Water water everywhere….BUY Va Tech Wabag target Rs 1200/-

An interesting stock in a niche space!  Va Tech Wabag (VATW) is India’s largest water treatment company.  The~Rs 4300 crore market cap company is in the business of water and waste water treatment both in India and other emerging markets.

The treatment of water and better management of effluents is going to be a business that is definitely one with strong prospects in the Indian context.  The water-shortage in many towns and cities in India and the fact that our sewage is largely untreated has been a cause for concern for the government and local municipalities across the country.  This ensures a strong business opportunity for many years for a company like VATW.

The company has a 20% revenue guidance for FY15 and believes that it can maintain it, the booking of orders so far has been slow but the management experience is that towards the latter half of the year awarding of orders as well as collection of payments  gains momentum.

While EUR fluctuations may cause some impact on revenues and overall the receivables cycle has been affected by some overseas orders this should not be a lasting problem and will sort itself out over the next 2 to 3 quarters.

The order pipeline domestically is very strong.  There is an upcoming award for a desalination plant in Tamil Nadu and some sewage treatment plants in Mumbai.  Ganga cleaning will offer a multi-year opportunity to the company.  The recent budget highlighted that Ganga cleaning is high on the governments agenda but orders from the project are not yet announced and will take atleast a year to come.

Given that the current order book is strong and so is the visibility, VATW is a BUY with a 12-18 months perspective for a target of Rs 1200/-, this gives it a valuation of 30 X FY17E EPS of Rs 40/-.

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