Why Va Tech Wabag Share Price is Falling

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Regular readers of this column turn to us for ideas and investment insights.

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In today's issue, we're going to talk about a smallcap company that's betting big on some futuristic themes.

Themes like green hydrogen and semiconductors...

And the best part is, this company is present across the water solutions value chain.

The company is none other than Va Tech Wabag.

In the past 1 year, shares of the company have had a good run on the bourses, rising 162%.

However, as is visible in the chart above, the stock price took a sharp hit in today's trading session following a big update.

Let's find out more...

Why Va Tech Wabag Share is Falling

Big Order Cancellation (Order Worth 25% of its Marketcap!)

The recent steep decline in Va Tech Wabag shares comes after it announced that a big order worth Rs 27 billion (bn), which was for a 300 MLD mega seawater desalination plant in Saudi Arabia, had been cancelled.

Here's an excerpt from the exchange filing:

• "With reference to our above intimation dated September 06, 2024 relating to 300 MLD Mega Sea Water Desalination Plant Order in the Kingdom of Saudi Arabia, we hereby inform that the Customer has notified all tender participants on December 16, 2024, that the said tender stands cancelled pursuant to their internal administrative procedures"

Reacting to this, the stock price saw a steep decline of 17% and hit a low of Rs 1,522 in intraday trade.

The company further stated that they are in touch with their client to understand and comprehend the reasons in detail.

This desalination plant was intended to operate using dual media filters followed by a two-pass reverse osmosis process and re-mineralization to produce clean potable water.

This order was scheduled for completion within 30 months.

Va Tech Wabag has a current marketcap of Rs 10,433 crores.

What Next?

While the above order cancellation may have dampened hopes for retail investors who took the panic selling route, one must remember that Va Tech Wabag has a massive order book without this order as well.

At the end of March 2024, its order book was Rs 114 bn. Out of this, 56% of orders are EPC orders and the rest 44% are O&M.

As of September 2024, it had an order book of Rs 145 bn.

Apart from the Saudi Arabia order, during the September 2024 quarter, Va Tech also won another mega order of Rs 10 bn from Indosol Solar for a 100 MLD seawater desalination plant.

Meanwhile, it also got a repeat order from Reliance Industries for water systems and another repeat order from Chennai Metro Water worth Rs 4.2 bn.

The company is anticipating its order book position to exceed Rs 160 bn by the end of FY25.

Coming to its green hydrogen partnership, the Chennai-based company aims to position itself as a key water partner for organisations focused on green hydrogen production, utilising its internal capabilities and expertise.

The company has already garnered interest from several entities seeking its expertise as a water partner in their green hydrogen initiatives.

Meanwhile, Wabag is also exploring opportunities in the semiconductor and bio-CNG areas. As semiconductor manufacturing requires a high level of extra-pure water, Wabag is keen to be part of this. A few years ago, Wabag did a project in the Middle East to supply pure water to one of the semiconductor manufacturing facilities.

Coming to its financials, the company's sales have grown at a CAGR of 2.2% in the last five years driven by a strong order book. A low revenue growth is primarily due to slow order execution.

The company's net profit has grown at a CAGR of 24.4%. The company's profitability was slightly affected due to high commodity prices. However, it bounced back strong in financial year 2024 primarily due to the company's improved pace of order execution.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	25,572	28,345	29,793	29,605	28,564
Growth (%)	-8%	11%	5%	-1%	-4%
Operating Profit	2,522	2,270	2,694	3,714	4,191
OPM (%)	10%	8%	9%	13%	15%
Net Profit	910	1,101	1,319	130	2,456
Net Margin (%)	4%	4%	4%	0%	9%
ROE (%)	7.5	7.8	9.0	0.7	14.8
ROCE (%)	14.3	12.8	13.7	4.4	20.6
Dividend (Rs)	0.0	0.0	0.0	0.0	0.0
Debt to Equity (x)	0.4	0.3	0.3	0.1	0.2

Source: Equitymaster

Being a well-established player in the water infra business, the company has a competitive edge over its peers. It has a diversified client base across municipalities and industrial businesses across India and several countries.

Given the growing demand for desalination and water reuse globally, Va Tech Wabag could benefit from the evolving trend.

However, it is important to note that its profits can be affected due to delay in order execution, and its cashflows can be impacted due to delay in receivables from clients.

Hence, it is very important to do thorough research before jumping into any financial decision.

Investors should also consider corporate governance as one of the criteria for due diligence before considering an investment.

How Va Tech Wabag Shares Have Performed Recently

In the past 5 days, Va Tech Wabag shares have fallen 6%.

Today, the stock price fell over 17% but recovered smartly as the session progressed.

The stock price recovered after the company clarified that the order was cancelled as the local authority wanted to 'recalibrate' the size and scope of the order, and a fresh tender will be floated soon in the next couple of weeks.

Currently, it's down 8%.

Va Tech Wabag has a 52-week high of Rs 1,944 touched on 9 December 2024 and a 52-week low of Rs 581 touched on 21 December 2023.

Here's a table comparing Va Tech with its peers -

Comparative Analysis

Company	Va Tech	Antony Waste	Eco Recycling	Namo Ewaste	Race Eco
ROE (%)	14.8	18.9	33.8	19.4	7.2
ROCE (%)	20.6	16.3	42.5	20.9	11.9
Latest EPS (Rs)	41.9	24.6	12.1	2.9	2.8
TTM PE (x)	44.9	27.5	79.3	76.8	124.7
TTM Price to book (x)	5.9	3.2	23.2	-	10.9
Dividend yield (%)	0.0	0.0	0.0	0.0	0.0
Industry PE	42.9
Industry PB	5.9

Source: Equitymaster, Ace Equity

About Va Tech Wabag

VA Tech Wabag is engaged in the design, supply, installation, construction, and operational management of drinking water, waste water treatment, industrial water treatment, and desalination plants.

The company undertakes projects through various business models including EPC, HAM, operation and maintenance (O&M), Design Build Operate (DBO), and Build-own-operate-transfer (BOOT).

It is an established player in the water treatment business, the third largest private water operator in the world, and among the top 5 global desalination players by Global Water Intelligence, UK.

Some of its key clients are Delhi Jal Board, Reliance, ONGC, Petronas, Indian Oil, and NMDC.

For more information, check out Va Tech Wabag's financial factsheet.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...