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Investment tip: Add VA Tech Wabag to your portfolio

Share price of the company has jumped 222 per cent in the past two years against 39 per cent jump registered by the BSE Sensex during the same period.

BT Online Bureau   New Delhi     Last Updated: June 12, 2015  | 10:28 IST
Why you should add VA Tech Wabag to your portfolio

VA Tech Wabag, a water-based company, can give you handsome returns in the near future on the back of likely increase in order inflows, particularly from government projects like Ganga Action Plan, and increased market interest in the stock as there are a very few listed players with the same nature of business.

Share price of the company has jumped 222 per cent in the past two years against 39 per cent jump registered by the BSE Sensex during the same period. VA Tech Wabag shares were trading 3.13 per cent lower at Rs 697 a piece on Thursday.

Centrum Broking believes government initiatives like Ganga Action Plan, Yamuna Cleaning, building of 100 smart cities etc would augur well for the company. However, the decline in order inflows during 2014-2015 could impact revenue going ahead.

Water treatment industry offers opportunity:
VA Tech provides a range of engineering, procurement and construction (EPC) and operation & maintenance (O&M) solutions for sewage treatment, processed and drinking water treatment, effluents treatment, sludge treatment, desalination and reuse for municipal corporations and companies in the infrastructure sector such as power, steel and oil and gas companies.
By 2050, global water demand is projected to increase by 55 per cent mainly due to rapid urbanisation and industrialisation. This has resulted into depletion of fresh water resources and an increase in demand for water treatment systems globally.
In India, VA Tech has a current market share of around 14 per cent in the water treatment industry. The government is focusing on improving water treatment efficiency, which would help the company to improve its market share.

Exploring opportunities:
Va Tech has a wide geographical presence across 22 countries through its 18 subsidiaries. The company is present in 15 of the 20 high growth potential water markets entailing to a market opportunity of $132 billion. With an aim to strengthen its presence globally, Va Tech is exploring opportunities in the emerging markets by setting up India International Units.

Order Book:
For the financial year ended March 2015, the company's order inflow declined by 11 per cent to Rs 2,977 crore, leading to a flat order book of Rs 5,439 crore against Rs 5,354 crore in 2013-14. India contributes 65 per cent to the total order book.

Report Card:
In the past five financial years, the consolidated gross sales and net profit of the company grew 14.69 per cent and 19.73 per cent annually to Rs 2,428.38 crore and Rs 110.11 crore at the end of FY15.    

Valuation and Outlook:
According to Centrum, at the current market price, the stock is trading at 25.3x its 2016-17E EPS and appears fairly valued. While the company is likely to benefit from the increased focus of the government on environment (especially projects like cleaning of Ganga), the same has yet to flow in orders. Share price of the company can touch Rs 805 in the next few quarters, says Centrum.
Delay in executive and investment for water treatment, currency movement and stretched working capital cycle are some of the key risks for the company.

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