Ringside View: Va Tech Wabag
Order pipline flowsAs ticket size of top 10 client rose 52%, expects growth in revenue of 15-20%and bookings of 20-25% in FY 2014
VA Tech Wabag held a conference call on 24 May 2013 to discuss the financialperformance for the fourth quarter and the fiscal ended March 2013 (FY 2013). The companywas represented by Managing Director Rajiv Mittal and CFO S Varadrajan. Keytakeaways:
Order
intake of water supply and sewage equipment maker Va Tech Wabag grew 34%
to Rs2489 crore in FY 2013. The order book including framework
contracts of Rs 1090 crore stoodat Rs 5374 crore. The
share of operations and maintenance (O&M) in total revenue was about
16.8% inFY 2013 compared with 14.5% in FY 2012. Slowly the share of the
O&M business isgrowing. If this trend continues, the margin will
grow. The O&M margin is higher thanthe engineering, procurement and
construction (EPC) margin.
Capex incurred was Rs 6.92 crore in FY 2013. Capital work in progress was Rs 34-35crore on office building. Of the total order backlog, the share of EPC India is 41%, O&M India is 29%, EPCinternational 25%, and O&M international 5%. Of the international order book, about51% is from Austria, 16% from Switzerland, 12% from Romania, 10% from Philippines, 7% fromCzech, and balance are others.
Given the robust order book, there is confidence of continuing good momentum, both inrevenue growth as well as order bookings. Revenue of Rs 1850-1950 crore (or growth of15-20%) is expected in FY 2014. Similarly, growth of 20-25% to Rs 2600 crore-Rs 2700 crorein order inflow is likely in FY 2014. A few very large orders are in advanced stages ofnegotiations. This gives confidence of strong growth in order booking.
Of the revenue growth
anticipated in FY 2014, about 70% is to come from India andbalance 30%
from international. India operations are to see a revenue growth of
10-15% inthe current fiscal over FY 2013 revenue. Similarly, of the
anticipated order booking ofabout Rs 2600-2700 crore in FY 2014, about
Rs 1700-1800 crore of the order booking is tocome from India.
Importantly, the growth in orders a not at the cost of
profitability.Consistent improvement in profitability in challenging
times has been achieved.
The average ticket size of the
top 10 orders booked increased 52% to Rs 122 crore in FY2013 compared
with the previous year. Some of the major orders booked were the
Rs272-crore effluent treatment plant for Reliance Industries, Rs
219-crore Bangalore watertreatment plant (WTP), the Rs 125-crore
Philippines WTP, the euro 7.5-million Romania WTP,and the Rs 80-crore
sewerage treatment plant upgradation for the Surat MunicipalCorporation.
There are no slow-moving orders in the order book, barring the Libya WTP and UlhasnagarMunicipal Corporation’s 195 million-litre per day (mld) WTP. One Libya order wortheuro 28 million is not moving. Also, orders worth Rs 300 crore were suspended during theArab Spring. The Libya order book of about Rs 400-300 crore is on hold and that will startmoving once the clearance comes in, which is not yet in place. The Rs 230-crore Ulhasnagarorder is delayed due to land acquisition issues.
The
Rs 127-crore Aurangabad Municipal Corporation WTP project for 192-mld,
the s110-crore Chennai Metropolitan WTP project, and the Rs 110-crore
Madinaty of Egypt WTPproject are expected to move to firm order book
from framework order book in Q1-Q2 of FY2014.
The Tamil
Nadu government has announced four more desalination projects, giving
fillipto the desalination business. Of the four, two projects are for
Chennai city. Of theremaining two, one is an expansion project of 150
million litres per day (mld) of theNemeli desal plant in Chennai, set up
and operated by VA Tech. The Nemeli project in to betendered shortly.
The land required is already acquired and in possession. The
otherChennai project is for 200 mld, expandable to 400 mld, for which
detailed project reportwork has been initiated. The tender may be called
in Q4 of FY 2014.
In consortium with Sumitomo, Va Tech
has pre-qualified for few projects, which are tobe finalised soon. For
some more projects, where expression of interest (EoI) was calledfor,
the company in consortium with Sumitomo is to put in its EoI. Of the
projects wherethe company is prequalified with Sumitomo is a desal plant
and a drinking water plant inOman.
In the domestic
market, the focus is more on oil and gas and fertiliser, withinvestment
in the power sector and steel sectors being subdued. Large EPC orders in
thefertiliser industry are getting finalised. Orders for processed
water and cooling waterplants required in fertiliser manufacturing are
expected.
The order inflow guidance given for FY 2014 does not consider any of new Chennaidesalination orders for which Va Tech is prequalified with Sumitomo. These are big-ticketorders. The order booking will get a spike on bagging these.
Outstanding from the Nemeli project is Rs 150 crore as of now. The delay is largely onaccount of the state government not getting part of the funding, amounting to Rs 300 oddcrore committed by the Central government. Va Tech is hopeful of getting it paid byJune-July 2013.
Gradually, there is movement to decentralize low-cost operations from the high-costcentralised operations model. Through multi-domestic unit model, movement is to low-costcountries such as Turkey, are Philippines from high cost country like Austria. Since thistakes time, the fruits of this shift will kick in over the years and will not happen inthe year of change.
There is also move to double-digit the operating profit margin (OPM) for consolidatedentity. There was 60 basis-point improvement in the OPM to 9.6% in FY 2013. Theconsolidated OPM will be in double digits in FY 2014.
source: capitalmarket
