Va Tech Wabag Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Profitable growth, international tilt: PAT rose 31% YoY on 13% revenue growth, with gross margins lifted by a higher share of international EP projects; the India business slowed during the election cycle.
• INR6,000 crores of preferred-bidder pipeline: Management calls this a "firm, concrete pipeline" expected to convert progressively within the fiscal year, keeping the company on track for an order book in the INR16,000 crore range.
• Execution engine shifting into higher gear: Major supply phases on SIBUR and Senegal are complete, moving to installation and commissioning; the Chennai desalination project begins deliveries in Q4, with peak activity next fiscal year.
• Margins inside the band, mix-dependent: EBITDA margin of 13% sits within the 13%-15% medium-term target; quarterly movement depends on project mix, and the second half is historically stronger for execution.
• What to watch next quarter: Whether the INR6,000 crore preferred-bidder pipeline begins converting into booked orders, the pace of India's post-election recovery, and any update on the arbitration award collection.

Order Pipeline & Book

• Preferred-bidder pipeline: INR6,000 crores of projects where Wabag is lowest or preferred bidder, expected to materialize progressively: some in 1-2 months, some in 3-4 months, some in 4-5 months. This does not yet include any One City One Operator awards.
• Order book target: Management expects to be on track for an order book in the INR16,000 crore range, with a look-ahead to INR15,000-INR16,000 crores for next year.
• Gulf pipeline conversion: A previously cited \$1 billion Gulf bid pipeline has now converted to at least half a billion dollars of concrete pipeline, with more expected.
• India queue: A few queue orders are expected to be announced very soon now that elections and the budget are behind; the lull of the last 6-9 months should lift.
• One City One Operator: Nearly 4.5 years of pilot projects completed in Agra and Ghaziabad; new projects are being conceived for bidding this fiscal year, and the company recently participated in fairly large Middle East OCOO projects.

Mittal: "This is a firm pipeline. It's not a normal pipeline. This is all we have bid, we are preferred bidder, we are lowest bidder. All that is a very concrete pipeline."

Project Execution & Milestones

• SIBUR and Senegal: Major supply activities completed; both projects now moving into installation and commissioning phase, shifting the EP revenue mix higher this quarter.
• Chennai Desalination (Peru): Engineering at peak, long-lead items ordered, civil activities started; deliveries planned to commence in Q4 of this fiscal year, with peak deliveries and marine work next fiscal year.
• Pagla STP (Bangladesh) and CIDCO: Procurement activities picked up pace on both the 200 MLD STP in Bangladesh and the water treatment plant in Maharashtra.
• HAM projects: Kolkata HAM commissioned, COD expected next month onwards; Patna and GNN HAM COD expected by end of this calendar year.
• Bangladesh safety: Indian team evacuated from the project site for safety; local team continues to supervise and work; no major setback expected, and the Indian team will return once the Embassy clears it.
• Tunisia: A plant was commissioned and personally inaugurated by the country's President.
• Execution seasonality: September to March is the best period for execution; the second half is always far better than the first half, with engineering largely complete on some projects and site work now ramping.

Financial Performance

• Revenue and profit: Consolidated revenue up 13% YoY, PAT up 31% YoY (adjusted for the one-time gain from divestment of subsidiaries), continuing a pattern of profit growth outpacing sales growth.
• Margin drivers: Gross margins improved substantially both QoQ and YoY, linked to a higher international revenue mix; the main contributors this quarter were the SIBUR and Senegal EP projects.
• EBITDA margin: At 13%, inside the 13%-15% medium-term band; will move between quarters depending on project mix.
• EP mix: This quarter's EP mix was much better than the one-third target because the main contributors were EP projects; management is happy and open to increasing the EP share.
• Cash position: Net cash position remains positive; after many years, the company had a positive cash flow in Q1 itself.
• Debt: No intention to take on any long-term debt; any debt is only to cover cash flow mismatches, described as "a couple of INR100 crores."
• Warranty and liquidated damages: Warranty expenses vary year to year and are project-specific, created as older projects enter the defects liability period; liquidated damages are also project-specific, typically debits from the customer toward project closure, and are already factored into the 13%-15% margin guidance.

Strategic Initiatives & New Business

• Revenue doubling ambition: Aim to more than double revenues within this decade (next 4-5 years) at attractive margins, compressing a century's growth into a few years.
• International mix target: At least 50% of total revenue from international markets; management is confident they will be better than that.
• Resource reallocation: Resources were shifted from India to the Middle East market during India's 6-month pre-election and post-election slowdown; this strategy has "fetched rich dividends."
• New verticals: Planning at least 100 CBG projects over the next few years; also working on semiconductor (ultra-pure water, with a reference plant built in Qatar), compressed biogas, hydrogen, and digitization/AI initiatives.
• Semiconductor and hydrogen timeline: Something may be expected from semiconductor by end of this year or early next year; hydrogen is still in development phase and not yet commercially viable, but may become more economical in a year to a year and a half as electrode manufacturing investment flows in.
• European divestment complete: Three of five European subsidiaries divested in the last year, including the Romanian subsidiary this quarter; the remaining two (parent company in Austria and Turkey/Istanbul office) will stay, with no further divestment planned.

Mittal: "We will compress the growth achieved over a century in the next few years. More than doubling the revenues at an attractive margin within this decade."

Competitive Position & Market

• Global ranking: Fifth in desalination, but number three in the total water sector globally, serving almost 8.8 crore people across the globe.
• Stance on competition: Management welcomes competition, citing technology superiority and deep understanding of its own strengths; on semiconductor ultra-pure water, the company is willing to partner with or source from whoever has the best technology rather than insisting on in-house capability.
• Bhandup project: Wabag did not bid for the 2000 MLD wastewater treatment plant in Bhandup (won by Welspun Enterprises) because the project did not fit its criteria; of seven BMC plants, Wabag bid for none.
• Employee efficiency: Headcount growth will be far lower than revenue growth; efficiencies, productivity, and digitization will drive growth without proportional employee increase, and larger project ticket sizes need fewer people than many small projects.

Mittal: "Where there is opportunity, competition is most welcome. We have never worried about competition because we understand our strengths, we understand our technology superiority."

Guidance & Commitments

Key Metrics