Va Tech Wabag Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Turnaround validated by cash, not just profit: EBITDA grew 43% before exceptionals, PAT rose 74%, and the company swung from net debt to net cash of ~₹100 crores, proving the two-year-old strategy shift is working.
• Order book at a historic high of ₹13,200 crores, up 30% YoY, anchored by India's largest-ever desalination win (Chennai 400 MLD) and a breakthrough Bangladesh project.
• A deliberate ₹289 crore write-off cleaned legacy receivables from APGENCO, removing a recurring overhang so investors can measure true business performance going forward.
• Margins are structurally improving as the company pivots to EP from civil-heavy EPC, but management declined to give precise revenue or margin guidance beyond "double digit" EBITDA.
• What to watch next quarter: Whether the preferred-bidder pipeline converts into announced orders within the promised six-to-eight-week window, and how quickly the Chennai desalination project reaches financial closure and effective date.

Strategy Shift: EP Over EPC

• Core pivot: The company is deliberately focusing on Engineering & Procurement (EP) jobs and avoiding civil construction, which is low-margin pass-through work prone to right-of-way delays. This shift is expected to improve both bottom line and cash flow.
• Technology as moat: Wabag uses proprietary IP and reference plants as barriers to limit competition in L1 bidding, positioning itself where few competitors can follow.
• Asset-light discipline: Even when handling HAM projects, the company avoids heavy balance-sheet impact, staying true to an asset-light model.
• EP vs EPC mix is not fully controllable: Some customers demand single-point responsibility (EPC), and in those cases Wabag partners with civil contractors rather than taking civil scope onto its own books.
• Civil exposure is modest: Management estimated that excluding the recent Perur job, civil construction is roughly 20–25% of the order book or revenue, though it declined to give a precise figure.

Mittal: "Because of the strategy shift we have done you can take that double digit numbers."

Order Book & Deal Wins

• Chennai desalination (400 MLD): The largest desalination plant in India and Southeast Asia, JICA-funded. Wabag was the only Indian party among four pre-qualified bidders and won against tough international competition. Once operational, Wabag will manage 70% of Chennai's water production through desalination.
• Bangladesh breakthrough: A historic order funded by the World Bank and AIIB, also won against international competition. The plant generates green energy from biogas for captive use, making it power-neutral.
• Framework-order discipline: For orders where the client has not opened an LC, the company will not invest a single rupee until it receives a payment bank guarantee, citing the Libya desalination plant as an example of this approach.
• Bid pipeline is strong: Management described the pipeline as "very robust" with several projects where Wabag is already a preferred bidder, and expects to announce some orders within the current quarter.
• Order intake target: The company aims for order intake in FY24 at a similar level to FY23, and wants to add at least ₹2,000 crores to the order book this year, taking it from ₹13,200 to ~₹15,000 crores, with a path to ₹17,000 crores in one to two years.

Desalination & Manufactured Water

• Strategic bet for the next decades: Seawater desalination is viewed as a drought-proof, perennial water source where competition is limited by a lack of references and scale. Wabag intends to build its order book and execution capability here for the long term.
• Global ranking improving: With the Chennai win, Wabag expects its global desalination ranking to move from sixth to "three or four" next year.
• Egypt pre-qualification: The company has pre-qualified for Egypt's massive desalination schemes, opening a new geography for the manufactured-water thesis.
• Renewable energy integration: Green energy is the trend for desalination; in Chennai there is talk of tendering for powering the plant with renewable energy, though management did not provide specific cost comparisons when asked.
• Technology parity with global leaders: When asked about the gap versus Veolia, management stated flatly that Wabag is "second to none" and sees no technology gap that needs to be filled to meet market demand.

Mittal: "There's no company globally which have achieved so much in so little time and proud to be not only a Wabagite but also be a proud Indian to say that the Indian flag is in the water sector at number three."

Financial Health: Cash, Debt & the Write-Off

• Net cash turnaround: The company moved from net debt to net cash of ~₹100 crores, with gross debt halved from ₹428 crores to ₹213 crores. This is the third consecutive year of free cash generation.
• Working capital under control: Working capital stayed under 90 days at 78 days, with a 10% gross reduction in absolute values. Management wants to stay in a 60–90 day band and has demonstrated 55–60 days before; larger projects may cause some expansion, but the EP shift should balance it.
• ₹289 crore write-off explained: The write-off predominantly relates to APGENCO (one case at NCLT, another in arbitration). TSGENCO was not written off because the client has accepted it owes the money and payment is pending only on arbitration conclusion at the Supreme Court level.
• Write-off is a cleanup, not a surrender: Management will continue to pursue legal recovery and invest legal expenses to do so; any recovery will be cash-accretive. The write-off is a book entry to remove a recurring ECL-provision overhang so investors can measure true business performance.
• Receivables bulge is timing, not stress: Post-write-off, receivables stand at ~₹1,500 crores. Many new projects (Reliance, Senegal, Sibur Russia) had dispatches in the last quarter or month, so revenues are booked but not yet due for collection. Much of this should be collected in the first half of FY24.

Mittal: "This is only the book entry to clean the baggage which we have been doing for so long. So we want to be in the light of this and the true business performance you can measure that what the company is doing rather than getting these provisions every year as per ECL policy."

End-Market Drivers & Geographies

• India cluster: Driven by AMRUT, Jal Jeevan Mission, Namami Gange, and Swachh Bharat Mission. Five states have already signed into reuse of used water, and more are expected to follow as success stories emerge.
• Regulatory teeth: The National Green Tribunal has powers to impose heavy fines including imprisonment for non-compliance, and the Central Groundwater Commission is disconnecting illegal groundwater tapings, both forcing industries toward treated water.
• Multilateral funding tailwind: JICA, World Bank, ADB, and KFW are flowing money into the sector at attractive interest rates, de-risking project finance.
• MEA opportunity: Saudi Arabia's wastewater treatment plan, Egypt's desalination pre-qualification, and Africa's multilateral and G2G-funded projects form a visible pipeline.
• Europe: EU funds moving into the former Eastern bloc are opening opportunities in nutrient removal and micro-nutrient removal, where Wabag will have built 50 reference plants before the technology becomes relevant in other geographies.
• Russia remains a key market: European competitors have exited, leaving less competition. Wabag has a dedicated team and sees an opportunity to improve both business volumes and margins there.

Mittal: "Why we should not do this? Why? And as you rightly said, our competition is less. European companies have gone out. So, we should take advantage and improve our business and improve our margin."

Revenue Mix & O&M Ambition

• O&M as a steady-state revenue stream: O&M has been growing because of "one city one operator" contracts giving bulk O&M, DBO contracts coming into force, and HAM contracts that will further enhance O&M revenues this year.
• O&M revenue target: Management wants O&M revenues to reach at least 20% of total revenue in the near-to-medium term.
• International revenue ambition: On a long-term basis, the company wants at least 50% of revenue from international markets.
• Industrial segment mix: Industrial is currently 30% of execution revenues; a lumpy order may cause it to dip, but over a 10-year horizon 30% of business is expected to come from industrial, focused on complex large plants mainly from oil and gas, and eventually semiconductors.
• Top-line growth visibility: With the current order book, the company is looking at top-line growth, and O&M will provide a steady base in the years to come.

Guidance & Commitments

Key Metrics