VA Tech Wabag Limited
Q1 FY26
Call date · August 13, 2025
1 · Management Commentary
Key Positives
- Strong start to FY26 with improvements across all key parameters: higher topline, stronger EBITDA, and PAT growing faster than revenue.
- 10th consecutive quarter of net cash positive position, reflecting disciplined financial management.
- Robust order book of over INR 15,750 crores, well-diversified across geographies, segments (EPC/O&M), and client types (municipal/industrial).
- International revenues now exceed 40% of total; O&M revenue share surpassed 20% this quarter.
- Major order wins: INR 380 crores (Bangalore Water Supply and Sewerage Board) and INR 2,332 crores (Yanbu desalination, Saudi Arabia).
- Continued progress on key projects in Chennai, Bangladesh, Saudi Arabia, and Zambia.
- Dividend of INR 4 per share (200% of face value) approved and being disbursed.
Key Negatives
- Execution delays in the Indosol Solar project due to land reallocation and environmental studies.
- Some large order finalizations (e.g., Kuwait JV, ultra-pure water segment) are taking longer than expected.
- Other expenses increased, mainly due to forex movements and ESOP accruals.
Forward Guidance
- Capex plans: No specific capex guidance; focus remains on asset-light model.
- New products/segments: Progressing on biogas-to-CNG units in partnership with PEAK Ventures; Wabag as technical partner and minority investor.
- Expected client wins/losses: Preferred bidder status for projects worth over INR 35 billion; confident of converting most to orders in coming quarters.
- Revenue/margin outlook: Maintaining 15–20% topline growth and 13–15% EBITDA margin guidance over 3–5 years; aim to improve margins and cash flow.
- Other strategic initiatives: Monetization of HAM projects via investment platform with international investors underway; continued focus on high-margin O&M and international expansion, especially in Middle East and Africa.
2 · Q&A Highlights
Q 1 (Order Pipeline & Conversion): What is the status and outlook for preferred bidder projects and large order finalizations (e.g., Kuwait JV, Yanbu, ultra-pure water segment)?
A (Management):
• Preferred bidder status for INR 3,500 crores; confident of converting most to orders by next quarter.
• Kuwait JV share expected to be just over 50% (approx. USD 200 million); awaiting final award.
• Ultra-pure water segment orders progressing, though taking longer than expected.
Q 2 (Order Book Mix & Selectivity): Is slower growth in domestic municipal order backlog due to increased selectivity or market conditions?
A (Management):
• Always maintained strict bid criteria, especially payment security; over 98% of order backlog has full payment security.
• Focus remains on strategic, well-funded projects; not dependent on any single market or segment.
Q 3 (Project Execution Delays): What caused delays in the Indosol Solar project and when is execution expected to pick up?
A (Management):
• Delay due to land reallocation and required environmental/geotechnical studies; project expected to restart in next 1–2 months.
Q 4 (Biogas-to-CNG Business): What is the business model and outlook for the biogas-to-CNG initiative?
A (Management):
• Partnership with PEAK Ventures for funding; Wabag as technical partner/minority investor.
• Raw material secured by partner; Wabag focuses on conversion and sale at government-fixed tariffs.
• Will scale up as medium/large opportunities arise.
Q 5 (Investment Platform & Monetization): Update on monetization of HAM projects via investment platform?
A (Management):
• Due diligence underway; close to investor sign-off.
• Plan to monetize as many investments as possible, including existing projects.
Q 6 (Margins & Expenses): Are higher gross margins this quarter sustainable? What drove the increase in other expenses?
A (Management):
• Margins fluctuate due to project mix and stage; recommend multi-year view (3–5 years) for margin assessment.
• Other expenses mainly due to forex and ESOP accruals; ESOP expenses will taper over time.
Q 7 (New Business Areas): Any plans to enter B2C water chemicals or diversify into new product lines?
A (Management):
• No plans to enter B2C or manufacturing; focus remains on large, complex, asset-light projects.
Q 8 (NWC LTOM Tenders): Status of NWC second phase LTOM tenders in Saudi Arabia?
A (Management):
• Qualified for all tenders; have bid for packages 10, 11, and 12; others to follow as released.
3 · Other Key Numbers
- Consolidated revenue: INR 734 crores (17% YoY growth)
- Standalone revenue: INR 640 crores
- Consolidated EBITDA: INR 96 crores (18% YoY growth)
- Standalone EBITDA: INR 86 crores
- Consolidated PAT: INR 66 crores (PAT margin 9%, >20% YoY growth)
- Standalone PAT: INR 61 crores
- Net cash position (June 2025): INR 510 crores; excluding net debt on HAM entities: INR 627 crores
- Gross cash position: INR 815 crores
- Order book: Over INR 15,750 crores (approx. 5x annual revenue)
- O&M revenue share: Exceeded 20% this quarter
- Dividend: INR 4 per share (200% of face value) for FY25
- Return on Capital Employed (RoCE): Over 18%
- Return on Equity (RoE): 15%
- Yanbu desalination order: 300 MLD, USD 272 million (INR 2,332 crores including VAT; INR 2,038 crores excluding VAT)
- Ras Tanura project: 80% completion
- Translation reserve under OCI: INR 321 million
- Gross margin this quarter: 28.7%
- Other expenses as % of sales: 6.6%
- Preferred bidder status: Projects worth over INR 35 billion
- Recent bids submitted: Over USD 1 billion in last couple of months
All figures as stated in the call.