10 February 2015
3QFY15 Results Update | Sector:
Capital Goods
VA Tech Wabag
BSE SENSEX
28,356
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INRm)/Vol ‘000
Free float (%)
S&P CNX
8,566
VATW IN
26.6
39.0/0.6
1,748/545
-10/-4/124
82/66
70.9
CMP: INR1,472
TP: INR1,640 (+12%)
Buy
Standalone performance in line; subsidiary performance impacted by
project delays
Consolidated revenue grew 5% YoY to INR6.2b, supported by 9% YoY increase in
subsidiary revenue to INR3.3b. Standalone revenue remained flat YoY at INR2.9b.
Consolidated adjusted EBITDA declined 5% YoY to INR423m led by INR 100m of
provisions related to liquidity damages for Al Gubra project due to execution delays
and increase manpower cost in Istanbul because of increased O&M order inflows.
Consolidated PAT declined 36% YoY to INR138m because of higher tax provisioning
at subsidiary level in order to comply with local tax regulations.
Book-to-bill at 2.2x; framework contracts at INR16.9b
Order backlog at the end of 3QFY15 was at INR69.7b, translating into book-to-bill
ratio of 2.2x. Order book comprises of firm order backlog of INR52.8b and
framework contracts of INR16.8b. EPC orders accounted for 66% of the closing order
book at INR35.1b, while O&M accounted for remaining one-third of the closing order
book. Municipal orders accounted for 87% of the unexecuted order book at
INR46.2b, while the Industrial segment accounted for just 13% of its closing order
book at INR6.7b, indicating tepid pace of order finalization and execution.
Valuation and view
At the CMP, VATW trades 24x FY16E EPS of INR62 and 18x FY17E EPS of INR82. Near-
term orders inflows are expected to come mainly from the municipal segment, as
industrial capex is yet to show signs of improvement. Consistent increase in O&M
orders is a key positive, as it entails higher margins and lower capital requirement,
leading to improvement in VATW’s RoCE from 21% in FY15 to 28% in FY17. Maintain
Buy,
with a target price of INR1,640 (20x FY17E EPS of INR82).
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS(INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015E 2016E 2017E
25.4
2.3
1.2
43.5
6.4
350.9
12.4
20.7
33.8
4.2
30.5
3.0
1.6
61.8
42.1
398.7
15.5
24.3
23.8
3.7
37.9
3.8
2.2
82.0
32.6
463.2
17.7
27.7
17.9
3.2
Estimate change
TP change
Rating change
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 3982 5410
Nirav Vasa
(Nirav.Vasa@MotilalOswal.com)
/
Amit Shah
(Amit.Shah@MotilalOswal.com)
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

VA Tech Wabag
Stand alone performance in line; subsidiary performance impacted by
project delays
n
n
n
n
3QFY15 revenues on consolidated basis increased 5% YoY at INR 6.2b supported
by 9% YoY increase in subsidiary revenues at INR 3.3b , while stand alone
revenues remained flat on YoY basis at INR 2.9b. Revenue growth on
consolidated basis was supported by 16% YoY increase in EPC segment revenues
which accounted of 80% of the consolidated revenues at INR 4.9b, in turn led by
28% YoY increase in revenues from municipal segment at INR 3.4b. Revenues
from industrial segment continued to lag, representing poor pace of project
execution. EPC segment revenues from industrial segment decreased 2% YoY at
INR 1.7b while industrial O&M decreased 30% YoY at INR 286m.
Consolidated adjusted EBITDA at the end of 3QFY15 decreased 5% YoY at INR
423m because of increased provisions worth INR 100m for Al Gubra project due
to execution delays and increase man power cost in Istanbul because of
increased order inflows from O&M orders. Consolidated EBITDA margins
decreased by 70 bps at 6.8% vs 7.5% in 3QFY14. EBITDA on standalone basis
increased 9% YoY supported by reversal of provisions which were made for
doubtful collectables. EBITDA margins for 3QFY15 were at 12% vs 9.4% at the
end of 3QFY14.
Istanbul project is expected to be partially operational by June 2015, as
mechanical part of the project is executed, while automation work is underway.
Reversal of provisions is subject to customer not charging delay penalty as delay
in project execution was mainly because of inability to get workmen visas and
technical issues related to brown field project.
Consolidated PAT decreased 36% YoY at INR 138m because of higher tax
provisioning at subsidiary level in order to comply with local tax regulations. Tax
liability for 3QFY15 at subsidiary level were at INR 41m on PBT of INR 5m.
Consolidated PAT margin for 3QFY15 was at 2.2% vs 3.7% in 3QFY15.
Exhibit 1: Standalone operating performance was in line with expectations
(Standalone)
Y/E March
Sales
Change (%)
EBITDA
Adjusted EBIDTA
Change (%)
As of % Sales
Depreciation
Interest
Extra-ordinary Items
PBT
Tax
Effective Tax Rate (%)
Reported PAT
Change (%)
Adj PAT
Change (%)
E: MOSL Estimates
1Q
1,157
7.5
99
155
88.2
13.4
17
-9
0.0
91
30
33.3
61
31.8
61
31.8
FY14
2Q
3Q
2,199
2,912
4.8
5.1
265
272
296
274
8.8
6.8
13.5
9.4
18
20
-8
6
0.0
0.0
255
246
85
82
33.2
33.1
170
165
(3.2)
(2.8)
170
165
(3.2)
(2.8)
4Q
5,255
4.0
776
797
3.3
15.2
27
18
0.0
731
241
32.9
491
(3.8)
491
(3.8)
1Q
1,295
11.9
125
115
-25.9
8.9
-24
11
0.0
138
46
33.6
92
51.4
92
51.4
FY15
2Q
2,361
7.4
229
236
-20.5
10.0
33
20
0.0
175
59
33.4
116
-31.6
116
(31.6)
FY14
3Q
2,960
1.7
321
355
29.3
12.0
33
22
0.0
266
89
33.5
177
7.4
177
7.4
4QE
5,406
2.9
952
918
15.1
17.0
46
47
0.0
858
280
32.6
578
17.8
578
17.8
11,522
4.9
1,411
1,523
FY15E
12,022
4.5
1,625
1,623
0.0
0.0
88
101
0.0
1,437
474
33.0
963
0.0
963
-
FY15
3QE
3,145
8.0
363
363
32.5
11.5
37
18
0
308
102
33.1
206
0.0
206
(17.0)
Var.
Vs Est
-5.9%
-11.6%
-2.3%
81
7
0.0
1,323
437
33.0
886
886
-13.7%
-14.2%
-14.2%
10 February 2015
2

VA Tech Wabag
Exhibit 2: Municipal vs Industrial revenue segmentation
Municipal (INR - b)
Industrial (INR - b)
Exhibit 3: EPC vs O&M revenue segmentation
EPC (INR - b)
O&M (INR - b)
49 44 42 45 46
30 31 30 32 30 37 40
25 27
8
8
7
11 10 10 13
13 15
11
9
8
7
7
14 14 14 15
10 11 14
34 38 44 38 36 35 35
23 24 24 27 26 28 28
16
15 15 17 18
16 17
Source: MOSL, Company
n
Source: MOSL, Company
For 9MFY15, consolidated revenues increased 14% YoY at INR15.3b. Adjusted
EBITDA for 9MFY15 was at INR957m, representing 6.3% of total revenues.
While, adjusted PAT increased 3% YoY at INR362m
Exhibit 4: Key revenue contributing projects in 9MFY15 (INR m)
Project
Al Gubra SWRO
DAWASA WTP
BWSSB STP
Izmir WTP
Nemmeli 100 MLD Desalination
RIL - ETP
Gecol
Auid & Ocna Mures WWTP
Melamchi WTP
Beni Messous WWTP
Country
Oman
Tanzania
India
Turkey
India
India
Libya
Romania
Nepal
Algeria
Revenue booked
1,646
770
596
523
518
413
386
346
304
321
Source: MOSL, Company
Book to Bill ratio at 2.2x, framework contracts at INR 16.9b
n
n
n
Order backlog at the end of 3QFY15 was at INR 69.7b, representing book to bill
ratio of 2.2x. Order book comprises of firm order backlog of INR 52.8b and
frame work contracts of INR 16.8b. EPC orders accounted for 66% of the closing
order book at INR 35.1b, while O&M accounted for remaining one third of the
closing order book. Municipal orders accounted for 87% of the unexecuted
order book at INR 46.2b, while Industrial segment accounted for just, 13% of its
closing order book at INR 6.7b, representing tepid pace of order finalization and
execution.
Order inflow for 3QFY15 was at INR 6.7b, comprising of INR 4.9b worth of orders
from municipal customers, while orders worth INR 5.1b were bagged on EPC
basis.
Major orders finalized in 3QFY15 were a) INR 2.2b order from Ganga cleaning
project funded by JICA for 140 MLD STP in Varanasi b) INR 1.75b order from
Maynilad water services Inc (Venezuela) funded by world bank for 60 MLD STP
c) INR 1b order from Philippines for 20 MLD STP worth funded by world bank
3
10 February 2015

VA Tech Wabag
n
and Euro 6 million WTP order for EPC work of a waste water treatment plant
with a capacity of 20,000 m3/day.
Management maintained its order inflow guidance of INR 32 – 34b after
achieving an order inflow of INR 14.5b in 9MFY15. Additionally, WATW is also
lowest bidder in projects worth INR 5 - 6b off which 50% are from India, 20% are
from Switzerland and remaining 30% are from CIS and GCC nations.
Exhibit 6: Overseas subsidiaries report higher order inflows
Wabag India Order book (INR - b)
Wabag Overseas Order book (INR - b)
Exhibit 5: Industrial segment order book reduced to INR 7b
Municipal Order book
Industrial Order book (INR - b)
23
14 21
23 21 25 23
13 13 14 14
10 11 13
36 34 37 30 29
27 30
23 25 25 28 27 29 29
Source: MOSL, Company
Source: MOSL, Company
Exhibit 7: EPC order book accounts for 2/3 of order book
EPC Order book (INR - b)
rd
Exhibit 8: O&M orders increasing gradually
O&M Order book (INR - b)
Source: MOSL, Company
Source: MOSL, Company
Exhibit 9: Major projects currently in order book (INR m)
Project
Nemmeli desalination
Ulhasnagar
OWSSB
Istanbul
UP Jal Nigam
Valenzuela
DAWASA
BWSSB
Suplac
Illugin
Country
India
India
India
Turkey
India
Philippines
Tanzania
India
Romania
Philippines
Details
Desalination O&M
Desalination O&M
STP
O&M
STP
STP
WTP
STP
PWTP
STP
Amount
4,341
3,300
2,680
2,662
2,190
1,849
1,724
1,672
1,283
1,264
Source: MOSL, Company
10 February 2015
4

VA Tech Wabag
Libyan orders continue to be framework contracts for third consecutive
quarter
n
n
n
VATW had booked two orders worth INR 6.9b and INR 1.3b, which are a part of
framework contract orders, despite booking the same in 4QFY14. These orders
have remained a part of the framework contracts since last three quarters. With
general elections underway in Libya, ordering agency is yet to financially close
the project.
However, management has still kept it as a frame work contract as depreciation
of Libyan currency against the Euro has worked in VATW’s favor. Additionally,
project terms also entail escalation clauses, which would be taken up with the
customer, once the project is financially closed.
Some of the framework contracts bagged in FY15 would include INR 830m order
from Istanbul for O&M, INR850m ETP order from Ferganska refiner and INR 6.9b
WTP order from Polghawella (Sri Lanka).
Valuation and outlook
n
n
At the CMP, VATW trades 24x / 18x its FY16E / FY17E EPS of INR62/82. Near
term orders inflows are expected to come mainly from municipal segment as
industrial capex is yet to show signs of improvement. Consistent increase in
O&M orders is a key positive as it entails higher margins and lower capital
requirements, playing a crucial role in improving VATW’s ROCE from 21% in
FY15E to 28% in FY17E.
For the period between FY15E – FY17E, we model revenue / PAT CAGR of
22%/35%. Maintain
Buy
rating on the stock with a TP of INR1,640, derived by
assigning PE multiple of 20x to its FY17E EPS of INR82.
10 February 2015
5

VA Tech Wabag
Exhibit 10: Operating metrics
(INR million)
Order Intake
% YoY
Standalone
Overseas
Order Book
% YoY
Standalone
Overseas
Revenues
% YoY
Standalone
Overseas
of which, O&M Business
O&M, %
EBIDTA Margins (Adjusted)
Standalone
Overseas
EPS (INR/sh)
Standalone
Subsidiaries
Consolidated
Consolidated NWC (Days)
Standalone
Subsidiaries
Net Cash / Debt
Standalone
Subsidiaries
Consolidated
FY12
17,738
10,321
7,417
37,314
24,520
12,794
14,382
10,001
4,381
2,025
14.1%
9.0%
11.7%
2.9%
FY13
21,550
21.5%
14,828
6,722
42,842
14.8%
28,807
14,035
16,019
11.4%
10,409
5,610
2,666
16.6%
9.5%
13.1%
2.9%
FY14
33,539
55.6%
17,150
16,389
53,540
25.0%
30,237
23,303
22,301
39.2%
11,400
10,901
4,359
19.5%
9.3%
13.2%
5.2%
FY15E
32,669
-2.6%
7,990
24,679
60,981
13.9%
26,333
34,648
25,228
13.1%
11,893
13,334
5,238
20.8%
8.8%
13.5%
4.5%
FY16E
41,320
26.5%
15,186
26,134
71,917
17.9%
29,250
42,667
30,384
20.4%
12,269
18,115
5,554
18.3%
9.8%
14.0%
7.0%
FY17E
49,993
21.0%
19,601
30,392
84,123
17.0%
34,160
49,962
37,788
24.4%
14,691
23,096
5,850
15.5%
10.1%
14.3%
7.5%
28.3
-0.5
27.8
72.5
84.0
37.6
34.0
0.1
34.1
68.5
75.0
56.2
33.4
7.4
40.9
54.8
92.1
9.6
34.1
9.4
43.5
74.9
115.1
31.7
37.4
24.6
61.8
49.5
93.6
13.3
47.2
34.9
82.0
51.0
76.4
14.7
1,405
1,330
2,735
2,127
877
3,003
1,648
1,445
3,094
1,345
287
1,631
2,584
3,514
1,416
2,048
4,000
5,562
Source: Company, MOSL
10 February 2015
6

VA Tech Wabag
Financials and valuations
Income statement - Consolidated
Y/E March
Net Sales
Change (%)
Raw Materials
Staff Cost
Other Mfg. Expenses
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
EO Items (as rep.)
PBT
Tax
Rate (%)
Reported PAT
Extra-ordinary Inc.(net)
Adjusted PAT
Minority Int
Consolidated PAT
Change (%)
Balance Sheet - Consolidated
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deffered Tax Liability
Minority Interest
Capital Employed
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov.
Current Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates; Consolidated
Financials
FY10
12,237
6
8,537
1,690
897
1,114
9.1
139
299
99
31
744
303
41
441
31
410
7
416
24
FY11
12,330
1
8,820
1,716
673
1,122
9.1
100
215
155
129
834
316
38
518
129
389
8
397
(5)
FY12
14,435
17
10,422
1,883
830
1,300
9.0
86
255
151
-
1,111
379
34
731
-
731
6
737
86
FY13
16,189
12
11,766
2,058
824
1,540
9.5
109
212
132
-
1,352
456
34
896
-
896
7
903
23
FY14
22,386
38
16,979
2,217
1,304
1,885
8.4
150
252
129
(51)
1,662
526
32
1,136
(51)
1,083
(3)
1,080
20
FY15E
25,356
13.3
19,484
2,508
1,081
2,284
9
223
422
138
0
1,777
593
33
1,184
0
1,152
0
1,152
7
FY16E
30,519
20.4
23,251
2,951
1,311
3,005
10
274
410
154
0
2,475
837
34
1,638
0
1,638
0
1,638
42
(INR Million)
FY17E
37,929
24.3
28,794
3,694
1,596
3,846
10
288
484
211
0
3,285
1,113
34
2,173
0
2,173
0
2,173
33
(INR Million)
FY17E
53
12,244
12,297
1,400
-100
0
13,597
1,149
1,115
34
34,127
708
21,364
5,997
3,799
2,259
22,830
19,863
2,966
11,297
13,595
FY10
47
3,969
4,016
391
(181)
-
4,226
399
58
134
10,174
351
6,353
2,185
2
1,283
6,539
5,379
1,160
3,635
4,226
FY11
53
5,656
5,709
427
(216)
-
5,919
484
77
437
12,816
736
7,044
3,245
759
1,032
7,894
6,427
1,467
4,922
5,920
FY12
53
6,367
6,420
1,248
(104)
10
7,574
507
180
36
16,913
499
10,926
3,983
634
871
10,062
8,639
1,424
6,850
7,574
FY13
53
7,100
7,154
821
(112)
19
7,882
664
323
33
17,770
405
11,095
3,825
1,290
1,156
10,909
9,320
1,588
6,861
7,882
FY14
53
8,359
8,412
1,583
(70)
28
9,952
1,876
7
231
22,135
350
13,875
4,476
2,429
1,004
14,299
12,565
1,734
7,835
9,951
FY15E
53
9,264
9,317
1,400
-100
0
10,617
2,344
7
34
23,466
460
15,682
3,031
2,615
1,677
15,234
13,382
1,852
8,232
10,617
FY16E
53
10,533
10,586
1,400
-100
0
11,886
2,305
7
34
27,782
566
17,297
5,400
2,598
1,920
18,242
15,873
2,370
9,539
11,886
10 February 2015
7

VA Tech Wabag
Financials and valuations
Ratios - Consolidated
Y/E March
Consolidated EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E (standalone)
P/E (consolidated)
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement - Consolidated
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
Adjustements
CF from Operations
(Inc)/Dec in FA
FCF
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Net Worth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates; Consolidated Financials
FY10
18
10
24
172
-
FY11
15
(16)
24
216
4
23
18.5
30.5
19.4
7.1
0.6
2.1
0.9
7.0
19.9
186
22
(43)
(0)
FY12
28
85
31
242
6
25
16.3
16.3
14.6
7.1
0.6
1.9
1.3
11.5
18.0
245
13
(36)
(0)
FY13
34
22
38
269
7
24
14.4
14.5
12.9
6.5
0.6
1.8
1.4
12.6
19.8
219
9
(36)
(0)
FY14
40.7
19.6
48.4
316.8
8.0
21.9
12.6
12.7
10.7
5.7
0.5
1.6
1.6
12.8
18.7
198
6
(28)
(0.3)
FY15E
43.4
6.7
53.1
350.9
9.0
23.6
33.8
33.9
27.7
16.4
1.5
4.2
0.6
12.4
20.7
198
7
(27)
(0.2)
FY16E
61.7
42.1
72.2
398.7
12.0
22.7
23.8
23.8
20.4
11.7
1.1
3.7
0.8
15.5
24.3
184
7
(28)
(0.4)
FY17E
81.8
32.6
92.9
463.2
15.0
21.4
17.9
18.0
15.8
9.0
0.9
3.2
1.0
17.7
27.7
184
7
(29)
(0.4)
(INR Million)
FY17E
3,285
288
484
1,113
(1,160)
1,508
3,293
49
3,342
-
49
(1,711)
-
484
465
(2,660)
682
5,400
6,082
35.6
36.3
27.2
10.4
0.9
3.8
-
10.4
25.4
189
10
(35)
(0)
FY10
744
139
299
303
(1,109)
(309)
(540)
1
(538)
13
14
(203)
68
299
-
(434)
(959)
3,145
2,186
FY11
834
100
215
316
(227)
2,892
3,497
(103)
3,394
(303)
(407)
(1,657)
(35)
215
123
(2,031)
1,060
2,185
3,245
FY12
1,111
86
255
379
(1,190)
2,676
2,558
(127)
2,431
401
274
(833)
(821)
255
185
(2,094)
738
3,245
3,982
FY13
1,352
109
212
456
(169)
(172)
875
(300)
575
3
(297)
(734)
427
212
217
(737)
(158)
3,983
3,825
FY14
1,662
150
252
526
(322)
3,101
4,317
(897)
3,420
(198)
(1,095)
(1,309)
(761)
252
249
(2,571)
651
3,825
4,476
FY15E
1,777
223
422
593
(1,841)
363
350
(468)
(117)
197
(270)
(848)
183
422
279
(1,366)
(1,286)
4,476
3,190
FY16E
2,475
274
410
837
1,061
1,202
4,585
39
4,624
-
39
(1,269)
-
410
372
(2,051)
2,573
3,031
5,604
10 February 2015
8

VA Tech Wabag
Corporate profile: VA Tech Wabag
Company description
VA Tech Wabag (VATW) is one of the leading
players in water treatment industry, having its base
of operation globally operating from Chennai.
VATW’s operations are stretched across countries
like Austria, Czech Republic, Algeria, Tunisia,
Romania, Turkey and Philippines. Wabag has been
operational in water treatment industry since last
90 years and its has specialization in treating
municipal, industrial, sludge treatment and sea
water desalination projects.
Exhibit 11: Sensex rebased
Exhibit 12: Shareholding pattern (%)
Dec-14
Promoter
DII
FII
Others
29.1
21.7
28.6
20.7
Sep-14
29.4
21.4
28.6
20.6
Dec-13
30.3
21.6
29.3
18.8
Exhibit 13: Top holders
Holder Name
IDFC Premier Equity Fund
SBI Magnum Tax Gain Scheme
HSBC Bank (Mauritius) Limited A/C Sumitomo
ICICI Prudential Life Insurance Company Ltd
Parvest Equity India
% Holding
7.1
4.7
4.5
3.7
3.4
Note: FII Includes depository receipts
Exhibit 14: Top management
Name
Bhagwan Dass Narang
Rajiv Mittal
Subramanian Varadarajan
Designation
Chairman
Managing Director
Director (Finance) and CFO
Exhibit 15: Directors
Name
Bhagwan Dass Narang*
Rajiv Mittal
Jaithirth Rao*
Name
Revathi Kasturi*
Sumit Chandwani*
*Independent
Exhibit 16: Auditors
Name
Walker Chandiok & Co LLP
G Balu Associates
Type
Statutory
Internal
Exhibit 17: MOSL forecast v/s consensus
EPS
(INR)
FY15
FY16
FY17
MOSL
forecast
43.4
61.7
81.8
Consensus
forecast
53.5
67.5
80.7
Variation
(%)
-18.9
-8.6
1.4
10 February 2015
9

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VA TECH WABAG
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