 16.0% due to lower raw material costs and higher margin India
International units (IIU) projects. Wabag reported net PAT of INR 685 million,
down 2.8% YoY, due to higher tax paid during the quarter. Standalone PAT increased
8.2% YoY to INR 562 million.
On
a full year basis, Wabag’s revenue increased 4.7% YoY to INR 25.4 billion while
standalone revenues were up 23.2% YoY to INR 15.0 billion. Wabag reported EBIDTA
of INR 2.2 billion (+4.8% YoY), with flat margin to 8.7%. However, standalone EBITDA
was up 26.8% YoY with 40 bps increase in margin to 13.0%. Wabag recorded net PAT
of INR 922 million, down 16.3% YoY, due to higher tax rate. While Standalone PAT
was up 29.9% YoY to INR 1.2 billion. For
FY17, the company has guided revenues in the range of INR 30-32 billion and
order intake in the range of INR 40‐42 billion.
With
improved order book position of INR 83.2 billion on the back of INR 50 billion
order inflow in FY16, Wabag provides strong revenue visibility for the next 2-3
years. While issues persist related to execution and increased working capital blockage
(96 days of sales in Q4’16 vs. 77 days in Q4’15) as the company provides much
needed liquidity to sub‐contractors
and vendors. We believe these concerns are transitory and VA Tech Wabag is
taking steps to address these issues.
We
believe Wabag is a good operating leverage play. With 20% expected growth in 2017
revenue and 100 bps+ EBITDA margin expansion, the net income is likely to
double. At current CMP of INR 577.70
as on 31st May, the stock trades at 20.7x 2017 consensus EPS/16.7x
2018 consensus EPS. The valuations are much below as compared to its
historical valuations. Moreover, WABAG deserves a premium valuation due to
scarcity of listed large cap pure-play water treatment comps. We remain
positive on the stock.
