Shares of VA Tech Wabag Ltd. have an upside potential of up to 30%, as per brokerage firm Motilal Oswal’s latest note on Monday, October 12.
The brokerage has reiterated its “buy” recommendation with a target price of ₹2,529 per share on the stock.
Motilal Oswal said the company remains well-positioned for sustained growth, aided by regular order flows and normal project execution, including in the war-affected West Asia region.
VA Tech Wabag’s current order book is worth ₹20,000 crore, which is five times its FY26 revenue. This, and a strong bid pipeline, provides visibility towards 20% revenue growth over the next three to four years, the brokerage said.
It added that VA Tech Wabag’s focus remains on profitable growth and the overseas market.
After delivering a compound annual growth rate (CAGR) of 7% revenue, 17% EBITDA and 28% adjusted profit after tax (APAT) over FY21-26, Motilal Oswal expects these same metrics to grow at a CAGR of 19% 26% and 23% over FY26-28, respectively.
The note further said that strong free cash flow generation, net cash position of ₹1,000 crore and improving return ratios make the stock attractive at 21 times its estimated FY28 price-to-earnings ratio.
Regular order inflow
Motilal Oswal said over the past six months, VA Tech Wabag has secured several high-quality orders across a wide range of applications in India and the overseas market.
It recently won a repeat order worth ₹250 crore from Reliance Industries in Jamnagar for EPT work, and entered the Kuwait and UAE markets by bagging orders worth ₹100 crore and ₹600 crore each in the region.
In India, VA Tech Wabag strengthened its long-standing relationships with BWSSB and DJB via new order wins, while in Europe it secured a project in Austria from Donauinsel Water Works, Motilal Oswal said, adding that the Chennai desalination project is steadily moving towards competition as well.
It said overseas projects contribute 50% of the company’s revenue and higher share of the order book. Given the critical and non-discretionary nature of desalination plants, its business continuity is expected to remain intact, the brokerage said.
Profitable growth and cash flows
The West Asia region and other overseas projects are better placed in terms of working capital cycles and cash flow generation compared to Indian projects, it said.
VA Tech Wabag’s intensified focus on executing large-scale projects in high margin segments such as EP, industrial and operational and maintenance augurs well for margins, Motilal Oswal added.
Stock reaction
All 13 analysts who have coverage on VA Tech Wabag have “buy” recommendations on it.
Shares of VA Tech Wabag, having gained as much as 6% in early trading on Thursday to ₹2,007.5, have come off the highs of the day and it now trades 1.2% higher at ₹1,960. The stock is up 50% so far this year, but it still 15% away from its record high of ₹2,319, which it had surged to on September 15 this year.
Also Read: Swaraj Engines Q2 Results: Stock jumps 14% after 26% revenue growth, margin expansion
NOTE TO READERS
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.