The stock of VA Tech Wabag (Wabag), a pure-play water technology company, has been trading close to its 52-week low as execution challenges and delay in finalising large infrastructure projects are coming in the way of its growth.
The share price of Ion Exchange, another player in the water treatment business, too is near its 52-week low and is down almost 30 per cent in 2018.
However, their fortunes seem to be changing. VA Tech reported a 20 per cent decline in net profit for the March quarter, while revenues were down 8 per cent.
GST-related disruptions, relative fall in the high-margin operations & maintenance (O&M) business, as well as lower revenues coupled with a poor mix, including APGENCO (Andhra Pradesh Power Generation Company) orders, also impacted margins.
While reported net profit rose 31 per cent to Rs 1.47 billion in FY18, Centrum Broking estimates show the adjusted profit (excluding exceptional items) was down 19 per cent at Rs 1.29 billion.
The management, however, hopes the current fiscal will be better.
It expects to become a net cash generator again in FY19 against net debt of Rs 2.42 billion now, on account of APGENCO.
It expects to recover around Rs 4.5 billion in FY19 out of the Rs 6 billion due from APGENCO.
Rajiv Mittal, MD, VA Tech Wabag, said the company will continue to deliver profitable growth. Order flow momentum has picked up and our favourable positions in upcoming jobs in India and overseas will help boost the order book and expand margins, he added.
For FY19, the management guided for revenue growth of 15-20 per cent and order inflow of Rs 53-57 billion.
Centrum expects the company’s net profit to jump 42.5 per cent in FY19. Ion Exchange, which gets more than half its revenues from engineering services (largely water and waste water treatment), also had a muted March quarter, with revenues falling 7.5 per cent while net profit remained little changed.
Analysts said while Wabag has disappointed in recent quarters, their long-term prospects still look encouraging since there is a huge opportunity in desalination projects, treatment of waste water and sewage, and recycling of water and sludge management for industrial and sewage water.
Projects worth around Rs 500 billion, of which 80-85 per cent are from public sector undertakings, are expected in the next 2-3 years.
This can improve the prospects for both Wabag and Ion Exchange.