Motilal Oswal has issued a 'Buy' rating on VA Tech Wabag, citing a strong ₹200 billion order book and robust growth projections through 2028. While the brokerage expects profit and revenue to rise steadily, investors should monitor execution risks and working capital requirements.
Motilal Oswal has maintained a 'Buy' rating on water infrastructure firm VA Tech Wabag, setting a target price of ₹2,529 per share. The brokerage highlighted the company’s strong revenue visibility, driven by a massive order book and improving operational efficiency.
Growth Outlook and Financial Strength
The company is currently sitting on an order book valued at approximately ₹200 billion. This is significant for investors because it is about five times the company's projected revenue for the 2026 financial year, providing a clear pipeline of work for the coming years. Analysts at Motilal Oswal expect this to translate into a Compound Annual Growth Rate (CAGR) of 19% for revenue, 26% for EBITDA, and 23% for Adjusted Profit After Tax (APAT) between the 2026 and 2028 financial years.
Supporting this growth is a healthy balance sheet. The company maintains a net cash position of over ₹10 billion, which provides financial flexibility as it takes on new projects. The company’s efficiency is also expected to improve, with projections suggesting that its Return on Capital Employed (RoCE) and Return on Invested Capital (RoIC) could reach 23% and 36%, respectively, by the 2028 financial year.
Operational Risks and Watchpoints
While the growth outlook is positive, the business model carries specific risks that investors should track closely. A primary factor is working capital intensity. A large portion of the company's annual revenue remains tied up in trade receivables, meaning the company must effectively manage its cash collection cycles to maintain liquidity. If the time taken to collect payments increases, it could put pressure on the company's cash flow.
Furthermore, the company operates in complex international markets, including regions in the Middle East that have recently faced geopolitical instability. While the company has shown resilience in executing projects in these areas so far, ongoing instability remains an execution risk. Any delays in site access, supply chain disruptions, or labor challenges in these regions could impact project timelines and cost structures.
Investors should closely monitor the company's ability to maintain its working capital days within the target range of 100 to 110. Consistent management of this metric, along with successful execution of the current order book, will be key to meeting the growth targets set by analysts. The stock is currently trading at approximately 21 times its estimated 2028 earnings, and the ultimate performance will depend on the company's ability to navigate raw material costs and sustain its profit margins during this expansion phase.