Motilal Oswal predicts 25% growth in VA Tech Wabag shares, initiates coverage with ‘buy' rating; stock surges 4%
ADVERTISEMENT Following the report, the stock rose 3.7% intraday on Tuesday, hitting a high of Rs 1,575 on the BSE.
The target is based on a 26x FY27E P/E multiple, and is a premium to the historical average P/E of 18x, reflecting the brokerage's optimistic outlook on the company.
VATW, with its strong order book, improving margins, and robust cash flow generation, is poised for substantial growth, according to Motilal Oswal's analysis.The domestic brokerage firm sees VATW as a compelling investment opportunity, driven by the company's diversified and strong business model in the water treatment and management space.The company is particularly well-positioned in executing large-scale projects in high-margin segments such as engineering, procurement, and construction (EPC), and operations and maintenance (O&M).
ADVERTISEMENT Motilal Oswal emphasises that the company's focus on these areas augurs well for its margins and future profitability.The brokerage firm also highlighted VATW's impressive order book, which stood at Rs 137 billion as of FY25, amounting to approximately 4.2x its FY25 revenue. This provides the company with visibility for 15-20% revenue growth over the next few years.
ADVERTISEMENT The order book is rich in high-margin O&M (52% of total) and EPC (39% of total), sectors that offer long-term stability and strong cash flows. VATW's ability to secure marquee projects in the water sector, both locally and internationally, has strengthened its position as a leader in the industry.
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ADVERTISEMENT The brokerage noted that 'VATW's current order book provides strong revenue growth visibility for the next 3-4 years', which is expected to drive consistent revenue expansion and margin improvements.With a CAGR of 17%-20% in revenue over FY25–28, VATW is set to capitalize on the growing global demand for water infrastructure and wastewater management.
ADVERTISEMENT The global water and waste management market is a multi-decadal theme with emerging new areas, making VATW well-positioned to benefit from this long-term trend. Motilal Oswal underscores that the global market is expected to grow at a CAGR of 6%, reaching USD 576 billion by 2032.VATW is set to capture a significant portion of this expanding market, especially as it is actively involved in large-scale projects that align with government initiatives in water conservation, wastewater management, and industrial water treatment.'The global water and waste management market is projected to grow at an 11% CAGR to reach USD 44 billion by 2029', Motilal Oswal noted, driven by rising water pollution, increasing environmental compliance, and water scarcity concerns.These factors will fuel the demand for services that VATW offers, such as wastewater treatment, desalination, and water recycling solutions.Motilal Oswal also draws attention to VATW's strong free cash flow (FCF) generation, which is expected to average Rs 1.5 billion annually over FY25–28. This healthy cash flow, coupled with a net-cash position, supports further expansion and provides flexibility in funding capital requirements.VATW's focus on large-scale projects in the high-margin EPC and O&M sectors should continue to drive operating leverage and margin improvement over the medium term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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