VA Tech WABAG Ltd is not just a small-cap stock flying under the radar; it is a global leader in the water treatment sector. Recently, WABAG won a USD 317 million (INR 2,700 crores) order from the Saudi Water Authority, positioning itself as one of the top water treatment solution providers globally. The stock, currently trading at ₹1,312 with a PE ratio of 32.6, reflects its growing stature and potential. But what makes WABAG a potential multibagger? Let’s dive deep into its business model, financials, and growth trajectory.
Table of Contents
WABAG’s Unique Position in Water Treatment
WABAG’s business model focuses on providing comprehensive solutions for drinking water treatment, industrial water treatment, wastewater management, and desalination. Operating in 25+ countries, the company has executed over 6,500 projects, improving the quality of life for over 88 million people globally. The company’s unique business model is driven by Engineering, Procurement, and Construction (EPC), Operations and Maintenance (O&M), Design Build Operate (DBO), and Hybrid Annuity Model (HAM), ensuring a wide range of revenue streams.
Key clients like Reliance, Indian Oil, and international clients such as Saudi Aramco, highlight the diversity of WABAG’s client base. Its position as the third-largest private water operator and a top-five player in desalination solidifies its place in the global water infrastructure ecosystem.
Order Book Insights
As of FY24, WABAG’s order book stands at ₹11,400 crores, with India contributing 67% and the rest of the world (ROW) at 33%. Municipal projects dominate at 89%, but the company’s focus on growing industrial projects signals the potential for further diversification.
Financial Performance: A Growing Powerhouse
The company has been strategically growing its revenues while maintaining operational efficiency, as seen in the fundamental analysis. Let’s explore its financial metrics based on the provided chart.
Sales, Net Profit, and Operating Profit
- From March 2018 to March 2024, WABAG has demonstrated a stable revenue stream, with sales peaking at ₹3,148.74 crores by FY25.
- The company’s operating profit has seen significant growth, increasing from ₹292 crores in March 2018 to ₹366 crores in FY24 and predicted to touch ₹434.64 crores in FY25.
- Net profit took a dip in FY23 (₹11 crores) due to exceptional losses but is expected to rebound to ₹250 crores in FY24 and ₹275.63 crores in FY25, thanks to new order wins and operational efficiencies.
Operating Profit Margin (OPM)
- WABAG’s OPM has steadily risen from 8.45% in FY18 to a projected 13.80% by FY25. This highlights the company’s ability to maintain profitability despite fluctuating market conditions.
Earnings Per Share (EPS)
- The EPS is projected to grow from ₹24.06 in FY18 to ₹39.49 in FY24, with a forecasted rise to ₹43.54 in FY25. A low EPS in FY23 reflects the temporary dip but strong recovery potential for FY24 onward.
Return on Equity (ROE)
- The ROE has fluctuated but is expected to stabilize at 13.86% by FY25, indicating efficient use of shareholder equity.
Asset and Liability Distribution
Assets
- As of FY24, the company holds ₹4,435 crores in assets, primarily in other assets. The asset-light model, combined with strong financial partnerships, allows the company to focus on growing its business without heavy capex.
Liabilities
- Borrowings stand at ₹289 crores, and the company’s strong reserve base of ₹1,806 crores showcases its financial strength and ability to manage its debt load effectively.
WABAG’s Strategic Moves
- Global Expansion: The recent tie-up with Peak Sustainability Ventures for Bio-CNG plants across India, GCC, and Europe reflects WABAG’s innovative approach and diversification into renewable energy projects.
- Technology Leadership: With over 125+ IP rights and R&D centers in India and Europe, WABAG continues to focus on advancing water treatment technology.
- Asset-Light Business Model: WABAG’s strategy of partnering with financial, construction, and technology companies allows it to remain agile while capturing new opportunities in a rapidly evolving market.
Growth Potential and Target Price
WABAG is poised to deliver significant returns to investors over the next few years. The stock, trading at ₹1,312, offers a short-term target of ₹1,500 in the next three months, driven by a recovery in earnings and new orders. In the long term (12-18 months), WABAG has the potential to reach ₹2,000, fueled by its expanding order book, international projects, and industrial client base. Stoploss can be set at ₹1,100 to mitigate downside risks.
Conclusion
WABAG is a rapidly growing small-cap stock with immense potential. The recent order win from Saudi Water Authority and a growing international order book signal strong growth ahead. With a robust asset-light business model, innovative R&D, and efficient financial management, WABAG is well-positioned to deliver strong returns for investors in both the short and long term.
WABAG could be a potential multibagger in the coming years, making it a stock to watch in the water infrastructure sector.
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