VA Tech Wabag surges 10% in two days, nears 52-week high on stable outlook

Shares of VA Tech Wabag were up 5 per cent at Rs 342 on the BSE in Tuesday’s intra-day trade, surging up to 10 per cent in past two trading sessions on stable outlook. The stock of water supply & management company traded closer to its 52-week high of Rs 350.40, touched on December 3, 2021.

On November 24, the rating agency India Ratings and Research (Ind-Ra) affirmed VA Tech Wabag’s long-term issuer rating at ‘IND A+’ with a stable outlook and upgraded the short-term debt rating to ‘IND A1+’ from ‘IND A1.

The short-term rating upgrade reflects the likelihood of a continued improvement in VA Tech Wabag’s liquidity position over the medium term, driven by a healthy outlook on its profitability and stabilisation of its working capital cycle, the rating agency said in its rationale.

The company has strong revenue visibility with an outstanding order book as on 30 September 2022 of about Rs 9,200 crore (FYE22: RS 9,800 crore), which is around 3x of its annual revenue of FY22. The company also has a framework contract of Rs 1,100 crore.

The operations and maintenance contracts form about 35 per cent of the order book. These contracts tend to be executed over several years. The engineering, procurement and construction (EPC) order book is about 2x of the revenue. Most of VA Tech Wabag’s projects are funded by central government agencies such as Namami Gange Mission, Atal Mission for Rejuvenation and Urban Transformation and multilateral agencies, reducing any customer default risk. During FY18-FY22, the company’s liquidated damages averaged only 0.2 per cent of its revenue, Ind-Ra said.

Meanwhile, on Friday, November 25, VA Tech Wabag signed an agreement with Asian Development Bank (‘ADB’) towards raising Rs 200 crore through unlisted Non Convertible Debentures (‘NCD’) carrying a 5 years and 3 months tenor which will be subscribed by ADB over a 12 month period. This will be ADB’s first investment in a Water sector company in India. This is in continuation to the ongoing debt optimization efforts of the company through long term and low cost funding sources.

The capital raised through this NCD issuance will be used towards working capital requirements and will be within the current borrowing limits, thereby not increasing the debt levels of the company, VA Tech Wabag said.