Va Tech Wabag Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Steady execution, rating upgrade: 9M FY25 revenue grew ~11% YoY (like-to-like ~13%), PAT grew over 13%, and India Ratings upgraded the company to Ind AA- with Stable outlook, reflecting strong revenue visibility and an asset-light approach.
• Order book crosses INR 14,200 crores: The book is split 58% EPC / 42% O&M and 60% domestic / 40% international, with most contracts carrying secured payment terms. A consortium order in Saudi Arabia worth ~INR 3,251 crores headlined the quarter.
• Margins dipped but guidance held: EBITDA margin fell ~200 bps sequentially on project mix, yet the 9M figure of 13.5% sits inside the 13% to 15% medium-term window, which management reiterated.
• Cash position remains a fortress: Net cash positive for the 8th consecutive quarter, with gross cash of INR 659 crores. Bank limits are set to rise to INR 5,000 crores within this fiscal year.
• What to watch next quarter: Whether the Q4 bumper quarter materialises as promised, the pace of execution ramp-up on the Chennai desalination and Al Haer projects, and conversion of the remaining preferred-bidder pipeline.

Order Book & Wins

• Al Haer STP (Saudi Arabia): Consortium order worth ~INR 3,251 crores for a 200 MLD Independent Sewage Treatment Plant in Riyadh, with Wabag as technology partner and consortium leader. The 30-month project uses advanced technology similar to the earlier Jeddah plant and gives the company strong client credentials for future bidding in the Kingdom.
• Zambia design-build-operate order: ~INR 700 crores from Lusaka Water Supply and Sanitation Company, multilaterally funded by the European Investment Bank and KfW, aligning with the company’s policy of targeting multilaterally funded orders with payment security.
• BAPCO O&M extension: A 7-year O&M order worth ~INR 121 crores for the BAPCO Refining Industrial Wastewater Treatment Plant in Bahrain, adding to the high-margin O&M annuity stream.
• Chennai Petroleum pipeline: A smaller INR 145 crores order for a desalination water pipeline, to be completed in 12 months.
• Preferred bidder conversion: 75% of the ~INR 3,500 crores preferred-bidder projects flagged in the Q2 call have now converted to confirmed orders. A further INR 2,000–2,500 crores project is seen as having a “fancy chance” in the next 2–3 months.
• Order selection discipline: The company does not take state government-funded orders. It targets multilaterally funded orders with payment security, good cash flow, and advanced technology, a filter that supports both balance-sheet quality and margin profile.
• No ceiling on ambition: Management described its appetite as “Dil Mange More,” stating there is no order-book ceiling at which it would stop taking orders, provided discipline holds.

Mittal: “See as the ticket size of the orders are going up, the number of manpower required to execute an order is definitely coming down or per million revenue, the manpower required is definitely coming down. So, this is also helping us to focus on few large orders, rather than 10 such small orders.”

Project Execution Update

• Chennai desalination (400 MLD): Engineering is in an advanced stage, equipment deliveries have commenced, and civil work is in full swing. Management sees no change to the previously communicated timeline and expects next year’s numbers to stay on the same line.
• Pagla project (Bangladesh): The geopolitical disruption that initially affected progress is easing; normalcy is returning and execution is expected to align with projected numbers next year.
• Al Haer project (Saudi Arabia): 28 months of the 30-month timeline remain; execution will now commence.
• Execution capacity not a constraint: As ticket sizes increase, the manpower required per million rupees of revenue is decreasing, making operations more efficient and profitable. The company has scaled from a startup to global #3 by growing with orders.
• Shift from EPC to EP: For the Saudi consortium order, Wabag will do construction only within the treatment plant boundary; everything outside (pipelines, reservoirs) is handled by the partner due to permission and right-of-way issues, confirming the strategic shift toward an EP-led model.
• Price escalation protection: For long-term contracts in India (over 18 months), price escalation is always built in using government RBI indices, covering about 70%–75% of costs.

Financial Position & Margins

• Revenue growth: Consolidated 9M FY25 revenue grew over 11% YoY; on a like-to-like basis excluding divested European entities, growth was about 13%.
• PAT growth: Consolidated PAT grew over 13% YoY (9.2% margin); on a like-to-like basis, PAT grew 17% YoY, continuing the strategy of PAT growing faster than revenue.
• Margin trajectory: EBITDA margin dipped ~200 bps sequentially this quarter on project mix. The 9M figure of 13.5% sits inside the 13%–15% medium-term window. Management cautioned against reading quarters in isolation for a project company.
• Cash and bank limits: Net cash positive for four consecutive years and eight consecutive quarters; gross cash stands at INR 659 crores. Bank limits are tied up at INR 4,000 crores and expected to increase to INR 5,000 crores within this fiscal year, with final discussions underway.
• Rating upgrade: India Ratings upgraded the long-term rating to Ind AA- with Stable outlook, the fourth upgrade in as many rating cycles, citing leadership in water treatment, strong revenue visibility, profitability focus, and the asset-light approach.
• European divestments complete: Three European subsidiaries divested over the last two years to reduce exposure in Europe and channel resources to emerging markets.

Mittal: “Please do not look at us quarter over quarter. There are a mix of projects, EP, EPC, margins will sway, but we will remain in that window, which we have committed for.”

Market Opportunity & Strategy

• Indian river rejuvenation pipeline: Management believes the Indian market has shown only “the tip of the iceberg” because work so far has focused on the Ganga. The government plans to extend the same model to all rivers (Godavari, Krishna, Brahmaputra, etc.) and announced 100 cities under the HAM model in the interim budget, a pipeline that “surely has to take off.”
• Yamuna Action Plan: Wabag is already executing under Yamuna Action Plan 1 and 2, with plants built at Kondli, Keshopur, Papankalan, and Rithala. Action Plans 3 and 4 are expected to follow, and the company expects to be a strong contender for whatever the government allocates.
• Emerging markets only: Management is explicit that it will not enter developed markets like the US, calling them crowded with no margins and no scope for innovation. The company remains focused on the Middle East, Africa, the Indian subcontinent, Southeast Asia, and CIS countries, where it sees tremendous opportunity.
• Technology positioning: The company wants to be considered “an advanced technology, pure play, water company,” concentrating on desalination, recycle and reuse, and effluent treatment projects that carry higher complexity and better margins.
• Blue Seed initiative: Launched in the centenary year, this programme provides pre-seed and seed capital to water-technology startups, shares technical knowledge, helps perfect and commercialise technologies, and leverages Wabag’s presence across 27 countries for go-to-market.
• Win-to-bid ratio: Generally in the 30%–40% range, though it may vary depending on conditions.

Mittal: “Why to go to developed countries. It is a question of survival in developed countries. They already have the infrastructure developed... Why go to a crowded market with no margins, no scope for innovation? We are very happy with our strategy of remaining in the emerging markets.”

Pushback & Unanswered

• Saudi Arabia payment terms: When asked for payment terms on the 200 MLD Saudi Arabia contract, management declined to answer on the call, offering to take it offline because narrating the full terms “will take a long time.”
• Cancelled 300 MLD Saudi order: Management deflected a question on the reason for cancellation, saying the CFO had already answered it earlier in the call. On the scope and size of the new tender, management said it was “too early” and the team needed another week or 10 days to review the changes.
• Order inflow guidance: Management declined to provide FY26 order inflow guidance, stating the company does not give order inflow guidance and that the medium-term guidance on all parameters already implies the required order intake.
• Like-to-like revenue growth: When asked for 9M like-to-like revenue growth excluding divested subsidiaries, management initially said it was in the investor presentation; when the analyst noted only EBITDA and PAT growth were given, management offered “about 10%–11%” before the CFO clarified “about 13%.”
• Dividend policy: Management gave a general answer about shareholders being owners and deciding the best return on capital, without providing any specific policy details.
• Peer margin comparison: When asked about peers reporting ~25% EBITDA margins in a similar segment, management deflected: “We have to learn from these companies. In my 41 years career, we have not seen this kind of thing. So, maybe they are doing something which we are not aware of.”

Guidance & Commitments

Key Metrics