Recommendation From Utilities:Non-Electrical Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

THE BUOYANT 'TREATMENT' FOR YOU PORTFOLIO 

HERE IS WHY
Positive macroeconomic growth factors
Attractive order book
Positive Valuations 

VA Tech Wabag Limited is engaged in the business of water treatment. A holding company, the company's principal activities include design, supply, installation, construction and operational management of drinking water, waste water treatment, industrial water treatment and desalination plants. The company operates across the world and has a product portfolio of water reclamation, municipal used water treatment, industrial effluent treatment, anaerobic sludge treatment and industrial water reuse and recycling. The company's India cluster provides end-to-end water solutions for drinking water and wastewater plants, both in the municipal and industrial sectors. The European cluster caters to small and mid-sized projects. The MEA cluster has two major regions including Middle East and Africa, while the LATAM cluster has countries, including Brazil, Chile, Colombia, Ecuador, Mexico and Peru. 

The company is bagging huge orders, both in the domestic as well as international markets. It recently bagged orders in Tobruk in Lubya worth Rs 140 crore, besides orders from Dangote in Nigeria and from Reliance Industries in India. By the end of 2017, the company boasted of an order book of Rs 7,200 crore, including a large order from an oil and gas company in Saudi Arabia. Further, the company is also likely to bag an order worth Rs 4500 crore under the Namami Gange project. 

The company will also be participating in the bids for sewage treatment in the states of Maharashtra, Tamil Nadu, Delhi and Karnataka. With the growing inclination of the governments towards infrastructure and water supply, the company is well-placed to reap the benefits of these developmental activities. Moreover, the United Nations’ initiatives towards a sustainable development as the agenda for 2030 is likely to create more opportunities for the company as a crucial agent in the movement. Exhibiting a strong revenue visibility, the company is expected to witness an increase in profitability in the coming period. 

On the financial front, the company’s revenue increased 21.03 per cent from Rs 380.82 crore in Q3FY17 to Rs 480.89 crore in Q3FY18. The company’s PBDT also improved 1.923.70 per cent to Rs 62.33 crore in Q3FY18 from Rs 3.08 crore in Q3FY17. The company’s net profit also rose from Rs 0.5 crore in Q3FY17 to Rs 41.14 crores in Q3FY18, registering a stupendous increase of 8,128 per cent. On an annual basis, Va Tech Wabag Ltd posted 18.83 per cent increase in its revenue to Rs 1,798.38 crore in FY17 from Rs 1,513.43 crore in FY16. The company’s PBDT declined by 40.59 per cent to Rs 135.57 crore in FY17 on a yearly basis. The company’s net profit also decreased by 56.62 per cent to Rs 74.98 crore from Rs 117.43 crore for the corresponding period. 

The company’s debt-to-equity ratio stood at 0.15x for FY17, significantly lesser than 0.31x in the previous fiscal, exhibiting a positive trend. Its average ROE stood at 9.38 per cent in FY17. At present, the company is trading at PE of 22.6x, while the industry PE is 53.70x. As the stock has significantly corrected, it is the right time to invest in the stock. We recommend our reader-investors to BUY this scrip.