Va Tech Wabag stock soars as Axis Sec initiates coverage with 'Buy' rating

Domestic brokerage firm Axis Securities, initiated coverage on the water supply and management company with a 'Buy' rating at a target price of Rs 1,700 per share, reflecting an upside of 29.4%

Va Tech Wabag (VTW) stock price surged up to 2.3 per cent of Rs 1344.15 per share on the BSE on Monday. This came amid a positive development for the firm as the domestic brokerage firm Axis Securities, initiated coverage on the water supply and management company with a ‘Buy’ rating at a target price of Rs 1,700 per share. This is valued at 23 times its FY26 earning per share, reflecting an upside of 29.4 per cent from Friday’s closing price. 

The brokerage firm said that Va Tech Wabag is presently riding the wave of sustainable growth with its strategic focus on water conservation, optimisation, and recycling, supported by over 125 IP rights and dedicated R&D centres.

“The company’s robust global footprint, spanning four continents with over 6,500 successfully executed projects, positions it as a key player in the burgeoning green and ESG-themed investment landscape,” analysts at Axis Securities said.

This makes VTW a compelling investment in today's market, analysts added. 

Chennai based Va Tech Wabag is engaged in design, supply, installation, construction and operational management of drinking water wastewater treatment industrial water treatment and desalination plants. With a rich history spanning over 90 years, the company is a leading multinational in water technology. 

Profit led growth

According to the brokerage, the company has adopted a selective approach to project acquisition, focusing on profitability and payment security. The company’s focus on profitability has boosted Ebitda margins to 13.2 per cent in FY24, up from 7.7 per cent in FY21. With medium-term margins projected at 13-15 per cent, the company is poised for sustainable revenue growth and reduced default risks. 

Venturing into new spheres

As of June 2024, VTW’s order book is robust at Rs 10,676 crore, with preferred bidder status on projects worth Rs 6,000 crore. The company's focus on the Middle East enhances revenue visibility, with a target to expand the order book to Rs 16,000 crore by FY25, ensuring steady cash flows and profitability.

Analysts said that the company is not just resting on its laurels but actively exploring new business opportunities. 

“The company’s recent partnership with Peak Sustainability Ventures to establish 100 Bio-CNG plants is a testament to its forward-looking strategy. By converting biogas into compressed natural gas (CNG), VTW is aligning itself with global trends towards cleaner energy. Furthermore, its exploration of opportunities in the semiconductor and green hydrogen industries signals VTW’s commitment to staying ahead of the curve in addressing emerging water-related needs,” analysts at the brokerage noted. 

At 01:17 PM; the share price of the company was trading 1.88 per cent higher at Rs 1337.60. By comparison, the BSE Sensex was trading 0.21 per cent higher at 81,350 levels.

The company has a total market capitalisation of Rs 8,318.59 crore. Its shares are trading at a price to earnings multiple of 38.41 times with an earning per share of Rs 34.18 per share.