This stock in Rekha Jhunjhunwala’s portfolio zoomed 85%; check details here

Shares of a small-cap company that provides engineering solutions in the water treatment industry have delivered superlative returns to equity investors in the past year, on the back of a strong order book, promising order pipeline, margin expansion and improving working capital cycle. The stock is VA Tech Wabag. Its shares jumped 85 per cent to Rs 459.25 on May 31, from Rs 247.40 a year ago. For comparison, the benchmark BSE Sensex rose about 13 per cent during the period. 

Rekha Jhunjhunwala, wife of the late ace equity investor Rakesh Jhunjhunwala, held 8.04 per cent, or 50 lakh shares, in the company as of March 31. 

Analysts on Dalal Street see up to 29 per cent upside in the stock, despite the company posting a consolidated loss of Rs 111 crore in the fourth quarter of financial year 2022-23 (Q4FY23). The firm reported a profit of Rs 46.30 crore in the corresponding period last year. However, consolidated net sales grew 3.92 per cent YoY to Rs 926.86 crore in Q4FY23. 

Brokerage firm Sharekhan, which has a ‘buy’ rating on VA Tech Wabag after the Q4 results, said: “For Q4FY23, VA Tech’s consolidated performance was impacted by a one-time write-off of receivables and other current assets pertaining to APGENCO projects worth around Rs 243 crore, despite in-line sales and robust operating profit margin. The slow growth in sales was due to a higher EP (engineering and procurement) project mix and muted growth in Europe. Operating profit was up 51.7 per cent YoY at Rs 108 crore due to a decline in raw-material cost and other expenses.” 

The company’s order backlog at the end of Q4 stood at Rs 12,055 crore (excluding framework contracts). The order intake in FY23 was around Rs 6,884 crore, which included the 400 million litres a day desalination project in Perur, Chennai, worth around Rs 3,680 crore that was won in Q4. 

Sunidhi Securities is also optimistic on VA Tech Wabag, with a target price of Rs 592. “The company’s order book stands healthy with a book-to-bill ratio of 4 times. With all key projects under execution, VA Tech Wabag remains confident of its growth visibility and expects strong order execution across domestic and overseas regions going forward. In view of the current pace of execution and healthy order book, we expect the company to achieve over Rs 3,700 crore of revenue with nearly 11 per cent EBITDA margin in FY25E,” the brokerage said in a report. 

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