VA Tech Wabag's record order book supports growth and O&M-led margin potential

Investment View and Valuation

ICICI Direct Research’s August 14, 2026 result update maintains a positive view on VA Tech Wabag, supported by its record order book and strong revenue visibility. The broker’s recommendation is BUY with a target price of Rs 2,530, compared with a CMP of Rs 1,950. The target price is based on 25 times FY28E EPS.

VA Tech Wabag is among the top three global pure-play water technology companies. It provides end-to-end desalination, municipal water treatment, industrial wastewater treatment and water-reuse solutions across more than 25 countries. Its revenue mix is approximately 82 per cent EPC and 18 per cent operation and maintenance (O&M).

Q1FY27 Financial Performance

Revenue from operations increased 20.8 per cent year-on-year to Rs 886.8 crore in Q1FY27 from Rs 734.0 crore, driven by higher project execution. However, underlying operating profitability weakened because of the change in cost mix and the absence of a comparable foreign-exchange benefit.

Reported PAT benefited from the foreign-exchange gain and a higher share of profit from associates and joint ventures. Consequently, reported EBITDA and PAT growth overstated the underlying improvement in operating performance.

Record Order Book and Revenue Visibility

The central positive for ICICI Direct is VA Tech Wabag’s record order book of Rs 19,400 crore, equivalent to approximately 4.8 times FY26 revenue. The backlog provides revenue visibility for the next two to three years, subject to timely execution.

Growth, Margins and O&M Outlook

Management reiterated its FY27 revenue-growth guidance of 15 to 20 per cent and expressed confidence in achieving the higher end of the range. It considers an EBITDA margin of 13 to 14 per cent realistic for FY27 and aims to reach 15 per cent by year-end.

O&M revenue grew approximately 7 per cent year-on-year in Q1FY27. Management expects growth to accelerate as completed EPC projects transition into O&M. Ghaziabad and Digha Kankarbagh are among the projects expected to support this transition, while Perur is expected to enter O&M in the following year. The increasing O&M mix could support recurring revenue potential and margins.

Net working capital stood at 108 days. Management considers this a healthy level for the asset-light model while targeting further improvement.

Middle East Opportunity and Project Pipeline

The Middle East remains a key opportunity for VA Tech Wabag. The company won its maiden 60 MIGD seawater reverse-osmosis desalination project in Kuwait and phase three of the 60 MLD Ajman sewage treatment plant in the UAE.

Management indicated that geopolitical developments had not materially affected execution or demand because the company’s projects are related to water security and are located away from affected areas. The bidding pipeline is approximately US$2–3 billion, or roughly Rs 20,000–25,000 crore, across the Middle East, Africa and India.

Earnings Outlook and Key Risks

ICICI Direct expects FY26-FY28E revenue CAGR of 20.3 per cent and PAT CAGR of 30 per cent. These estimates reflect the company’s strong order book, expected project execution and potential growth in O&M revenue.

The key risks identified by the broker are:

• Delays in project execution.
• An increase in receivables that could lengthen the working-capital cycle.