Rekha Jhunjhunwala stock Va Tech Wabag Ltd, a pureplay on the water treatment space, received an upward revision in target price from ICICI Securities after the company bagged a Rs 2,700 crore order from Middle East, which was equivalent to its FY24 sales. Axis Securities, on the other hand, initiated coverage on the stock with a 'Buy' recommendation and a target price of Rs 1,700 per share, suggesting a 30 per cent potential upside.
Calling the order win a 'watershed moment', ICICI Securities said Va Tech Wabag’s EPC order book is now close to Rs 7,900 crore or over 3 times book to bill ratio. It noted that order inflows were a concern for Va Tech Wabag in the last 18 months, which undershot Street’s expectations. At the beginning of FY25, the company management had indicated a good bidding pipeline from Middle East. It had also pre-qualified to bid for Egyptian desalination contracts to bid up to 1000 mld.
“Middle East/Egypt got a strong pipeline of desalination contracts. Wabag has shed the flab, cleaned up its balance sheet and improved its margin over the last 24 months. Retain BUY; target price revised to Rs 1,541 against Rs 1,445 earlier,” it said.
The multibagger stock has gained 110 per cent in 2024 so far and 176 per cent in the past one year. Rekha Jhunjhunwala held 8.04 per cent stake in this company at June quarter end, which is worth roughly Rs 670 crore today.
Analysts noted that regulatory bodies worldwide are allocating additional resources towards the conservation of water sources and implementing stricter regulations to minimise the impact of industrial waste on water bodies. This has led to a significant increase in municipal and industrial expenditure on water-related infrastructure, creating substantial opportunities for companies with the necessary expertise.
Axis Securities said its ‘Buy’ call on Va Tech Wabag is supported by a strong industry tailwinds, improving profitability, robust order book, and expanding offerings. The stock currently trades at 18 times FY26E EPS but Axis Securities values the stock at 23 times FY26E EPS.
Va Tech Wabag said the Middle East plant would be developed on a greenfield site located in the west coast of the KSA, south of the Red Sea-facing city Yanbu al-Bahr. It is slated to be completed within a 30- month period. ICICI Securities estimates Va Tech Wabag’s EPC order book to improve to Rs 7,800 crore -- it sees the book to bill ratio improving to 3.4 times (of EPC revenues). “In addition, the O&M order book is at Rs 4,500 crore, or 10 times. We increase our revenues growth estimates for FY26E to 20 per cent (against earlier growth of 15 per cent),” the domestic brokerage said.
Overall, ICICI Securities expects Va Tech Wabag to see revenue CAGR of 15 per cent and earnings CAGR of 20 per cent over FY23-26. It sees return on equity (RoE) expansion of 300 bps over FY23–26, driven by order book accretion, improving execution and better margins. The management has guided for 15 per cent revenue growth for FY25, and an Ebitda margin of 13–15.