Q2 FY23 Revenue Grew By 9.7%, Stock Grew 17.89% In 1 Month, Buy For Rs 370 Target Price: Geojit

Leading brokerage Geojit has placed a "buy" on VA Tech Wabag Ltd. with a target price of Rs. 370 apiece to get a decent return. If the stock is purchased at the current market price, it would give a potential return of up to 19%. VA Tech Wabag is a small-cap Capital Goods sector company with a market cap of Rs 1,934.12 crore.
VA Tech Wabag Ltd. is a Chennai-based multinational, which provides water recycling & reuse solutions for municipal and corporate clients. Q2FY22 revenue grew by 9.7% YoY to Rs.750 cr, aided by growth in the industrial EPC and O&M segments, which grew by 76% and 93% YoY, respectively.

Stock, 52-week low & high, and Returns

Friday, 25 November, the stock of VA Tech Wabag last traded at Rs 311 apiece on NSE, 0.29% down as compared to its previous close of Rs 311.90 apiece. The stock recorded its 52 week high level on 25 November 2021 at Rs 362.50 and its 52 week low level on 15 July 2022 at Rs 216, respectively. 

The stock in a week has fallen, giving 2.14% negative returns. However, in 1 and 3 months, it has given 17.89% & 23.95% positive returns. Whereas, over a year, the stock fell by 12.91%. In the past 3 years, it has given massive 86.67% positive returns. Whereas, in the past 5 years it gave 45.85% negative returns.

Execution to pick up

The revenue during Q2FY23 increased by 9.7% YoY to Rs. 750cr, supported by growth in industrial EPC and O&M segments, which grew by 76% and 93% YoY, respectively. EBITDA margins in Q2FY23 declined by 111bps YoY to 7.2% due to high input costs. However, showed significant improvement of 355bps QoQ due to the decrease in raw material and employee costs. The management expects that the commodity prices to cool further, which would aid in better margins. Further, a fall in depreciation and higher other income supported the earnings to grow by 79% YoY to Rs.464.6cr. The management highlighted that H2FY23 performance will be higher than H1FY22 due to better execution and order inflows.

Healthy order book provides visibility...

The Order backlog of the company stands at Rs.10,340cr as of Q2FY23, which is 2.85x TTM revenue, provides strong revenue visibility for the next two to three years. The company has received a total order inflow of Rs1,496cr. The EPC order book currently contributes 23% to the current order book, whereas, O&M contributes 77%. Both the domestic and international business is well poised. Management refrained from giving order inflow guidance for FY23. However, it expects to increase international Engineering and Procurement (EP) orders which are funded by multilateral entities or Letter of Credit (LC) to further increase the cash flows and margins. The company expects Zero Liquid Discharge (ZLD) solutions to play a crucial role, as this would attract more orders. The company is one of the four technically qualified players for 400MLD Chennai Desalination Project.

Valuations

Acceleration in execution and improving order pipeline along with increase in demand in water projects would aid the company in its growth. "We, therefore, upgrade our rating to Buy and value the stock at PE of 11.5x on FY24E earnings with a target price of Rs.370," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.