VA Tech share up 3% as MOFSL initiates coverage with 'Buy'; 25% upside eyed

Business Standard

4 days ago

VA Tech Wabag share price today: Shares of desalination and water treatment company VA Tech Wabag rose nearly 3 per cent to hit an intraday high of ₹1,559.9 on Tuesday, June 22, 2025, on the NSE after brokerage firm Motilal Oswal Financial Services (MOFSL) initiated coverage on the stock with a bullish outlook, driven by a robust growth outlook, strong order book and improving margins.
The brokerage initiated coverage of VA Tech Wabag with a 'Buy' rating and a target price of ₹1,900 per share, implying a 25 per cent upside from Monday's closing levels of ₹1517.8. "We initiate coverage on VATW with a Buy rating and a target price of ₹1,900, based on 26x FY27E P/E (premium to historical average of 18x on improved outlook). We believe large order inflows and a significant margin expansion could fuel valuation re-rating in the near to medium term," the brokerage said in a note dated July 22.
At 11:45 AM, the stock was trading at ₹1,544, up 1.73 per cent from its previous day's close. In comparison, the benchmark NSE Nifty50 was trading lower by 28 points or 0.11 per cent at 25,062.7 levels.
Here are the key reasons why MOFSL is bullish on VA Tech Wabag:
Water management - A multi-decadal theme
According to analysts at Motilal Oswal, the global water and waste management market is estimated to reach $576 billion by 2032, from $329 billion in 2023 at a CAGR of 6 per cent. The key factors driving the growth include rising water pollution, increasing environmental compliance, water scarcity, and demand for wastewater services from industries.
In addition, the large projects are backed by central governments, sovereign funds and multi-lateral agencies to support companies to execute with payment security, the brokerage said.
VA Tech Wabag - A global leader in water technology
With over 100 years of experience, VA Tech Wabag is the world's third-largest private water operator. The company has a presence in more than 25 countries in all major segments of water treatment, including drinking water, sewage, industrial, seawater desalination, and water recycling.
With technical expertise and vast experience in executing large critical projects, MOFSL believes VA Tech Wabag is now qualified to independently bid for marquee projects globally. However, it is selective in bidding, with a focus on margins and cash flows, and has a win ratio of 25 per cent to 30 per cent.
Solid growth strategy
In 2023, the company launched a long-term comprehensive plan, 'Wriddhi', in response to the ever-evolving and complex global water treatment market. In the next 3-5 years, VATW's is expected to achieve and order book 3x of revenue, revenue CAGR of 15-20 per cent, Ebitda margin of 13-15 per cent, RoCE of more than 20 per cent, O&M mix at 20 per cent, RoE of over 15 per cent, and net-cash positive.
Net cash company with healthy return ratios
According to MOFSL, VA Tech Wabag has witnessed a turnaround in its free-cash flow (FCF) generation in the last five years, achieving a net-cash balance of ₹5.9 billion as of FY25 from net debt of ₹4 billion in FY19. The company's return on capital employed (RoCE) has almost doubled to 20 per cent in FY25 from 11 per cent in FY19. Return on invested capital (ROIC) has also increased to 28 per cent in FY25 from 12 per cent in FY19.
The brokerage expects strong FCF generation (₹3.5 billion annually over FY25-28E) to sustain on the back of healthy operating performance and improvement in working capital cycle. It also expects further expansion in RoCE to 24 per cent, RoE to 16 per cent, and RoIC to 39 per cent, during the same period.