Sector Waste water treatment
CMP INR 407.70
Market Capitalization INR 2,237.28 (in crores)
This multi-national company underwent a management buy-out in 2005 from the Austrian management and SIEMENS. VA TECH WABAG is a waste water management and recycling company that operates over 100 plants in India and abroad. This company has a reputation of being ‘globally-local’. A strong background owing to its international outlook and a domestic management with a keen understanding of the on-ground business, the company is marching forward. The company is one of the biggest companies in its class in the world.
Key projects executed by the company
Rising competition from other global organized players in the bidding process may compel the Company to lower prices to win contracts and maintain market share. This may lead to substantial margin pressure.
Mitigation: However, the company still remains one of the top 10 players in the world in this industry.
Changes in economic and relevant regulatory policies, lower GDP growth, scaling back of government initiatives and termination of government contracts with little or no prior notice, insufficiency of funds and the reluctance of government departments to make quick decisions may adversely impact opportunities from a specific country or region.
Mitigation: The company has a strict procedure of evaluating projects and credit-worthiness of the client, thus making sure that the client is able to finance the project till the end and not have to abandon mid-way due to any financial reasons. However, when governments and companies fail to even allocate a budget to this, business opportunities remain subdued.
WABAG depends on vendors for the construction of its various projects and supply of key equipment. Therefore, it is exposed to uncertainty in the quality of their services, equipment and supply including timely delivery. This can cause operational delays and increased costs.
Volatile global currencies may impact WABAG’s profitability adversely.
The earnings have plateaued over the last 5 years with no significant upside. However, the strong order book bestows confidence in the growth story of the stock. The faster the executions, the better.
Financials (Key Green indicates positivity, Yellow indicates neutrality & red indicates discomfort/breach of our filters)
PEG ratio 2.27
Book Value INR 208.44
Return on Invested Capital 25.92%
Cash Return on Invested Capital 26.69 %
Return on Equity (7 years) 11.79%
Intrinsic value (Assuming 6.8% discount rate) INR 693.15
Margin of Safety 55.83%
Fair Value by DCF calculation INR 451
Calculation by PE multiple (Assuming 22x FY19E) INR 616
The stock is almost fairly valued currently. We see upside in the medium & long term due to its niche domain, management efficacy, multi-national presence & tremendous opportunity going ahead. This can definitely be an investment for the future.
Disclaimer: All data has been presented as on 26th & 27th June,2018. The above document must not be construed as a research report, advice or recommendation to buy/sell the stock. These are simply our views on the same and we request you to consult us or your financial expert before taking a decision.
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