Va Tech Wabag: Operating performance below expectations; orders disappoint
(VATW IN, Mkt Cap USD0.5b, CMP INR562, TP INR700, 24% Upside, Buy)
- A miss on estimates: sales grew 20% YoY to INR8.7b, below our estimate of INR9.3b. Revenue growth was supported by a pick-up in execution of key orders like Petronas (Malaysia), Polghawela (Sri Lanka), Koyambedu (Chennai), AP Genco and AMAS (Bahrain). Standalone sales rose 21% YoY to INR4.6b, while subsidiary sales grew 20% YoY to INR4b. Consol. EBITDA fell 2% YoY to INR0.8b, with the margin of 9% (-210bp YoY) below our estimate of 10.1%. Consol. recurring profit of INR300m too was below our estimate of INR476m.
- Order backlog down for first time in six quarters; L1 in INR19b of orders: In 3QFY18, consol. order intake declined 74% YoY to INR3.2b, while order backlog fell 14% YoY at INR65.2b. VATW is L1 in INR19b of orders, of which it targets to convert 50% into orders in 4QFY18. Only one large order of INR1.3b - Toruk 4 desalination plant at Libya - was finalized during the quarter. Domestic tendering/orders are picking up for projects like Namami Ganga, Mumbai STP and the Chennai desalination plant.
- Maintains FY18 sales, order guidance: Management maintained its FY18 guidance of revenue of INR38b-40b (+25%) and order inflow of INR43b-45b (+25%). Order guidance for FY18 implies ~INR25b in 4QFY18 – of this, INR10b is from India, INR10b from GCC countries and INR3-4b from Europe.