10 November 2014
2QFY15 Results Update | Sector:
Capital Goods
VA Tech Wabag
BSE SENSEX
27,875
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
8,344
VATW IN
26.8
41.9/0.7
1,748/480
-9/76/110
CMP: INR1,565
n
TP: INR1,725
Buy
Performance below est., order inflows led by overseas projects
Operating performance below estimates:
2QFY15 consolidated revenue at
INR5.1b (up 8.9% YoY) was below estimate of INR5.6b, largely led by lower
revenue in overseas subsidiaries at INR2.7b (up 10% YoY) v/s estimate of INR3.3b.
Standalone revenue at INR2.4b (up 5% YoY) was in line. Management maintained
FY15 revenue guidance at INR26-27b v/s INR22.3b in FY14.
Adjusted EBITDA at INR329m (v/s est. of INR439m) was down 13% YoY and 25%
below estimate. Standalone EBITDA was in line at INR236m (v/s est. of INR250m),
while subsidiary EBITDA declined 51% YoY in 2QFY15 at INR93m and was
meaningfully below estimate of INR189m.
Achieves 25% of targeted firm order inflow in 1HFY15:
Order inflow in 1HFY15
stood at INR7.9b, led mainly by overseas orders (91% of inflows) and INR16.2b
including framework orders. For FY15, management maintained the order intake
guidance at INR32-34b and thus 1H represents ~50% of full year number.
Management stated that India orders are likely to remain constrained in FY15,
with contribution likely at ~15-20%. However, given the strong government
intent, several opportunities in treatment for sewage/effluent could open up with
Ganga Rejuvenation Plant (INR510b), Delhi Jal Board (INR190b) etc. VATW is
expanding into new geographies, including South East Asia, Sub-Sahara Africa,
Latam, Central Asia/Middle East (Turkey), with the initial orders having been
encouraging.
Valuation and view:
NWC stood at 72 days at end-2QFY15 v/s 49 in end-FY14,
given higher advances to sub-contractors and suppliers, and the attempt is to
curtail at FY14 levels. At CMP, VATW trades at 23x / 18x FY16E/17E EPS of
INR69.5 /85.2. Maintain
Buy
with a target price of INR1,725 (20x FY17E).
Financials & Valuation (INR billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS(INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015E 2016E 2017E
25.6
2.5
1.3
49.5
21.1
356.9
13.8
22.2
31.6
4.4
32.1
3.2
1.8
69.5
40.5
412.4
16.8
25.3
22.5
3.8
36.8
3.8
2.3
85.2
22.5
480.0
17.7
26.7
18.4
3.3
n
n
n
n
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 3982 5410
Amit Shah
(Amit.Shah@MotilalOswal.com) /
Nirav Vasa
(Nirav.Vasa@MotilalOswal.com)
Investors are advised to refer through disclosures made at the end of the Research Report.

VA Tech Wabag
2QFY15 Consolidated operating performance below expectations
n
n
2QFY15 consolidated revenues at INR5.1b (up 8.9% YoY) were below estimates
of INR5.6b; largely led by lower revenues in overseas subsidiaries at INR2.7b (up
10% YoY) vs estimate of INR3.3b, while standalone revenues at INR2.4b (up 5%
YoY) was in-line. Management has maintained FY15 revenue guidance at INR26-
27b, vs INR22.3b in FY14.
Municipal segment revenues were up 42% YoY (accounted for 68% of 2QFY15
revenues), while Industrial segment revenues declined 27% YoY. EPC revenues
grew just 6% YoY (accounted for 82% of 2QFY15 consolidated revenues), while
O&M revenues increased 25% YoY. O&M revenues have been supported by the
commissioning of the Nemmelli Desal project in Chennai.
Exhibit 2: EBITDA margins at 6.8% for 2QFY15
Cons EBITDA
1,200
Cons EBITDA (%)
20%
15%
10%
5%
0%
-5%
Exhibit 1: 2QFY15 consolidated revenue increased 9% YoY
Consolidated (INR - b)
34
YoY
66
24
2
31
40
9
32
16
6
0
11
-7
9
30
21
800
400
0
-400
-19
Source: MOSL, Company
Source: MOSL, Company
Exhibit 3: Standalone revenues in line with expectations
Quarterly Performance
(Standalone)
Y/E March
Sales
Change (%)
EBITDA
Adjusted EBIDTA
Change (%)
As of % Sales
Depreciation
Interest
Extra-ordinary Items
PBT
Tax
Effective Tax Rate
(%)
Reported PAT
Change (%)
Adj PAT
Change (%)
E: MOSL Estimates
1Q
1,157
7.5
99
155
88.2
13.4
17
-9
0.0
91
30
33.3
61
5.2
61
31.8
FY14
2Q
3Q
2,199 2,912
4.8
5.1
265
272
296
274
8.8
6.8
13.5
9.4
18
20
-8
6
0.0
0.0
255
246
85
82
33.2
170
7.7
170
(3.2)
33.1
165
5.6
165
(2.8)
4Q
5,255
4.0
776
797
3.3
15.2
27
18
0.0
731
241
32.9
491
9.3
491
(3.8)
1Q
1,295
8.4
125
115
-25.9
8.9
-24
11
0.0
138
46
FY15
2Q
2,361
5.1
229
236
-20.5
10.0
33
20
0.0
175
59
FY14
3QE
3,145
4.5
363
363
32.5
11.6
37
18
0.0
308
102
33.0
207
207
25.6
FY15E
4QE
5,751 11,522 12,551
2.6
4.9
4.5
981 1,411 1,697
981 1,523 1,694
23.0
0.0
17.1
0.0
42
81
88
22
7
71
0.0
0.0
0.0
917 1,323 1,538
301
437
508
32.8
616
616
25.6
33.0
886
886
(INR Million)
FY15
2QE
2,375
4.4
250
250
-15.6
10.5
36
3
0
211
70
Var.
Vs Est
-0.6%
-8.5%
-5.7%
-17.1%
33.6
33.4
92
116
7.1
92
116
51.4
(31.6)
33.0
33.0
1,031
141
0.0
0.0
1,031
141
-
(17.0)
-17.6%
-17.6%
n
Adjusted consolidated EBIDTA at INR329m (vs est of INR439), was down 13%
YoY and 25% below estimates. Standalone EBIDTA was in-line at INR236m (vs
estimate of INR250m) and was impacted by provisions of INR50m towards
2
10 November 2014

VA Tech Wabag
n
receivables. As per the accounting practice, receivables exceeding 365 days are
charged off and this led to cumulative provisions of INR160m in 1HFY15.
Subsidiary EBITDA declined 51% YoY in 2QFY15 at INR93m and was meaningfully
below estimates of INR189m.
Adjusted consolidated PAT for 2QFY15 was at INR156m, down 11% YoY and
below estimates of INR225m. PAT was also impacted by higher debt servicing
charges which stood at INR62m for 2QFY15 vs est of INR38m.
Exhibit 4: Ten projects accounted for 39% of 1HFY15 revenues (INR M)
Project name
Al Gubrah
DAWASA
Nemmeli
Izmir
GECOL
RIL
Ajud & Ocna Mures
Ujmas
Madinah phase A
Melamchi
Country
Oman
Tanzania
Chennai
Turkey
Libya
India
Romania
Namibia
Saudi Arabia
Nepal
Capacity details
191 MLD, SWRO
130 MLD, WTP
100 MLD, Desal, O&M
360 MLD WTP
Demi & ECL
ETP
WWTP
WWTP
STP
85 MLD, WTP
Revenue recognized
989
373
350
333
312
248
245
227
225
220
Source: MOSL, Company
Achieved ~50% of order inflows guidance in 1HFY15 led by overseas / O&M
projects; Order inflow guidance maintained
n
n
n
n
n
n
Order inflow for 1HFY15 was at INR7.9b was led mainly by overseas orders
which accounted for 91% of order inflows at INR7.2b. Order inflows from Indian
operations were at INR734m, down 94% YoY. Including framework contracts,
order intake in 1HFY15 stood at INR16.2b; for FY15 the management has
maintained order intake guidance at INR32-34b and thus 1H represents ~50% of
the full year number.
Break-through orders received includes: i) INR1.4b from one of the largest oil
fields in Romania ii) INR3.1b O&M contract for managing all the waste
treatment plants in Istanbul iii) INR1.9b Waste Water treatment plant in Saudi
Arabia iv) Framework order of INR6.7b for an integrated water supply and
treatment project in Sri Lanka.
The management stated that India orders are likely to remain constrained in
FY15, with contribution likely at ~15-20%. Still, given the strong government
intent, several opportunities in treatment for sewage / effluent could open up,
with Ganga Rejuvenation Plant (INR510b), Delhi Jal Board (INR190b), etc.
Finalization of industrial orders remained lower for 1HFY15 at just INR781m vs
INR 7.6b, representing tepid pace of project finalization across industrial
segment. Municipal orders finalized for 1HFY15 were at INR7.2b down 44% YoY.
Order book at the end of 2QFY15 stood at INR52.4b (excluding INR 16.6b
framework contracts). EPC orders accounted for 2/3
rd
of the closing order book.
At the end of 2QFY15, consolidated BTB ratio stands at 2.2x down vs 3.1x in YoY.
10 November 2014
3

VA Tech Wabag
Exhibit 5: EPC orders account for 2/3 of closing order book
Municipal Order book
Industrial Order book
rd
Exhibit 6: O&M order book stable as compared to EPC orders
Wabag India Order book
Wabag Overseas Order book
23
10
23
11
25
13
25
13
28
13
27
14
29
14
29
14
36
21
23
30
21
29
25
27
34
37
Source: MOSL, Company
Source: MOSL, Company
Exhibit 7: Major orders currently under execution / O&M phase
Project name
Nemmeli
Ulhasnagar
Istanbul
OWSSB
DAWASA
BWSSB
Melamchi
Ilugin
Al Ghubrah
Izmir
Country
India
India
Turkey
India
Tanzania
India
Nepal
Philippines
Oman
Turkey
Capacity details
100 MLD Desalination plant with O&M
195 MLD WTP with O&M
O&M
100 MLD STP
130 MLD WTP
90 MLD WWTP
85 MLD WTP
100 STP
191 MLD SWRO
360 MLD WTP
Order value (INR - b)
4.5
3.3
2.8
2.8
2.0
1.9
1.4
1.2
1.1
0.9
Source: MOSL, Company
NWC impacted given tight liquidity conditions
n
n
NWC on consolidated basis stood at 72 days at the end of 2QFY15 vs 49 days at
the end of FY14. Deterioration in NWC was mainly because of higher advances
to sub-contractors and suppliers, which are severely impacted by tight liquidity
conditions. Inventory days also increased from 6 at the end of FY14 to 13 at the
end of 2QFY15.
Outstanding debt increased to INR 2.5b at the end of 2QFY15, leading to Net
cash balance of INR855m on consolidated basis (vs INR3.1b in FY14).
Management stated that given the various initiatives, the intent is to curtail
NWC at similar levels in FY15 (vs FY14).
Exhibit 8: NWC deteriorates, impacting net cash
NWC days
Net Cash / (Debt) balance (INR M)
Cash & Bank balance
Borrowings
Net Cash / (Debt)
4QFY13
67
3,825
822
3,003
2QFY14
83
3,075
1,445
1,630
4QFY14
49
2QFY15
72
4,676
3,406
1,583
2,551
3,093
855
Source: MOSL, Company
10 November 2014
4

VA Tech Wabag
Valuation and outlook
n
n
n
At CMP of INR 1585, VATW trades 23x / 18x its FY16E / FY17E EPS of INR 69.5 /
85.2. For the period between FY15 – FY17E, we model Revenue / PAT CAGR of
20% / 30%.
VATW is attempting to expand into new geographies, including South East Asia
(from Philippines), Sub-Sahara Africa (from India), LatAm (from Spain), Central
Asia / ME (from Turkey), etc. Also, India is seeing strong government interest in
terms of sewage / effluent treatment into rivers (Ganga Plan INR510b, Delhi Jal
Board INR200b, etc) and this could open up interesting medium term
possibilities.
Maintain
Buy
rating on the stock with TP of INR 1725 (20x PER FY17E).
10 November 2014
5

VA Tech Wabag
VA Tech Wabag: an investment profile
Company description
VA Tech wabag (VATW) is one of the leading players in
water treatment industry, having its base of operation
globally operating from Chennai. VATW’s operations are
stretched across countries like Austria, Czech Republic,
Algeria, Tunisia, Romania, Turkey and Philippines.
Wabag has been operational in water treatment
industry since last 90 years and its has specialization in
treating municipal, industrial, sludge treatment and sea
water desalination projects.
Key investment risks
n
n
VATW’s global operations expose it to multiple
currencies. Exchange rate volatility could
significantly impact its earnings.
VATW is present in politically unstable countries
like Libya and Iran, where its peers have reported
delays in project execution. However, these
projects are backed by Dollar denominated LC’s,
which results in limited impact on Wabag’s
financials.
Order inflow for 1HFY15 was at INR7.9b. Major
orders bagged in 1HFY15 include a) O&M contract
in Istanbul (Euro 38m) b) Phase III of Al Karj WWTP
in Saudi Arabia (Euro 23m) and public water
treatment plant in Romania (Euro 17m).
Additionally, VATW also bagged framework
contract worth USD108m from Sri Lanka (funded by
EXIM Bank of India). Other framework contracts
bagged by Wabag would include INR 8.3b orders
from Libya.
Maintain
Buy,
with TP of INR1,725.
We remain
Positive
on the sector
Recent developments
Key investment arguments
n
n
n
n
VATW is attempting to expand into new
geographies, including South East Asia, Sub-Sahara
Africa, LatAm, Central Asia, etc.
In FY14, the company received initial orders in
Nepal, Tanzania, etc which also opens up interesting
growth possibilities to ramp-up the business. Order
intake in overseas subsidiaries has increased from
INR6-7b in FY12-13 to INR16.4b in FY14
O&M business contributed 20% of FY14 revenues
(where margins are higher at ~18-20%), vs ~12-13%
in projects. VATW intends to increase contribution
from O&M segment and intent is to move up the
value curve in terms of Refurbishment, Spare Parts,
Plant rehabilitation and automation, etc.
Wabag
21.1
40.5
4.4
3.8
1.6
1.2
16.1
11.6
Thermax
43.3
30.4
5.4
4.9
2.0
1.7
25.2
17.6
L&T
38.5
26.9
4.1
3.7
2.5
2.0
22.8
18.8
n
Valuation and view
n
Sector view
n
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
49.4
69.4
Consensus
Forecast
54.5
67.8
Variation
(%)
-9.4
2.4
Target price and recommendation
Current
Price (INR)
1,565
Target
Price (INR)
1,725
Upside
(%)
10.2
Reco.
Buy
Shareholding pattern (%)
Sep-14
Promoter
DII
FII
Others
29.4
21.4
28.6
20.6
Jun-14
30.2
22.0
26.0
21.9
Sep-13
31.0
20.6
29.7
18.7
Stock performance (1-year)
Note: FII Includes depository receipts
10 November 2014
6

VA Tech Wabag
Financials and valuations
10 November 2014
7

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VA Tech Wabag
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§
Analyst ownership of the stock
VA TECH WABAG
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8