VA Tech's Focus On Engineering Projects, Long-Term Funding To Aid Profitability, Says Nomura

VA Tech Wabag Ltd.‘s focus on engineering and procurement projects, along with long-term working capital funding, will support growth and profitability, according to Nomura.

The brokerage maintains a "buy" rating and raised the target price to Rs 480 from Rs 448 earlier, implying an upside of 54%.

The brokerage's comments came after the water treatment company secured Rs 200 crore in funding from the Asian Development Bank.

Nomura expects the company's margins and execution to improve, aided by this funding and the resumption of a previously-suspended Russian project worth over Rs 1,000 crore. This has put VA Tech’s entire order book of Rs 9,200 crore under execution, the note said.

The relatively less expensive working capital funding from a "reputed agency like ADB" can support execution beyond fiscal 2024, the brokerage said.

The financials of the company were impacted in the first and second quarters after a Russian project worth over Rs 1,000 crore was suspended following the Russia-Ukraine crisis, the brokerage said. Rising commodity prices also impacted the company in the first half of this fiscal year.

VA Tech Wabag is well placed in industrial order, Nomura said.

The brokerage increased the Ebitda estimates for the company by 1% and 4% for financial years 2024 and 2025, respectively, betting on the Russian project as well as securing the working capital funding from ADB.

Shares of the company rose 5.79% on Monday, the most since Nov. 15. The total traded quantity is 8.5 times the 30-day average. The relative strength index of the stock is 74, indicating that it might be 'overbought'.

As of 12:20 a.m., the stock had gained 4.07% to Rs 323.60 apiece, while the benchmark Sensex gained 0.49%.

Of the three analysts tracking the company, all maintain a "buy" rating, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 25.3%.