Motilal Oswal sees 70% rally in this multibagger stock amid expanding order book. Should you buy?

Mint

4 days ago

Motilal Oswal has initiated coverage on VA Tech Wabag with a 'buy' rating, citing the company's expanding order book, improving margins and return ratios, and strong free cash flow generation.
VA Tech Wabag is a leading, 100-year-old water technology company that offers end-to-end solutions in the design, construction, and operation of wastewater projects. The company has been consistently expanding its order book in recent years, driven by the growing global focus on water and waste management, a sector that involves removing contaminants from sewage or wastewater to make it recyclable, reusable, and environmentally safe.
The sector is gaining momentum due to increasing environmental regulations, rising water pollution, growing water scarcity, and industrial demand for wastewater treatment. It is projected to grow from USD 329 billion in 2023 to USD 576 billion by 2032.
Backed by industry tailwinds and its strong execution capabilities, VA Tech Wabag has built a robust order pipeline that underpins its future growth prospects. Motilal Oswal highlighted that VA Tech Wabag's current order book stands at ₹ 137 billion, 4.2 times its FY25 revenue, supported by a strong bid pipeline of ₹ 150–200 billion.
This provides visibility for 15–20% revenue growth over the next 3–4 years. The order book includes a healthy mix of O&M projects (39%, with execution cycles ranging from 5 to 20 years) and EPC projects (52%, with 2–3-year cycles).
Despite being eligible to execute large critical projects globally, it is selective in bidding (focus is on margins and cash flows) and has a win ratio of 25-30%.
The brokerage also underscored the company's impressive turnaround in free cash flow over the past five years. VA Tech Wabag moved from a net debt position of ₹ 4 billion in FY19 to a net cash balance of ₹ 5.9 billion at the end of FY25.
Motilal expects the company to continue generating strong free cash flows ( ₹ 3.5 billion annually during FY25–28E), driven by healthy operating performance and improvements in the working capital cycle.
Return ratios have significantly improved as well. RoCE and RoIC have doubled to 20% and 28% in FY25 from 11% and 12% in FY19, respectively. RoE has risen to 13.8% in FY25, compared to 8–9% reported until FY22. For FY25–28E, the brokerage projects further improvements, with RoCE rising from 20% to 24%, RoE from 14% to 16%, and RoIC from 28% to 39%, which is all above the company's guided range.
Motilal Oswal, in its bull case scenario, expects VA Tech Wabag's stock to reach ₹ 2,564 apiece, a potential upside of 70% from its recent closing price. Under the base case scenario, Motilal Oswal has set a target price of ₹ 1,900, implying a 25% upside from Monday's closing level.
In the bear case scenario, Motilal Oswal sees the stock falling to ₹ 1,318, expecting 12%, 14% and 15% CAGR in revenue, EBITDA, and PAT over the same period.
According to Trendlyne's shareholding data, late investor Rakesh Jhunjhunwala's wife, Rekha Jhunjhunwala, held an 8.04% stake at the end of the June 2025 quarter.
The company's shares, following their one-way rally, have witnessed profit booking, resulting in three consecutive months of declines. However, the momentum reversed in March, with the stock gaining 27.6% so far.
Looking further back, the stock has delivered stellar returns in the long run, currently up 1143% over the last five years. In December, the stock recorded a fresh all-time high of ₹ 1,944, edging toward the ₹ 2,000 mark.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.