After a lack-lustre group performance in the September quarter, water treatment and water-solutions provider VA Tech Wabag bounced back smartly with a 16 per cent y-o-y growth in consolidated operating income to Rs 316 crore for the December quarter.

With net profits at Rs 14 crore, the company moved out of losses witnessed a year ago as also in the September quarter. However, that the company on a standalone basis is more profitable is evident from the 48 per cent growth in sales to Rs 169 crore and six-fold jump in profits to Rs 15 crore. This suggests that though the foreign subsidiary has been adding to the top line, it is not yet profit-accretive.

VA Tech Wabag, which had bought out its Austrian parent, has been tackling the high operational costs and poor profitability of its Austrian subsidiary. Such a scene is not uncommon in European buyouts by Indian companies. To combat this, the company had taken initiatives such as setting up more local offices in key developing nations where it has ongoing or upcoming projects, rather than holding a centralised operational centre in Europe.

These initiatives appear to be bearing results as the group moved to the profit zone at an operational level from losses a year ago.

Consolidated operating profit margin at 8 per cent, although an improvement over FY-10, nevertheless remains less attractive than the parent's 13 per cent OPMs for the December quarter. Operating costs can shoot up, given that that the company resorts to sub-contracting for many of its projects. Given the increasing cost of inputs and labour, outsourcing may not aid cost control.

With negligible debt, the company's net interest cost too declined 28 per cent over a year ago, boosting the bottom line.

VA Tech Wabag has been actively scouting for tie-ups to either gain from superior expertise or to tap foreign markets. During the latest ended quarter, the company entered in to an agreement with Sumitomo Corporation, Japan, to expand in to the water concession business. This would involve developing and running large-scale water infrastructure.

More recently, it entered in to a joint venture with the Zawawi Group in Oman for operation and maintenance in the water space.

The ventures are significant developments as instead of merely designing and executing projects, these agreements would throw up opportunities to operate water-related infrastructure and earn revenues on an on-going basis.

With an order book of Rs 3,300 crore (2.7 times FY-10 revenues), VA Tech Wabag would have sufficient work for 18-24 months.

Orders such as the desalination plant projects recently won in Oman suggests that the company is capitalising on its well-entrenched domestic presence in this segment.

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