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Chola Securities
Va Tech Wabag (Marketperformer)
CMP: ₹289.1
Target: ₹321
VA Tech Wabag is a leading MNC in the water treatment space. The company has vast experience in plant building, planning, execution and operation of drinking water plants and waste water plants for both municipal and industrial sectors. The company has a multinational pedigree and offers customer-specific solutions. The company has about 100+ patents which include both products and process patents and Wabag Austria has 51 patents that are awaiting approval. As part of organisational realignment, Wabag fine-tuned its business strategy and created four clusters — India, Europe, Middle East & Africa (MEA) and Latin America.
Valuation: Despite a healthy order intake and strong order book growth indicating revenue visibility for about two years, slow execution of low margin projects and delay in collection of receivables act as a near-term over hang on the company’s return ratios (due to high working capital requirements). At CMP the stock trades at P/E of 8X to FY20E.
Risks: Weakening of MEA region economies due to declining crude prices, slower order execution and delayed/non-receipt of payments.
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