VA Tech Wabag - Emerging international markets drive growth - Ambit

VA Tech's revenues in 1QFY14 were marginally (4%) above our expectations owing to strong execution of large orders in India and overseas industrial segment (73% YoY). EBITDA margins (4.4%) and PAT were in line with our estimates. VA Tech's strategy to diversify its geographical exposure by entering emerging markets was the key driver for the revenue outperformance. Our estimates are unchanged: 20% revenue CAGR in FY14/15, owing to a high book-to-bill ratio of 3.0x and an EBITDA margin improvement of 40bps by FY15 due to lower overseas employee costs. Cash flow generation will further improve due to higher working capital turnover.

We reiterate VA Tech as our top pick in the E&C sector. We retain our BUY with a target price of Rs703.

Source : Equity Bulls

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