VA Tech Wabag share: Multibagger gets 'Buy' rating, stock target hints at 31% upside

The era of revenue expansion has got kicked off for VA Tech Wabag Ltd with a likely stronger margins ahead, said YES Securities, as it initiated coverage on the water infra company with a 'Buy' rating and a target price of Rs 1,750. The target hints at a potential 31 per cent upside on the counter over the next 12 months. 

YES Securities said VA Tech Wabag is well positioned to capitalise on robust growth in India and Middle East. Its order book of Rs 14,300 crore provides revenue visibility for the next 3-4 years. The brokerage sees VA Tech Wabag's growth for FY26 and FY27 revenue at 18-19 per cent. 

On Thursday, shares of VA Tech Wabag Ltd were trading 0.88 per cent higher at Rs 1,335 on BSE. The multibagger stock is up 102 per cent in the past one year and 874.45 per cent in the past five years. 

YES Securities expects margins for the company to improve towards the top end of 13-15 per cent guidance by FY27. It also cited successful turnaround in free cash flow (FCF) generation with net cash position and technological leadership with high bid-hit ratio, as reasons to buy the stock. 

"We value VA Tech Wabag based on FY27 EV/EBIT multiple of 16 times, giving us the target price of Rs 1,750 per share. The multiple reflects strengthening financials coupled with solid order pipeline. At current price, the stock trades at FY25, FY26 and FY27 EV/Ebit multiple of 19.6 times, 14.7 times and 11.5 times; and PE multiple of 28.4 times, 23.7 times and 18.4 times, respectively," YES Securities said.

YES Securities said VA Tech Wabag's FCF generation has improved materially and turned positive post-Covid, in part led by higher margins and lower working capital additions. 

"We now expect annual FCF generation of Rs 150-200 crore during FY25-27, implying a FCF margin of 4.5-5 per cent in each year. This will help the company maintain its net cash position," it said.

The company's margin has seen a sharp recovery over the past few years, in part driven by changes in business mix, operating leverage, reduction in bad debt provisions. YES Securities expects further recovery in margins due to rising share of high-margin O&M, EP and international business. The margins are expected to reach 14.8 per cent by FY27, it said.

"We expect the orderbook to increase to Rs 14,500 crore by March end, driven by additional order intake of Rs 1,300 crore in Q4 2025. The current orderbook provides visibility for the next 3-4 years and we expect the revenues to grow at 18 per cent/19 per cent YoY in FY26/FY27," it said.