VA Tech Wabag rating – Buy: Net cash status eases investor concerns

FY21 outcomes, in our view, show that previous considerations on execution and rising debt ranges are largely behind.

We view VATW as a mix of worth (~8x FY23F EPS of Rs 36.1) and powerful progress (EPS to possible double over FY21-23F, on our forecast). Additional, we predict VATW, with its operations targeted on clear water know-how and having a robust stability sheet and know-how credentials (governance constructive), matches properly into the ESG theme. FY21 outcomes, in our view, show that previous considerations on execution and rising debt ranges are largely behind.

Orderbook of Rs 84 bn (excluding framework contracts) is totally executable: Mgmt commentary suggests the orderbook is funded both by multilateral companies or by sovereign entities representing low or restricted assortment/execution threat. This could result in additional enchancment in internet working capital from 97 days in end-FY21. VATW has a robust execution monitor document. Thus, we imagine its orderbook ought to translate into income progress.

VATW has turned internet money constructive and has developed robust know-how credentials: Buyers’ persistent concern was its excessive debt build-up over FY16-19 regardless of an asset-light enterprise mannequin. This was totally as a consequence of stalled receivables at a state stage venture (Rs 4.22 bn). Whereas there may be restricted visibility of restoration from these debtors, mgmt has effected a robust turnaround in money flows which has led VATW to show from Rs 4.3 bn of internet debt in FY19 to internet money in FY21.

TP as much as Rs 546, implying 83% upside: We elevate FY22/23F EPS by 4%/8% to replicate VATW’s decrease monetary price (internet money stage). We worth VATW at 15x (up from 13.2x) FY23F EPS of Rs 36.1 and add Rs 4/share of hybrid annuity mannequin initiatives’ fairness worth to reach at our Rs 546 TP, and we reaffirm Purchase. Our larger a number of displays decrease price of fairness at 10.3% (from 11.3%) on decrease debt price.