>VATECH WABAG LIMITED: a leading technology focused Indian Multinational in the water treatment industry

VATECH WABAG Limited, a leading technology focused Indian Multinational in the water treatment industry, with market presence spanning across three Continents, offers complete life cycle solutions for sewage treatment, process and drinking water treatment, effluent treatment, sludge treatment, desalination and reuse for Industries and Municipal Corporations.


Investment Rationale
■ Water & Waste water Treatment - A Paradigm shift to preserve Natural resources
Investment in water supply and sanitation is expected to double to Rs.1222bn during 2010-11 to 2014-15 from Rs.548bn in 2005-06 to 2009-10 .The water supply segment forms 67% of investments followed by the waste water which accounts for 28%.


■ Strong Order book rendering revenue visibility of more than 2 yrs
The current Order backlog as of Q2FY12 stands at 33bn with contribution from the domestic & international segment in the ratio of ~70:30. We expect the order backlog for FY12 to be ~Rs.34bn rendering a revenue visibility of ~30mths.


■ An Asset-lite model with Core focus on Technology, Collaborations & R&D
A technological focussed patented approach, VA Tech has established R&D centres in Chennai-India, Vienna-Austria and Winterthur-Switzerland. It has a research collaboration programme in India with the Centre for Environmental Studies, Anna University. It has also technical tie-ups with Sumitomo Corporation, Japan & Zawawi group in Oman.


■ Initiatives aimed to improve operating margins
Strategic initiatives like Centralizing engineering assistance from India, implementing low cost sourcing model via global procurement policy, emphasis on higher margin O&M Segment, adopting decentralized approach & Multi-Domestic Unit concept to increase local presence are being implemented to focus on improving margins.


■ Venturing across geographies
Apart from focusing on existing international countries, it is also looking at emerging opportunities in Saudi, Tunisia, Algeria, Turkey, China, Philippines, Srilanka & Maldives. A cash rich model, notably worth Rs.3.2bn in its balance sheet, it is scouting for acquisitions to grow inorganically.


■ Valuation
At the CMP of Rs.358, the stock quotes a PE of 10x FY13E EPS of Rs.35 per share respectively. We initiate a coverage with a Accumulate Rating on the stock, with a price target of Rs.424 per share based on its PE of 12x FY13E EPS of Rs.35 per share.


To read full report: VATECH WABAG
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