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VA Tech Wabag

Equity Valuation of
VA Tech WABAG
Submitted by:
DoMS, IIT Madras

DoMS, IIT Madras

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VA Tech Wabag

Rating
Latest Price (BSE/NSE)
52 Week Range (Low/ High)
BSE/ NSE ticker
ISIN Code
Face Value of Equity Share
Shares Outstanding
Market Capitalization
P/E Ratio (TTM)
Dividend Yield

Outperform (Target Price Rs 1766)
Rs. 1591.90/ Rs. 1593.90
Rs. 480/ Rs. 1748
533269/ WABAG
INE956G01038
Rs. 2
26.5 MN
Rs. 43.48 BN
35.61
0.50%

Introduction:
VA Tech WABAG is one of the leading companies in the world which is present in the
water treatment Industry. Its key competency lies in design, completion and operation
of drinking and waste water treatment for both industrial and municipal sector. It is a
major player in a sector which has not seen much development and proceedings in the
country. As a result with the advent of time VA Tech WABAG has established itself as
the market leader in water treatment industry in India.
India which is the second most populous country in the world is home of more than 1.25
billion people. It is growing at a rate of 1.3% annually and is expected to become the
most populous country in the world by overcoming China by 2025. After getting
independence in 1947 India has witnessed colossal improvement in its economy and
GDP but providing basic requirements to people to sustain life, i.e., clean water still
remains a vision that is yet to be realized. Even now many states are suffering from
various water quality issues. The scenario is pictorially depicted in Figure 1. Currently
only 60% of industrial and 26% of domestic water is treated in India. This situation, if
not improved, will inevitably create a scarcity of fresh water, whose demand is expect to
rise by 50% in the next decade. All these factors have led India to be marked as a water
stressed nation by 2025. However the country has witnessed some developments in the
field of water treatment in recent times.
This surge in purification can be attributed to two reasons:
i) Tax break for industries that save water
ii) Environmental concerns

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Figure 1: States suffering from water quality issues (Source: Ministry of drinking water and
sanitation)

No. of Suffered States
Nitrate

12

Iron

21

Salinity

No. of Suffered States

15

Fluoride

19

Arsenic

8
0

5

10

15

20

25

Whatever be the reason various industries in the country have started taking water
purification as a grave matter. Indian government is also encouraging private
investment in wastewater treatment sector. The government has started supporting PPP
model in the water sector and is lending a hand of assistance to state governments to
improve the infrastructure of water treatment in their respective provinces.
The rapid development of medium and small sized cities in the country fabricates a huge
demand for wastewater treatment industry in India. This industry is expected to
grow at a rate of 18-20% annually till 2018. The rise in the demand of water with
increase in urbanization is shown in Figure 2. The municipal corporations continue to
be the major users of the water & sewage treatment plants. But recent developments
have indicated an increase in the industrial users of water & sewage plants. Due to
scarcity of water various industries across the country, including Power, Textiles,
Petrochemical, Steel, Pharmaceutical, Fertilizers & Chemicals, have started recycling
waste water to use it in their plants. Added to fact are the rapid urbanization in the
country and the increase in disposable income in the hands of people due to economic
growth trajectory followed by the country. All these facts are making the future prospect
of the wastewater treatment industry more upbeat for the water treatment plants.
However the current status of this industry does not give the market observers many
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VA Tech Wabag

reasons to cheer about. There are very few companies which are operating in India in
this particular segment. Among those companies only a few are Indian companies. VA
Tech WABAG, an Indian company operating in this particular industry, has managed to
carve a niche for itself in it. VA Tech WABAG has not witnessed much competition in the
field it operates in. Absence of other significant players leaves a huge opportunity for
other players to enter into this market and capture market share.
Figure 2: Demand of water/day Vs. Population (Source: Bureau of Indian Standards)

Litres per day
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00

170.00
130.00
90.00
Litres per day

Industry Analysis: Water Treatment Industry
To analyze the market competition in this particular segment we have developed the
following Porter’s Five Forces Model.

Bargaining power of Suppliers

Threat of New Entrants

DoMS, IIT Madras

Industry
Rivalry

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Threat of Substitutes

VA Tech Wabag

Bargaining power of Buyers
Threat to New Entrants: The major barrier to entry in the water treatment industry
is that this industry is highly capital intensive. The high amount of capital required to
set up the plant, carry on the daily operation of it before finally handing it over to the
client is the main hindrance behind the lack of domestic players in this sector. On the
other hand the lack of major players is enticing capital rich foreign players to come
forward and fund such projects. So the entry barrier present in this segment is reducing
with the advent of time. However apart from money this industry also calls for technical
expertise which also acts as an entry barrier. After analyzing all the factors the entry
barrier of this industry can be set at medium level.
Threat of Substitutes: With the expansion of urbanization of India, the demand for
fresh water is also on the rise. This in turn calls for more wastewater treatment plants.
Technologies adapted in these plants are also evolving on a continuous basis. These
technologies appeal to the industrialists for quality purposes. However there aren’t
alternate means of treating the wastewater apart from these latest technologies that are
being adapted in the plants. So the threat of substitutes in this industry is very low if
not absent.
Bargaining power of Buyers: The major consumers of these plants are government
and municipalities. There is a constant pressure on these companies from its various
stakeholders to reduce its profit margin. The constant pressure to upgrade its
technology to the latest available technology also reduces the profit margin of these
companies. Moreover, in these projects the consumers enjoy the liberty to choose from
various bids from multiple companies. This also acts as an obstruction for these
companies to higher its profit margin. After analyzing these factors, the threat to the
companies in this segment can be put in the medium level.
Industry Rivalry: India with its high rate of growth, high population and high rate of
modernization is posing as a lucrative market for investors in this segment both
domestic and foreign alike. The number of players in this sector is also increasing
gradually and many capital intensive foreign investors have started analyzing the future
prospect of this sector. Also high capital cost borne by these companies makes switching
very difficult. So the companies in this sector encounter a high degree of competition
and rivalry among themselves to sustain in this sector.
Bargaining power of Suppliers: The major components for developing, running
and maintaining of water treatment plants are equipments, infrastructure to treat water
and infrastructure to supply water to end users. As the companies are in constant
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VA Tech Wabag

pressure from its competitors to upgrade to latest technologies on a continuous basis,
the equipment suppliers enjoy a high degree of bargaining power. The human resources
who also play a very critical role in this industry enjoy a high bargaining power.

Competitive Analysis: Indian Market
VA tech Wabag faces a stiff competition both in India as well as abroad. Though in India
it has monopoly by extensively operating in all major segments of water treatment
industry, it is trying to make its presence visible in international arena by aggressive
expansion.
Water treatment industry primarily consists of following segments:
1) Equipment Supply: Kirloskar is the Market Leader, Currently VA Tech is absent
from this segment, it can expand its profile to a 360 degree by entering this
segment.
2) Water supply and infrastructure: It includes construction of treatment plant, its
maintenance and supply.
VA tech has its presence in this segment but not much focus on this segment as
construction is a much capital intensive and long wait to return project. Other big
domestic players include Thermax.
3) Waste Water treatment: Various sub segments under this include treatment of
drinking water, municipal waste water, sea and brackish water, industrial and
process water, and industrial waste water. VA Tech operates in all these sub
segments. Overall its primary focus is on this segment. Only few players like
Triveni, Thermax, Ion Exchange operates under all these segments, but revenue
wise (from these segments only) VA tech is much ahead.
Here focus on Municipal contracts is the key to growth for domestic business.
4) Operation & Maintenance: Lot of potential in this segment, Most of the
municipalities owned treatment plants are being outsourced for O &M. All major
firms are tapping in this segment.
5) Desalination: Desalination plant is a new business to enter in water treatment
industry. VA Tech also entered in this segment recently and currently
constructing a plant in Chennai for water desalination. Major competition here is
by IVRCL which is having Minjur desalination plant.

Company Analysis: VA Tech Wabag
After analyzing the market forces and competitions, we tried to analyze the various
threats and opportunities experienced by the company itself. For that we carried out a
SWOT Analysis which is explained below.

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VA Tech Wabag

Strengths: VA Tech WABAG has been in existence for nine decades during which it
has managed to create a very strong brand reputation for itself. The name VA Tech
WABAG has almost become synonymous to water treatment in India. From this point of
view it has gained a major advantage from its competitors who are also operating in this
sector. It is also present in the entire value chain of the industry. Besides India, VA Tech
WABAG has established its presence in Europe, Asia Pacific, Middle East and Africa. So
its international segment has the ability to supplement domestic growth. The company
has also distinguished itself from its competitors with its superior project management
skills and relationship with its suppliers. Also on virtue of being a market leader it has
access to latest technologies in the market. All these factors have rendered VA Tech
WABAG an edge over its competitors.
Weaknesses: Company has encountered sluggishness in order booking in the last
financial year. Any further sluggishness in order booking can pose a serious threat in the
share price of the company which has performed extremely well till now. Even though
VA Tech WABAG is known for its distinguished project management, it has faced some
project execution issues in the recent past. Also the company has adopted an asset-light
strategy which has amassed positive results for the company. However it might face
difficulties in the future if any change in the market trend forces it to follow a more
capital-extensive structure.

Threats: India growing economy and population have lured various investors in
investing in various fields. Water treatment is no exception to it. It has also attracted
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VA Tech Wabag

many capital intensive investors to fund many projects in the wastewater treatment
segment. Also recent development has seen many small players partnering with many
foreign players to start a venture. With the presence of a medium level of entry barrier,
the industry has seen many emerging players in the recent times. So VA Tech WABAG
always have to be aware of the threats that are being posed by the new entrants and
prepare itself from these players by updating and upgrading itself on a continuous basis.
It has already been mentioned that the major consumers of these plants are government
and municipalities. So the companies, including established players like VA Tech
WABAG, always have to deal with the changing norms and regulations. Moreover,
running of these plants always encompasses of environmental risks and risks of political
interferences in countries like India & abroad.
Opportunities: The rapid urbanization of India has created and is continuing to
create a huge demand for water treatment. So there is a huge opportunity for the
company to expand its business in upcoming and developing cities. Government of
India has recently undertaken ‘Clean-Ganga’ project to clean its water by improving its
sewage system. This creates a huge opportunity for the water treatment plants to expand
its business. Apart from government, various industries like Power, Steel and
Petrochemical etc. are vastly dependent on water treatment plants to meet its water
requirements. With the growth of Indian economy the volume of these industries are
also expected to rise which in turn is expected to rise more business opportunities for
these companies. Barring India, water treatment and sanitation present a huge
opportunity globally as well. As per Frost & Sullivan this market was 180 Billion USD in
2010. It is also expected to have a high rise percentage between 2010 & 2020. So there is
a huge opportunity lying for these companies to amplify its business and growth.
Some of the Key projects executed by VA Tech Wabag
India Municipal
Nemmeli Desalination Plant
Waste water Recycle & Reuse Plant at Vizag Steel plant
India Industrial
BHEL kosti Sudan
RIL Hazira
Overseas
Tatalon STP, Philippines
Baraki WWTP, Algeria

Environmental Analysis - Water Treatment Industry

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VA Tech Wabag

A number of environmental conditions are posing a good opportunity for the water
treatment sector. Increasing populations and evolving consumption patterns are
straining freshwater resources. A growing gap between supply and demand, exacerbated
by climate disruptions and extreme weather events, will likely require substantial capital
investments in water treatment technologies and distribution infrastructure. This opens
potential investment opportunities in companies providing new ways to supply,
distribute, conserve and treat water.
The Gap between Water Supply and Demand
Approximately 336 million cubic miles of water circulate through the hydrological cycle.
The vast majority is salt water. Only 2.5% of water is considered fresh. Of that, less than
1%, or 0.025% of all water on earth is accessible surface water. While fresh water
supplies are relatively static, the global population is expected to increase from around
seven billion to an estimated nine billion by 2050. Secondly, there could be enough
water to meet humanity’s needs if it was evenly distributed but unfortunately it is not.
Under a “current business as usual scenario,” water demand will outstrip supply by 40%
by 2030. This has the potential to put $3 trillion of global Gross Domestic Product
(GDP), or approximately 22%, at risk by 2050. In developed countries, roughly half of
all water consumed is for industrial use, whereas in developing countries, agriculture is
usually the biggest consumer, at levels approaching 80%. Four key factors underpin a
growing supply/demand imbalance:
• Population Growth
• Aging Water Infrastructure
• Water Regulation
• Extreme Weather Events and Climate Change
Population Growth:
Global population is increasing rapidly and is driving demand for water. United Nations
predicts that by 2050, two thirds of world’s inhabitants will be “water stressed”. Urban
areas are under strain as people migrate to cities seeking new employment opportunities
and living standards.
Aging Water Infrastructure:
Existing water supply infrastructure was built for a time which had different resource
availability and water use. Increased use and deterioration over time heightens the urge
for improvement and replacement. Accelerating population growth and urbanization is
increasing the demand for robust infrastructure.
Water Regulation:

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VA Tech Wabag

National and local governments are seeking to raise awareness and develop long and
short term initiatives to find a solution. For example China’s current 12 th five year plan
seeks to reduce water usage by 30% for every new dollar of industrial output. This would
require building 1200 new water treatment plants by 2015. Such strong regional
regulations are driving water investment.
Extreme Weather Events and Climate Change:
Climate change is affecting rainfall, runoff and evaporation patterns as well as the snow
pack, lakes, wetlands, soil, groundwater and glaciers. In southern Europe rainfall has
decreased in recent years. Summer rains are predicted to become scarcer. The volume of
water stored in glaciers and snow pack will decline over the course of the next century.
After an initial phase of increased discharge there will be less water available in regions
supplied by melt-water run-off where more than one-sixth of the world’s population
currently lives.

Key Factors of Water Treatment Sector
In this section, we examine key factors and the potential of water sector investing, such
as:
Water investments with strong growth potential have business models that are
addressing supply-demand imbalances. A balanced portfolio of water investments can
be constructed with exposure to early cycle, late cycle and defensive business models. To
simplify how investors can categorize the investible water universe, consider the sector
as three sub-sectors: water infrastructure, water treatment, and water utilities. We will
further elaborate on the water treatment sector that is more applicable to the firm under
concern.
Water treatment
• Chemical treatment – Chemicals used for the treatment of municipal/utility water
sources (water and wastewater) as well as industrial water and wastewater have a
growth profile of 1% to 2% above GDP growth. Water chemical companies tend to have
clear earnings visibility due to the importance of their product in existing processes.
• Filtration, membrane technology, desalination – As a rule these businesses are less
cyclical than water infrastructure companies, but nevertheless are exposed to both
industrial and utility applications. Filters wear out and need replacing hence all
‘membrane’ or filtration-based businesses offer investors above-average earnings
visibility due to the high proportion of recurring ‘consumables’ revenues generated.
Global growth rates are around 15% to 20%,
• Physical water treatment – Companies in the treatment field tend to have high
margins, specialized technologies, and strong pricing power. The global water treatment
equipment market is predicted to grow at approximately 2% to 4%, while 13.5% and 15%
to 20% annual growth are considered achievable in China and India, respectively. There
are relatively few market participants.
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• Pollution monitoring and testing – Companies involved in the manufacture of
machinery for water sample testing, as well as the laboratories involved in sample
analysis, focus on fulfilling increasingly strict global water purity regulations. The sector
has forecast global growth rates of 5% to 7%, with China and India offering growth rates
of 11% and 15% to 20%, respectively.

Sector growth
Over the next five years, we expect investment in water infrastructure, wastewater
treatment, desalination, and water recycling to rise steadily. As climatic conditions and
the global water industry change, businesses and utilities will need to invest more in
water technologies and infrastructure. In developed markets, there is an ongoing
struggle to maintain infrastructure within the framework of tightening water quality
regulations. Growth tends to be steady, at around 3% to 4% a year. In developing
nations, the initial development of systems and infrastructure is still under way. This is
driving 8% to 10% growth rates that are expected to continue for several years.
We also expect the desalination market to show robust growth, especially in coastal
regions where energy is relatively cheap. Global market growth is currently 15% to 20%.
As technologies have advanced the unit costs of desalination processes have decreased
considerably over the last three decades, from approximately $2.50 per cubic meter in
1972 to around $0.65 per cubic meter in 2010.34 It is estimated that China will invest
$3.7 to $4.4 billion in the sub-sector by 2015, making it one of the largest and most
attractive future markets

M&A Activity
Over the last decade, and particularly in the early 2000s, M&A has been a major sector
driver. The general pattern of M&A in the water sector has been for companies to grow
and diversify through targeted acquisitions. The focus has been on the more
technologically advanced parts of the water value chain. Average acquisition multiples of
14.8x trailing Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and
Amortization (EV/EBITDA) 35 in the water sector have been stronger than the broader
global industrial sector comparable multiple of 12.4.36 We believe that these water
sector multiples reflect the high technological content of many of the companies
involved, as well as their superior global and regional growth prospects.
Low cost of capital enabled large conglomerates to buy small, high growth, nichefocused businesses. Many of the most technologically complex companies active in the
sector were acquired in the 2004 to 2005 period on particularly high multiples of
EBITDA; when excluded from the analysis shown in Figure 6, it is apparent that over
the last decade, acquirers have still been prepared to pay between 10x and 15x
EV/EBITDA for access to high quality businesses within the water sector. We believe
that the recent scale and frequency of transactions underpin the investment case.
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VA Tech Wabag

Risks and challenges
As with other infrastructure investments, water and sanitation projects tend to be
affected by political and macroeconomic instability, inadequate and frequently changing
legal and regulatory environments, and insufficient government commitment to
contractual obligations. When investing in these companies, investors need to be
mindful of the following risks:








Low perceived project returns – Returns across much of the water industry are seen
to be insufficient to cover the perceived risks and secure the necessary financing for
water infrastructure projects. Utilities tend to invest in infrastructure assets where
1) the relevant regulations have been stable; 2) the regulator is immune from direct
political intervention; and 3) the investment appears likely to provide solid returns.
Technical expertise – Lack of private sector involvement may hold back public
sector investment due to the limited technical expertise of the latter.
Budgetary constraints – Public sector investment is often limited by budgetary
constraints, especially in times of austerity programs.
Order Booking: Uncertainty in the Order is one of the key challenges which can be
seen in the Q1FY15 Report orders has not upto the mark as expected.
Project Execution issues – So far company was strong in its project execution
strategy & implementation but there is always uncertainty involve with Regulatory
requirements, Technical knowhow etc.
Asset Light Model – Company was always able to maintain Asset Light Business
Model which company was successful with but it was seen that in the FY14 Fixed
Assets in the Company has increased significantly which can hamper the company’s
performance in the future.
Some of the key trading details of the company are given below.

Company Performance
We have used the data provided in the annual reports of the company to evaluate the
performance of the company. Figure 3 outlines the return given by WABAG shares as
compared BSE indices.
Figure 3: Return of WABAG Stocks

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VA Tech Wabag

Company Overview
VA Tech WABAG a multinational player in the water treatment industry in India,
Middle East, North Africa, Central and Eastern Europe, and China etc. With time it has
established a strong presence in both municipal and industrial sector. It was
incorporated in 1995 and has witnessed various changes in control since then. Some of
the major changes are stated below.

The company was incorporated as Balcke Durr Cooling Towers Ltd. in 1995.
In 1996 it started a water treatment division and renamed to Balcke Durr
and Wabag Technologies Ltd.
Austrian group VA Tech acquired the water business of the compay in 1999.
Water and Non-water segments of the company merged in 200o and the
combined entity was christened as VA Tech WABAG.
ICICI Ventures and the current shareholding acquired shares of WABAG
Austria in 2005.
I-Ven Water Technologies merged to VA Tech WABAG in 2006.
In 2007 the WABAG acquired the mother company VA Tech Austria.

Organization Structure
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The company has two broad divisions, India Unit and Austria MDU. Here we are
focusing on the India Unit. The India Unit can further be divided into four SBUs.
1) Municipal Business Group:
This provides variety of water treatment solutions to various municipal corporations
across the country. The services offered by this SBU are: treating the water collected
from various sources, monitoring and distributing it to various customers. It is the
biggest among all the four SBUs.
2) Industrial Water Business Group:
This SBU provides water treatment solutions to industries like refineries, steel and
power plants. The main objective of this SBU is to treat water to make it fit for use in
various industries.
3) Operations Business Group:
This SBU provides O&M services to both municipal and industrial customers. The
projects of this SBU range from 1-20 years with an average of 7 years. This SBU is
relatively small and accounted for only 13% of the company’s India division’s revenues
in FY 2014.
4) Desalination SBU:
This SBU is relatively new and is aimed to capture the emerging market in both India
and the Middle East.

Shareholding Pattern
The share holders of the company are divided into four types: Promoters, Mutual Funds,
FIIs and Others. The breakup of the shareholdings of different shareholders is shown in
Figure 4.
Figure 4: Shareholding Pattern

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VA Tech Wabag

450.00%
400.00%
350.00%

Percentage of
Shareholding Others

300.00%

Percentage of
Shareholding FIIs

250.00%

Percentage of
Shareholding Mutual
Funds

200.00%
150.00%
100.00%
50.00%
0.00%

22.13%
31.04%
15.88%
30.95%

18.03%
30.82%
20.24%
30.91%

20.88%
28.12%
20.70%
30.30%

Percentage of
Shareholding Promoter
Group

It can be easily observed that the shareholding pattern has not undergone many
changes in the recent past and is expected to follow the same pattern in the near
future. Rajiv Mittal CEO of the company hold the maximum percentage of shares,
he holds 18% of the Shares individually.

Company Financials
1) Dividend

The company has recently distributed dividend of Rs. 8 which is 400% of the face
value. Based on its previous records the dividends to be announced in the future
has been estimated and shown in the following figure.
Figure 5: Estimated DPS

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VA Tech Wabag

DPS
30
25
20
15
10
7
5
0

8

11

14

16

20

24

28
DPS

2) EPS
The estimated EPS is shown in figure 6.
Figure 6: Estimated EPS

EPS
160

141.27

140

117.57

120

97.83

100
80
60
40

33.75

42.72

56.25

67.67

81.38

EPS

20
0

3) EBIDTA and PAT
EBIDTA and PAT of VA Tech WABAG are also estimated to grow and are shown in
Figure 7 and 8 respectively.

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VA Tech Wabag

Figure 7: Estimated EBIDTA

EBIDTA
64273
70,000
53581
60,000
44672
50,000
37248
40,000
31062
25908
30,000
20135
16724
20,000
10,000
0

EBIDTA

Figure 8: Estimated PAT

PAT
40000
35000
30000
25000
20000
15000
10000
5000
0

37565
31265
26015

8959

11361

14959

17996

21641

4) Revenue
Company’s revenue can be divided into different classifications:

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PAT

VA Tech Wabag

Company is mainly into two type of business in the Water Treatment Segment. Based on
EPC and O&M. Currently EPC is the main source of Revenue for the company
comprising of nearly 80% but Revenue from the O&M has also increased significantly
from 15% to 20%. The revenue split is shown in Figure 9.
Figure 9: Revenue Split

Revenue Split
120%
100%
80%

15%

16%

20%

O&M
EPC

60%
40%

85%

84%

80%

FY12

FY13

FY14

20%
0%

Revenue Split based on different geographies like Domestic (India) & International
Revenues. Off late company has seen significant increase in the revenue & it is mainly
attributed to the growth in the International Business of the Company, Based on the
order book same is expected to continue in the future.

Revenue Split
120%
100%
80%

31%

35%

48%

60%
40%

69%

65%

FY12

FY13

20%

International
India

52%

0%
FY14

Revenue split based on Type of customer, as majority of the revenue of the company
comes from the Municipal Corporations & the percentage component of the same is
increasing in the continuous basis.

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VA Tech Wabag

Revenue Split
120%
100%
80%

35%

41%

40%

59%

60%

65%

FY12

FY13

FY14

Municipal

60%
40%
20%

Industrial

0%

5.) Order Book
Order book of the company has been increasing continuously on the Year on Year basis,
Order book of the company has increased by nearly 25% based as compared of FY13 &
stands at Rs 5354 Crores by the end of 31st March 2014. Split of the Order Book is shown
below which mainly comprises of EPC contracts & percentage of it is increasing in the
continuous basis. But there were some serious signs as in Q1 of FY15 Company has
slight decline in the Order Book then they have expected. Company is expecting same to
overcome in the future.

Order Book Split
120%
100%
80%

35%

34%

30%

EPC

60%
40%

65%

66%

70%

FY12

FY13

FY14

20%
0%

DoMS, IIT Madras

O&M

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VA Tech Wabag

Valuation
We carried out our valuation of VA Tech WABAG by DCF method. For that purpose we
have considered the current share price (Rs. 1590) of the company as its fair value. The
key assumptions for the valuation are given below.
Cost of Equity
Cost of Debt
Tax Rate
Cost of Debt (after tax)
WACC
Terminal Growth Rate
No. of shares outstanding

12.77%
10.50%
32.455%
7.09%
11.22%
6%
26.5 MN

WACC

We have also done a sensitivity analysis of the fair value of the company’s shares, results
of which are listed below.

10.22
10.72
11.22

Terminal Growth Rate
5%
5.50%
6%
6.50%
1249 1315
1392
1481
1219 1284
1359
1445
1191 1254
132 1411

7.00%
1585
1547
1509

7
11.72
12.22

1163
1136

1224
1196

1295
1265

1377
1344

1473
1438

For the Sensitivity Analysis we have measured the sensitivity of the fair value of VA Tech
WABAG shares with the changes of WACC and Terminal Growth Rate. The change in
WACC is taken as 0.50% (from 10.22% to 12.22%) and the change in Terminal Growth
Rate in also taken as 0.50% (from 5% to 7%). The movement of the fair value with these
fluctuations is captured in the above table.
To analyze the value of the company we have also analyzed the valuation multiples of
Indian and International companies the results of which are shown below.

Peer Group Company
Indian players
Ion Exchange
Pratibha Ind
DoMS, IIT Madras

P/ E (x)

P/BV(x)

ROE

FY 14

FY 14

FY14

Dividend
Yield
FY 14

59.80x
32.70x

1.70x
1.60x

3.0%
2.0%

0.0%
0.4%

Page 20

VA Tech Wabag

Thermax Ltd
Median
Other Global Players Companies
Waste Management
Violia Envi.
Suez Envi.
Sound Global
Kurita Water
Median

42.03x
42.03x

5.18x
1.70x

11.3%
3.0%

0.7%
0.4%

21.30x
31.40x
20.40x
24.00x
31.30x
24.00x

3.70x
2.10x
1.90x
3.00x
1.80x
1.90x

17.0%
3.0%
7.0%
15.0%
4.0%
0.07x

3.1%
5.2%
5.0%
0.0%
1.8%
0.03x

Mean
Overall Median

33.88x
31.40x

2.52x
3.00x

7.25%

1.84%

Overall Performance of the Company (Actual & Expected)
Particulars
FY 13A

FY14A

FY15E

FY16E

Income Statement
Revenues
163,209
225,146
269,881
323,572
EBITDA
16,724
20,135
25,908
31,062
EBIT
15,633
18,634
24,107
28,901
Net Interest
2,115
2,521
1,902
2,188
Net Income
13,518
16,113
22,204
26,712
st
Projected Fiscal Year Ending is on 31 March and the amounts are in lakhs

FY17E
388,008
37,248
34,654
2,531
32,123

Key Financial Ratios
Key Financial Ratios

FY 13

FY 14

FY 15

FY 16

FY 17

10.25%
9.58%
5.49%
8.27%

37.95%
8.94%
8.28%
5.05%
7.65%

19.87%
9.60%
8.93%
5.54%
9.37%

19.89%
9.60%
8.93%
5.56%
10.18%

19.91%
9.60%
8.93%
5.58%
11.02%

5.59%

5.17%

6.33%

6.88%

7.44%

Profitability Ratios
Revenue Growth
EBITDA Margin
EBIT Margin
Net Income Margin
EBIT / Total Assets [pretax ROA]
EBIT (1-Tax) / Total Assets
[ROA]
DoMS, IIT Madras

Page 21

VA Tech Wabag

Net Inc / Book Value of
Equity [ROE]

12.52%

13.51%

15.57%

16.29%

16.94%

0.09x

0.09x

0.07x

0.06x

0.06x

7.9x
0.7x
7.4x
0.06x

8.0x
1.1x
7.4x
0.09x

13.6x
0.9x
12.7x
0.09x

14.2x
0.7x
13.2x
0.08x

14.7x
0.6x
13.7x
0.07x

Liquidity Ratios
Current Ratio
Financing
EBITDA / Net Interest
Total Debt / EBITDA
EBIT / Net Interest
Total Debt / Total
Capitalization

Financial Performance of the Company:
Profit & Loss
Revenue :
Revenue from operations
Other Income
Total Revenue
Expenses:
Cost of Sales & Services
Decrease in Inventories
Employee benefit expenses
Other expenses
Total Expenses
EBITDA
EBITDA Margins
Depreciation
EBIT
EBIT Margins
Interest Expenses
EBT
EBT Margins
Exceptional Items
EBT After Exceptional
Items
Tax
PAT
PAT Margins
DoMS, IIT Madras

FY13A

FY14A

FY15E

FY16E

FY17E

161,885
1,324
163,209

223,860
1,286
225,146

268,632
1,249
269,881

322,358
1,213
323,572

386,830
1,178
388,008

116,697
967
20,581
8,239
146,485

168,878
915
22,174
13,043
205,011

198,363
1,349
29,687
14,574
243,973

237,825
1,618
35,593
17,473
292,510

285,186
1,940
42,681
20,952
350,761

16,724
10.25%
1,091
15,633
9.58%
2,115
13,518
8.28%

25,908
9.60%
1,801
24,107
8.93%
1,902
22,204
8.23%

31,062
9.60%
2,161
28,901
8.93%
2,188
26,712
8.26%

37,248
9.60%
2,594
34,654
8.93%
2,531
32,123
8.28%

13518

20,135
8.94%
1,501
18,634
8.28%
2,521
16,113
7.16%
506.00
16619

4,559
8,959
5.49%

5,258
11,361
5.05%

7,246
14,959
5.54%

8,717
17,996
5.56%

10,482
21,641
5.58%

Page 22

VA Tech Wabag

Some Key Highlights:
Company has got Expertise in Timely Project Completion; Company has witnessed
rising Revenue, PAT in the adverse economic condition & has the growth rate which is
above the average industry growth rate, Company is Expanding its Market share
geographically, Company has got Healthy order book for the coming year which is the
Good for the company in the future.
Wabag Provide total water solution to its valued customers, Company is managed by
experience professionals & promoters who have got the experience in the segment of
more than 30 years, Leaders of Such high experience is behind the success of the VA
Tech Wabag
Company has got more than 20 subsidiaries present in many countries across the globe
which is catering to the Total Water Solution; Company always tries to go for taking over
new subsidiary of Domestic country because most of the revenue of the company comes
from the government bodies.
Wabag’s Strength lies in proven engineering capabilities & continuous technological
innovation.
Challenges pertaining to regulatory issues & Dependence on the Political system of the
country, Recession in Europe leads to lessening of demand, as most of the business of
Wabag takes place through government bodies.
Some of the main reasons for company’s success are innovative strategies, differentiated
Products offerings, effective cost management, technological edge, superior cash flow
management etc, Company is Technology focused with more than 100 Patents.
First mover advantage in the developing countries & other developed countries through
subsidiaries. Company has got robust business model with Asset light balance sheet &
access to strong Indian engineering talents. Company mainly outsource its Civil
Construction mainly to maintain its Asset Light Business Model.
Company has got past record of strong project execution across the geographies, and
Company was successful in doing this with the help of there professional experience
employee.
Company goal is to make higher revenues & maintain the Asset light in their Balance
Sheet, Through Hub & Spoke model where Chennai will serve as the Hub. Company also
wanted to decentralizing it decision making power & empowering the local bodies for
DoMS, IIT Madras

Page 23

VA Tech Wabag

decision making. Company has got rich past experience of more than 3 decades &
completed more 2250 Projects.
Company has paid the dividend of 400% on the Equity; Dividend of Rs 8 was give to
each shareholder in 2013-14.Company has experienced good increase in there EPS from
Nearly Rs 34 to Rs 42 which is expected to increase further in the future.
Rajiv Mittal CEO of the Company holds the 18% Shares of the Company & the highest
Individual Shareholder.
Provision for bad & doubtful debt has increased considerably which is not good for
business & company has incurred foreign currency losses. Company has incurred higher
percentage expense of Revenue in the year 2013-14as compared to earlier years & thus
resulted in the reduction in the Profitability.
Trade receivables have increased considerably from nearly Rs 780 Crore to Rs 920
Crore which increases the default risk. Long term trade receivables have also increased
considerably from 36.00 to 119.50 Crore in the year 2013-14.
Company’s Tangible assets have increased considerably from Rs 27 to Rs 92 Crore in the
year 2013-14, which is against company’s policy of maintaining the Asset Light Model.
Contingent Liability has also increased considerably in the year 2013-14 as compared to
2012-13, which increases the inherent risk which is present.
Assumption for Target Price:
We have given Outperform (Buy) Recommendation & Set up Target price of Rs 1766,
based on P/E Multiple & Median P/E Multiple of the Peer & Competitors in the
Same Business (Taking Domestic & International Players). The P/E Multiple was
31.2x & we used the Forecasted EPS of the FY15 to get the Target Price of Rs
1766. As currently the stock is trading at Rs 1594 as on 28 th October, 2014 so we have
given a Buy Recommendation of VA Tech WABAG stocks.

DoMS, IIT Madras

Page 24

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