Va Tech Wabag share price target: Buy stock for 25% upside, says MOFSL

Va Tech Wabag received a reaffirmation of its 'Buy' rating from brokerage firm MOFSL, which has set a target price of Rs 1,900. This comes after the company's impressive first-quarter results for FY26. The company showed a compound annual growth rate (CAGR) of 4% in revenue, 18% in Ebitda, and 28% in profit after tax over the FY21-25 period. MOFSL projects future growth, estimating a 17% CAGR in revenue, 22% in EBITDA, and 23% in profit for FY25-28.

The robust performance in Q1FY26 saw a 17% year-on-year increase in revenue, with EBITDA and profit after tax rising by 18% and 20%, respectively. Va Tech Wabag's EBITDA margin was stable at 13%, while the company's order book was approximately Rs 15,800 crore, equating to 4.7 times its trailing twelve-month revenue. This provides a positive outlook for the next three to four years with substantial revenue visibility.

A strong order book and bid pipeline, estimated between Rs 15,000 to 20,000 crore, are key drivers of Va Tech Wabag's growth. The company secured new orders worth Rs 2,600 crore in the first quarter and is a preferred bidder for projects exceeding Rs 3,500 crore. Major ongoing projects include the 400 MLD Perur desalination project in Chennai and the 200 MLD STP project in Pagla, Bangladesh.

MOFSL highlights Va Tech Wabag's focus on large-scale projects in high-margin segments such as engineering, procurement, construction (EPC), and operations & maintenance (O&M). This approach is expected to support margin improvements over the coming years. The company is also leveraging opportunities in emerging markets across India, the Middle East, Africa, and the CIS regions.

The company expects to achieve a revenue CAGR of around 17% for FY25-28, in line with its guidance of 15-20% growth. Additionally, Va Tech Wabag targets an EBITDA margin between 13-15% over the next three to five years. Key contributors to this margin include its healthy order book and execution of large desalination and wastewater treatment projects.

MOFSL's analysis underscores the importance of Va Tech Wabag's net-cash status and its focus on free cash flow generation. This financial stability, combined with expansion in return ratios, renders the company's stock attractive. "Outlook of strong FCF generation, net-cash status and expansion in return ratios make VATW’s scrip attractive at ~21x FY27E EPS. We, thus, retain our BUY rating and a target price of Rs 1,900, based on 26x FY27E P/E (at +1SD on an improved outlook)," MOFSL stated. Its target price suggested a potential 25 per cent upside ahead. 

The company's financial health is further supported by its gross cash position of Rs 815 crore, with a net cash position at Rs 510 crore, excluding Hybrid Annuity Model (HAM) projects. This liquidity positions Va Tech Wabag favourably to undertake future projects and enhance shareholder value through strategic investments and expansions.

Looking ahead, Va Tech Wabag aims to continue capitalising on its technology expertise and partnerships with local entities. Focused on profitable growth, the company is strategically bidding in high-margin EPC and O&M projects. As the water sector presents vast opportunities, Va Tech Wabag is poised to capture significant market share by leveraging its strengths and sustaining its growth momentum.