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  • Stock recommendation: Va Tech Wabag Ltd – BUY – TP Rs.476

    Publish date: August 13, 2018


    Result Update

    VA Tech (VAW) reported good set of numbers which exceeded our estimates on revenue front. EBITDA margin was in-line but forex loss resulted in slippage on the profit front. The company has reported tepid order wins in Q1FY19, thereby leading to further decline in order book.

    Key Highlights

    • Order intake declined 25% y-o-y to Rs 5.3 bn. Order intake lagged the run-rate needed to meet the full year management guidance of Rs 53-57 bn.
    • Order book at Rs 66.6 bn, down 10% on a y-o-y basis.

    Valuation & Outlook

    • In view of the long term growth potential in water and waste water treatment and reasonable valuations, we reiterate "BUY" with price target of Rs 476 (earlier Rs 550), valuing the stock at 13x FY20 earnings (earlier valued at 15xFY20E). We are according lower exit multiple to the stock in view of the 1) recent slippages in order intake guidance 2) deterioration in balance sheet metrics - increase in debt due to higher working capital engagement.
    • We will consider according higher target multiple if 1) upturn in order inflows and 2) receipt of retention money from APGENCO.

          

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