September 4, 2024
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Can VA Tech Wabag increase its revenue by 100% in the next 5 years?

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Stock Market

Can VA Tech Wabag increase its revenue by 100% in the next 5 years?

Water is recognized as essential for every human being, sustaining life and supporting all forms of ecosystems. It played a crucial role in human survival, from agriculture to industry and daily activities. The growing scarcity of this vital resource highlights the importance of efficient water management. India has access to only 4% of the world’s freshwater resources. With a current population of 1.4 billion projected to reach 1.7 billion by 2050, it struggles to provide clean and safe water for all.

As a result, efficient wastewater management is being prioritized worldwide. Companies like VA Tech Wabag Limited are emerging as leaders in this space. Rekha Jhunjhunwala had been holding an 8.04% stake in the company, reflecting confidence in its potential. In this article, we can see VA Tech Wabag Limited’s business segments, financial performance, and future plans to understand its role in addressing global water challenges.

Industry Overview

India is on the brink of a water crisis, facing an urgent need to manage its declining resources as the population surges. By 2025, the nation’s water demand is projected to reach 1,093 billion cubic meters (BCM), escalating to 1,447 BCM by 2050. This stark reality highlights the impending challenges, especially as nearly 76% of the population already grapples with water scarcity.

Globally, the water and wastewater treatment market is set to grow from $323.32 billion in 2023 to $536.41 billion by 2030, reflecting a compound annual growth rate (CAGR) of 7.5%. The wastewater treatment plant sector alone is expected to generate $222.3 billion by 2032, with a CAGR of 6.2%.

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Furthermore, the industrial wastewater treatment market, valued at $17.23 billion in FY23, is projected to reach $30.36 billion by FY32, growing at 6.5% annually. These trends underscore the critical need for innovative solutions in water management to combat the coming crisis in India and beyond.

Government Initiatives Related to Water Management

The Indian government is working on more projects related to water and infrastructure. It includes AMRUT 2.0, which aims to provide 100% sewerage coverage in 500 cities, promote water recycling, and protect water bodies. Jal Shakti Abhiyan and Catch the Rain (JSA: CTR) focus on rainwater conservation in urban and rural areas. The Jal Jeevan Mission is to provide functional household tap connections to rural areas. The Atal Bhujal Yojana is a central scheme for sustainable groundwater management. Some other government initiatives for water management are the Swachh Bharat Mission-Urban 2.0, the Namami Gange Programme, the National River Conservation Directorate, and the National Infrastructure Pipeline.

Company Overview Of VA Tech Wabag

VA Tech Wabag was founded in 1924 and is a global leader in water treatment solutions with nearly a century of experience. The company’s headquarters are in Chennai, India. It has a presence on four continents and in over 25 countries across Asia, the Middle East, Africa, and Europe. VA Tech Wabag Limited specializes in desalination, wastewater treatment, and water recycling. It is the world’s 3rd largest private water operator and 5th in top desalination plant supplies.

The company also leads in designing, engineering, and providing innovative technological services and solutions for municipal and industrial water needs. It has executed more than 6,500 projects and benefited over 88.8 million people worldwide. The company has completed over 1400 projects in India in the last 25 years. It delivers 1,200 million liters of treated water daily through over 68 desalination plants and 2,500 million liters of recycled water. The company holds more than 125 intellectual property rights (IPRs) as of FY24.

Segment Analysis Of VA Tech Wabag

VA Tech Wabag Limited provides comprehensive water treatment services across several core segments. These include desalination, wastewater treatment, and operations and maintenance (O&M) services.

In the desalination segment, the company leads with advanced technologies like reverse osmosis, converting seawater into potable water. The company has successfully completed over 68 desalination projects, making it a significant player in global water desalination.

In wastewater treatment, the company focuses on recycling and reusing water to tackle water scarcity in both urban and industrial areas. Its treatment plants, operational across various regions, play a crucial role in sustainable water management.

The O&M segment is another strong area where the company manages water treatment plants to ensure their efficient, long-term operation. This service is vital for the sustainability of water infrastructure, ensuring consistent water supply and quality.

Additionally, VA Tech Wabag Limited offers customized solutions tailored to regional needs, leveraging its extensive expertise and technological innovations. This diverse portfolio of services enables the company to effectively address global water challenges, providing clean water while contributing to environmental protection and resource conservation.

Key Client Connection

Source: Company Investor Presentation Q1 FY25

Financial Analysis Of VA Tech Wabag

The financial analysis of VA Tech Wabag Limited shows that the company’s revenue has fluctuated over the last five years. However, it has increased revenue from ₹2,557.15 crore in FY20 to ₹2,856.40 crore in FY24, which has grown at a CAGR of 2.80% over the last four years. As compared to the previous year, the company’s revenue has decreased from ₹2,960.48 crore to ₹2,856.40 crore, which has dropped by 3.52%. The company’s revenue mainly comes from India (53%), and abroad (47%). Of that, 83% are from EPC, and 17% are from O&M services.

VA Tech Wabag Limited’s net profit has increased until FY22. Later in FY23, the net profit suddenly dropped by 91.72%, from ₹132.06 crore in FY22 to ₹10.93 crore in FY23 due to the company writing off ₹289.23 crore in receivables from Tecpro due to prolonged legal proceedings at the NCLT and from APGENCO due to project delays not attributable to the company. In FY24, the net profit of the company grew massively to ₹250.40 crore. The main reason for this will be the reduction in the total expenses of the company. The company’s net profit has grown at a CAGR of 31.35% over the last four years.

VA Tech Wabag Limited’s operating profit margin has improved over the last four years. It has grown from 12.24% in FY23 to 14.37% in FY24. The net profit margin has also grown from 0.05% to 9.09% in FY24. VA Tech Wabag Limited’s ROCE has decreased from 20.27% to 16.67% in FY24, and ROE will be 13.50% in FY24. The company has increased its borrowing slightly, from ₹219 crore in FY23 to ₹289 crore in FY24. This will impact the debt-to-equity ratio of VA Tech Wabag Limited from 0.14x to 0.15x in FY24.

Order Book Of VA Tech Wabag

VA Tech Wabag Limited has a strong order book of 11,448.4 crore in FY24. It included 6,863.9 crore from India, 3,417.1 crore from abroad, and 1,167.3 crore in the framework. The company’s order book has 89% of municipal and 11% of industrial orders, which is 9,187.7 crore and 1,093.4 crore, respectively. VA Tech Wabag Limited has gained orders from EPC by 56% and O&M by 44% as of March 2024.

Shareholding Pattern Of VA Tech Wabag

VA Tech Wabag Limited has a major holding of promoters (19.13%), domestic institution investors (4.99%), financial institution investors (11.52%), and public holdings (64.36%) as of June 2024. Promoter holding is primarily held by Varadarajan S (3.51%) and Rajiv Mital (15.61%).

In public holding, Rekha Jhunjhunwala has an 8.04% stake in VA Tech Wabag Limited. She has a total investment by the company of 50,00,000 shares as of June 2024.

Below the bar diagram, we can see the shareholding pattern of VA Tech Wabag Limited.

Future Plans Of VA Tech Wabag

VA Tech Wabag Limited aims to double its revenues within the next 4-5 years while improving margins to 13–15% EBITDA.
The company is targeting an order book of INR 15,000 to 16,000 crores in the next financial year, 2025.
The company plans to increase its international revenue to at least 50%, focusing on emerging markets like the Middle East, Africa, Southeast Asia, and CIS countries.
VA Tech Wabag Limited is expanding into new areas like ultra-pure water for semiconductors, compressed biogas (CBG), and water treatment for green hydrogen production.
The company plans to integrate more digitization and AI technologies into its projects to improve efficiency.
VA Tech Wabag Limited continued to focus on growing the Operations & Maintenance (O&M) business, which provides better margins and cash flow visibility.
The company plans to increase its focus on industrial water treatment solutions, catering to industries affected by water shortages.
Wabag seeks to form strategic partnerships with governments and international funding agencies to secure project financing and ensure payment security. This strategy enhances the company’s ability to undertake large-scale projects with reduced financial risk.