Waste water management stock down 19% after Saudi cancelled ₹2,700 Cr order

Shares of a leading pure-play water technology Indian Multinational Group and a global leader in the water industry slumped nearly 19.2 percent on BSE to Rs. 1,522.3 on Wednesday, after Saudi Arabia cancelled an order worth Rs. 2,700 crores placed on 6th September. 

With a market cap of Rs. 10,206.7 crores, at 10:24 a.m., the shares of Va Tech Wabag Limited were trading in the red at Rs. 1,641.2, down by nearly 13 percent, as against its previous closing price of Rs. 1,883.45. 

What’s the News: 

Va Tech Wabag Limited, as per its latest regulatory filings with the stock exchanges, announced that the Kingdom of Saudi Arabia has cancelled an order placed on 6th September. 

This order, valued at around $317 million (~Rs. 2,700 crores), was awarded by the Saudi Water Authority for the EPCC of a 300 Million Litre per Day (MLD) Mega Sea Water Reverse Osmosis (SWRO) Desalination Plant in Yanbu, Saudi Arabia. 

Va Tech Wabag is currently in touch with the customer to understand and comprehend the reasons in detail. 

Details of the Order: 

This Engineering Procurement, Construction & Commissioning (EPCC) contract involves the design, engineering, supply, construction and commissioning of a 300 MLD Mega Desalination Plant. 

The project was to be developed on a greenfield site located on the west coast of Saudi Arabia, south of the Red Sea-facing city of Yanbu al-Bahr, with a scheduled completion timeline of 30 months. 

This Mega Desalination Plant was designed to operate using advanced processes, including Dual Media Filters, a two-pass Reverse Osmosis system, and Re-mineralization, to produce clean potable water. This water would then be distributed by the Saudi Water Authority (SWA). 

This plant was planned to be built with advanced Desalination technologies, ensuring high energy efficiency and producing water of exceptional quality while adhering to the environmental regulations of Saudi Arabia. 

About the Awarding Entity: 

The Saudi Water Authority (SWA), formerly known as the Saline Water Conversion Corporation (SWCC), oversees the regulation and monitoring of water sector operations and services to promote water sustainability and align with the goals of Saudi Arabia’s Vision 2030. 

Currently, the SWA manages more than 40 desalination plants producing over 11 million cubic meters per day, along with over 139 ground and surface water purification stations producing an additional 4 million cubic meters per day. 

Financials: 

Va Tech Wabag reported a marginal growth in consolidated revenue from operations, experiencing a year-on-year increase of nearly 5.3 percent, rising from Rs. 665 crores in Q2 FY24 to Rs. 700.3 crores in Q2 FY25. 

During the same period, the company’s net profit rose by 17 percent YoY, from Rs. 60.2 crores to Rs. 70.6 crores, driven by debt control and improved operating margins. 

EBITDA for Q2 FY25 increased by 5.5 percent YoY to Rs. 103 crores, up from Rs. 97.6 crores in Q2 FY24, with the EBITDA margin stable at 14.7 percent. The growth was supported by EP, International, Industrial & Advanced Technology projects. 

Order Book: 

As of Q2 FY25, the company’s order book reached a record Rs. 14,600 crores, including Framework contracts, with around 4x revenue visibility. The order book consists of a balanced mix of EPC and O&M projects both in India and internationally. Meanwhile, its order intake stood at Rs. 4,607 crores. 

Notably, the company has already secured over Rs. 4,500 crore of order intake this quarter, against the Rs. 6,000 crore preferred bidder status in projects discussed in the previous investor call. 

Va Tech Wabag is also a preferred bidder in some large Marquee Projects worth more than Rs. 3,500 crores. The strong order book is supported by funding from Federal Governments, Multilaterals and Payment Securities. 

Future Outlook: 

The management has set a medium-term outlook for the next 3-5 years, projecting revenue growth of 15-20% CAGR, an order book three times the revenue, EBITDA margins of 13-15%, RoCE above 20%, O&M contributing 20% of total revenue, RoE over 15%, and a net cash-positive position. 

Currently, the company has achieved an 11% YoY revenue growth, with a highest-ever order book of over Rs. 14,600 crores. In H1 FY25, EBITDA stood

at 13.9% of revenue, RoCE at 18.3%, O&M accounts for 19% of revenue, RoE is at 14.6%, and the company is net cash positive with Rs. 222 crores. 

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Key Financial Ratios: 

In terms of key financial metrics, Va Tech Wabag currently has reported a Return on Equity (RoE) of 14.6 percent and a return on capital employed (RoCE) of 18.3 percent in Q2 FY25, due to creating long-term Shareholder Value and driven by Asset Light Business Model, respectively. Additionally, the company’s debt-to-equity ratio stands at 0.22. 

Shareholding Pattern: 

As per the September 2024 shareholding pattern, the Promoters hold a 19.12 percent stake in the company, Foreign Institutional Investors (FII) hold a 14.68 percent stake, while Retail Investors and Domestic Institutional Investors (DII) hold a 62.59 percent and 3.59 percent stake in Va Tech Wabag, respectively. 

As of September 2024 shareholding data available with the BSE, the ace investor Rekha Jhunjhunwala holds 50 lakhs equity shares, representing an 8.04 percent stake, in the company. 

Stock Performance: 

The stock has delivered multibagger returns of nearly 157.3 percent of returns in one year, while around 45.7 percent of positive returns in the last six months. So far in 2024, the shares of VA Tech Wabag have given multibagger returns of about 158 percent. 

About the Company: 

Founded in 1924, Va Tech Wabag Limited, one of the world’s leading companies in the water treatment sector, is engaged in the business of design, supply, installation, construction, O&M of drinking water, waste water treatment, industrial water treatment and desalination plants including production of energy from biogas and sludge management. 

Va Tech Wabag is 3rd largest private water operator and 5th top desalination plant supplier, with a presence in over 25 countries, and core expertise in Engineering & Procurement (EP), with an Asset Light Model. 

Written by Shivani Singh 

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