VA Tech Wabag - Ups FY14 guidance; Maintain Buy - Phillip Capital

VA Tech Wabag Q3FY14 results were significantly above estimate lead by higher execution. Management has upped its FY14 sales guidance to Rs20bn and orders to Rs35bn (in line with our estimates). More importantly, despite the sharp jump in sales in Q314 (+65% YoY) debtors remain at same level as in Q214. We maintain our buy rating with a target price of INR700/share (12x FY16 EPS).

Q314 results highlights

- Sales for Q314 at Rs5.8bn (+65% YoY) were above our estimate of Rs4.3bn. This was primarily on account of better-than-expected sales in the overseas subs (+129% YoY). Domestic sales grew by 28% YoY to Rs2.9bn.

- EBITDA at Rs0.35bn (+60% YoY) versus estimate of Rs0.33bn; margins at 6.0% (6.2% in Q313) were down 20bps YoY on account of a forex loss of Rs 0.03bn. Excluding the forex loss, margins were at 6.6%. Margins at the overseas subs stood at 3.4% v/s -2.4% in 3QFY13 while margins in the Indian business fell 240bps YoY. The decline in domestic margins is attributed to expenses being incurred by the Indian unit for its international subsidiaries; management had guided to ~100bps lower margins on account of the same.

- Interest cost stood at INR46mn v/s 13mn YoY however it was offset by higher other income at INR59mn v/s INR4mn YoY. PAT at Rs0.22bn (+117% YoY) versus consensus of Rs0.19bn.

- Municipal segment reported sales of Rs 1.6bn (+83% YoY), Industrial segment sales of Rs 1bn (-14.6% YoY) with the O&M business accounting for sales of Rs 0.36bn (+33% YoY). Note that the Chennai O&M revenues will begin from Jan,'14 onwards.

- Overseas subsidiaries reported sales of Rs2.9bn (+129% YoY in rupee terms) and an EBITDA of Rs 0.1bn (+3.4% YoY). PAT was reported at Rs 0.05bn for the quarter against loss in Q313.

- Orders at Rs 10bn (+70% YoY) in Q314 remained very strong and 9M14 orders at Rs30bn. Key orders booked in this quarter were the Rs2.5bn Dar e salaam water and sewerage authority project, Rs2.5bn order from Bangalore water board and Reliance ETP order worth Rs1.5bn. Order book at the end of the quarter stood at Rs 60bn.

- Debtors stood at Rs12bn (flat QoQ) while net working capital has reduced to 51 days in Q314. Cash stood at Rs4.3bn.

- Management has upped its guidance on orders to Rs35bn (earlier Rs26-27bn) and revenues to Rs20bn (earlier Rs18.5-19.5bn). We had already built the same in our estimates. Note there could be upside to these as the Chennai Expansion project (150MLD) could get placed by end of Q414.

Estimates and Valuations: We marginally cut our estimate by 4% for FY14 and to factor in lower margins at the domestic subsidiaries and higher interest costs. We estimate CAGR growth of 23% from FY13-FY16 led by robust order book. We maintain our buy rating with a target price of INR700/share (12x FY16 EPS).

Source : Equity Bulls

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