Ambit Capital has Review on VA Tech Wabag. The summary of the Recommendation is as under.
VA Tech Wabag crude dependence is high (60% of top-10 orders) but crude clients/geographies have never been the main drivers; nevertheless, crude-linked jobs are progressing without issues. Revenue ex-APGENCO and Ujams will be flat in FY16E but will increase 24%/23% in FY17/18; orders ex-APGENCO jumped 78% in FY16 and the average size (ex-Petronas) increased to Rs2.2bn. APGENCO will account for 11% of FY17E revenue but add nothing to EBITDA and stress to working capital; as this closes and Petronas hits peak, FY18 EBITDA margin will be the highest ever at 10.0% due to operating leverage/mix change. Working capital will improve, bolstered by focused efforts to close sites. Valuation (19x FY17E EPS) is supported by earnings trajectory (31% FY16E-18E CAGR); quality people, large potential, cost advantage vs global peers and an unlevered balance sheet support our BUY
