VA Tech Wabag order book and O&M growth strengthen earnings visibility

Investment View and Valuation

In its May 26, 2026 result update, ICICI Securities maintained a BUY recommendation on VA Tech Wabag Limited and revised its target price to Rs 1,930 per share, valuing the company at 20 times FY28E EPS. The broker expects revenue and PAT to grow at CAGRs of 17.6 per cent and 27 per cent, respectively, over FY26-FY28E.

The investment case is based on a large and diversified order book, rising long-duration operation and maintenance (O&M) business, international growth and a strategy focused on profitable, technology-led execution.

Order Book, O&M and International Growth

VA Tech Wabag is a pure-play water technology company providing end-to-end solutions in desalination, municipal water treatment, industrial wastewater treatment and water reuse. Its revenue mix is approximately 82 per cent EPC and 18 per cent O&M.

At FY26-end, order backlog increased 26 per cent year on year to Rs 17,235 crore, equivalent to more than four times FY26 revenue and above the company's internal threshold of about three times annual revenue. FY26 order inflows exceeded Rs 7,500 crore, supported by desalination, municipal reuse and industrial water-treatment projects. The order book spans desalination, wastewater treatment, industrial water and O&M, with growing exposure to the Middle East and Africa.

The O&M backlog rose to Rs 6,346 crore from Rs 5,304 crore in FY25 and represented 38 per cent of the total order book. ICICI Securities views the increasing share of long-duration O&M contracts as supportive of revenue predictability, cash-flow stability and medium-term margin visibility. Management's longer-term objective is to raise O&M to 20 per cent of revenue.

Overseas operations contributed 52 per cent of FY26 revenue, while international projects represented 42 per cent of the order book. This improves diversification and reduces dependence on domestic municipal ordering cycles.

Financial Performance

Q4FY26 EBITDA margin declined because of project mix. The Board recommended a final dividend of Rs 5 per share for FY26.

Growth Outlook and Margin Drivers

Management reiterated medium-term revenue-growth guidance of 15-20 per cent CAGR and EBITDA-margin guidance of 13-15 per cent. It attributes the margin outlook to selective bidding, disciplined execution and a rising contribution from higher-margin desalination, industrial water and O&M projects.

The company is targeting opportunities in semiconductors, solar PV manufacturing, green hydrogen, AI-driven data centres, oil and gas, and mining. Ultra-pure and advanced water-treatment capabilities in these sectors can create higher entry barriers and better pricing power.

Management identified a GCC desalination and wastewater opportunity of nearly US$50 billion over the next decade, supported by Saudi Vision 2030, FIFA World Cup infrastructure, reuse initiatives and industrial expansion.

Key Project Developments and Wins

Execution progress on the 400 MLD Perur desalination project was 70-75 per cent, with marine works nearly 95 per cent complete. The project is expected to supply water to nearly one-third of Chennai's population when commissioned and become Asia's largest desalination plant.

Major FY26 project wins included the Yanbu mega desalination project in Saudi Arabia, Chennai 45 MLD TTRO reuse project, Chennai city-wide looped water grid, Reliance ultra-pure water project, BPCL industrial water project, and wastewater and water-treatment projects in Nepal.

Key Risks

• Delays in execution could affect project delivery and financial performance.
• Increased receivables could extend the working-capital cycle.