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Friday, August 23, 2013


Scrip Code:  532178 ENGINERSIN
CMP:  Rs. 123.95; Buy at Rs. 124 levels.

Short term Target: Rs. 150; Medium to Long term Target: Rs. 225; STOP LOSS – Rs. 114.08; Market Cap: Rs. 4,176.32 Cr; 52 Week High/Low: Rs. 257.25 / Rs. 121.70.

Total Shares: 33,69,36,600 shares; Promoters : 27,09,00,540 shares –80.40 %; Total Public holding : 6,60,36,060 shares – 19.60 %; Book Value: Rs. 66.41; Face Value: Rs. 5.00; EPS: Rs. 18.66; Dividend: 120.00 % ; P/E: 6.64 times; Ind. P/E: 7.32; EV/EBITDA: 4.83.
Total Debt: NIL; Enterprise Value: Rs. 4,163.94 Cr.

ENGINEERS INDIA LIMITED: ENGINERSIN was founded in 1965 and is headquartered in New Delhi, India. Engineers India Limited, an engineering consultancy company, providing designs, engineering, procurement, construction, and integrated project management services principally for the oil and gas, petrochemicals, fertilizer, and LNG industry segments in India and internationally. The company operates in two segments - Consultancy and Engineering Services, And Turnkey Projects. It offers pre project services, such as feasibility studies, environment impact assessment, technology and process licensor selection, and cost estimation services; and project implementation services, including project management, process design, detailed engineering, procurement, construction management, and commissioning and plant start-up assistance services. The company also provides project management consultancy services; and specialist services comprising heat and mass transfer equipment design, environment engineering, information technology, specialist materials and maintenance, plant operations and safety, refinery optimization studies, and yield and energy optimization studies. In process design services it provides conceptual designs and feasibility reports; design packages for open art process units for gas-processing and refineries and integrated utilities and offsite facilities, and offers a portfolio of more than 30 process technologies for application in oil and gas processing sector. Construction management services include services at site, including warehouse management, quality control and assurance, Health Safety and Environment (HSE), progress monitoring and scheduling. In addition, the company offers engineering, procurement, and construction and commissioning services; services related to certification, re-certification, safety audit, and onshore oil and gas facilities; and third party inspection for equipment and installations in the hydrocarbon and other sectors. It also serves non-ferrous mining and metallurgy, power, and infrastructure industries, as well as the Government of India. The company is locally compared with Mukand Engineers Ltd, RJ Shah & Company Ltd, Reliance Industrial Infrastructure Ltd, Shriram EPC Ltd, SPML INFRA Ltd, HOV Services Ltd, Hindustan Dorr-Oliver ltd, AIA Engineering Ltd and Sunil Hitech and Globally compared with Samsung Engineering from South Korea, Hyundai Engineering & Construction of South Korea, Petrofac from Middle East, Saipem from Abu Dhabhi, National Petroleum Construction Company of Middle East, Technip from French, Technicas Reunidas from Spain, Jacobs Engineering from California, Watabe Wedding Corporation of Japan, central Security Patrols Company Limited of Japan, Mortice Ltd of Singapore.

Investment Rationale:
EIL is a consultancy company & EPC contractor in the fields of petroleum refining, petrochemicals, pipelines, oil & gas terminals & storages, fertilisers, mining and metallurgy and infrastructure projects. The company is also working in diversified areas of water & waste management and has made inroads into the areas of nuclear, solar and thermal power. It has also expanded its operations internationally, and has provided a wide range of engineering consultancy services in the Middle East, North Africa and South East Asia. Management believes that the company will benefit from several pending orders from various PSU refineries over the next few years. Company believes that HPCL Ratnagiri refinery and petrochemical project which is estimated to cost Rs. 35,000 Cr might flow in Q4FY14 or FY15. Management believes that this PSU project could entail consultancy opportunity to EIL of nearly Rs. 1500 Cr to Rs. 2000 Cr. Engineers India (EIL) posted a YoY sales de growth, the fifth one in a row. Its Sales declined by 38.4 % YoY, mainly on account of a 66 % de-growth in Lump Sum Turnkey (LSTK) projects. EBITDA margins improved on account of higher share of consultancy revenues and better margins there. Other Income also de grew by 7.1 % YoY AT Rs. 68.03 Cr, PAT stood at Rs. 129.34 Cr, down 16.2 % YoY. Capital employed increased by 18.4 % YoY at Rs. 2340 cr. Company’s Consultancy EBIT margins in Q1FY14 stood at 39.2 % down by 2.40 % YoY and LSTK projects experienced a 3.30 % decline YoY to 7.1 %. The share of Consultancy in overall sales was 67.5 % as against 40.2 % in Q1FY13. EIL’s current order book stands at around Rs. 2960 Cr and the order inflow for Q1FY14 stood at Rs.110 Cr. EIL has meaningful investment in XII year plan in Hydrocarbon space which offers immense business opportunity. Company’s consultancy business enjoys strong margins and will continue for coming quarters also. Company’s current order backlog is around Rs. 2100 Cr in consultancy business. EIL has limited exposure of around 8% in overseas geographies which is expected to increase over a period of time.

Outlook and Valuation:
EIL, one of the leading designs, engineering consultancy and EPC companies of the country secured a Lump-Sum Turnkey Contact (LSTK) worth over Rs. 670 Cr from Chennai Petroleum Corp Ltd for construction of residuary up gradation project of Coker Block unit that will convert residual oil in the refinery into fuel. A coker or coker unit is an oil refinery processing unit that converts the residual oil into low molecular weight hydrocarbon gases, naphtha, light and heavy gas oils, and petroleum coke. The CPCL project comprises of delayed Coker Unit and LPG CFC Treating Unit. EIL's scope of work involves project management, residual process design, detailed engineering, procurement, inspection & expediting, tendering, construction management & supervision including quality assurance, assistance in start-up, pre-commissioning, commissioning & guarantee test runs for units and facilities of plant. The company statement says that the company won this job against competition from national and international companies in this field. EIL has envisaged a strategy of entering into joint ventures and strategic alliances with the appropriate players in India and abroad in order to widen the spectrum of offerings/ opportunities and to reduce systematic risk associated with various industries and geographies. The company currently has nearly ten such alliances including three overseas JVs. Company continues to win orders in international geographies mainly Middle East and expects further momentum through FY14. Management has stated that the company enjoys margins similar to domestic jobs in the international projects. Currently company derives nearly 10-12 % of revenues from international jobs and expects it to maintain going ahead. EIL has recently won the order from CPCL which will start contributing towards the end of this year. Orders in consultancy may provide some cushion to the margins, going forward. However, inflow continues to remain weak. Execution cycle for the current order book is stretched at two years. Thus, a revenue de-growth is expected in FY14E too. The stock is currently trading at 8.6x FY15E EPS with a negative bias in case the order inflow scenario slumps. The company’s FPO is planned in Q2FY14E. However in the turning O&G scenario the company will turnaround faster thus one can buy into this stock. At current price of Rs. 123.95, the stock is trading at P/E of 7.55 x for FY14E and 7.94 x the FY15E. EIL could post EPS of Rs. 16.40 for FY14E and Rs. 15.60 for FY15E. EIL stock has corrected significantly in the past few trading sessions partly on anticipation of probable equity dilution through FPO and possible delays in key refinery projects that would likely defer earning accretion in the current year. The stock is attractively valued at the current price but would likely underperform the broader market until clarity on anticipated equity dilution/FPO is received. However, the business of EIL continues to remain positive on the long term. One can 'BUY' on to EIL with an Short term price target of Rs 150 and for Medium to Long term investment it would be for Rs. 250.

SALES ( Crs)3,698.802,505.902,405.702,598.10
NET PROFIT (₹ Cr)636.50618.10551.80524.10
EPS ()18.9018.3016.4015.60
PE (x)7.107.308.108.60
P/BV (x)2.402.001.801.60
EV/EBITDA (x)4.104.303.803.40
ROE (%)38.7030.3023.1019.50
ROCE (%)38.7030.2023.1019.50

I would buy ENGINEERS INDIA LTD with a Short term price target of  150.00 and for the Medium to Long term target it would be Rs. 250. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 114.80 on every purchase(Why Strict stop loss of 8 % ?) - Click Here



Tuesday, August 13, 2013


Scrip Code: 533552 RUPA
CMP:  Rs. 165.00; Buy at current levels.
Short term Target: Rs. 205, 6 month Target – Rs. 250; 
STOP LOSS – Rs. 151.80; Market Cap: Rs. 1,312.16 Cr; 52 Week High/Low: Rs. 194.80 / Rs. 122.50
Total Shares: 7,95,24,560 shares; Promoters : 5,95,86,390 shares –74.93 %; Total Public holding : 1,99,38,170 shares – 25.07 %; Book Value: Rs. 31.76; Face Value: Rs. 1.00; EPS: Rs. 8.10; Dividend: 150 % ; P/E: 20.37 times; Ind. P/E: 11.94; EV/EBITDA: 11.36.
Total Debt: 168.34 Cr; Enterprise Value: Rs. 1,474.82 Cr.

RUPA & COMAPNY LTD: Rupa was incorporated in 1985 by the Agarwala brothers. In 1995, they took over the business of Binod Hosiery, a partnership firm incorporated in 1979. They have emerged, over the years, as the largest hosiery manufacturer in India. The company produces and markets knitted garments such as innerwear, casuals wear and also footwear. The company launched Thermocot, the first branded winter wear in India. The company is also pioneered in printing of the brand name in front of the vest. This made the logo as a design element which made the product to be flaunted. RUPA is one of the earliest brands which introduced celebrity endorsement. This created huge impact and recall value. The Company has a comprehensive portfolio of product offerings in the knitted innerwear, casual wear and thermal wear segment for men, women and kids. The company offers its products principally under the brand name Rupa viz, Rupa, Rupa Frontline, Jon, Air, Macroman, Macroman M' Series, Euro, Kidline, Bumchums, and Thermocot. Rupa & Company Limited sells its products primarily through own retail outlets, as well as through independent retailers in India and the Middle East. The company also exports its products. The Company manages more than 2000 Stock Keeping Units (SKUs), each of them for a particular brand, segment colour and size. The Company has its two wholly owned subsidiaries- M/s Euro Fashion Inners International Private Limited which sells premium men’s innerwear products under the brand “EURO” and Imoogi Fashions Private Limited which has recently launched apparel for kids of 0-12 years of age under the brand “IMOOGI”. Rupa also operates a Wind mill for power generation. The company is locally compared with Lovable Lingerie Ltd, Page Industries Ltd, V2 Retail Ltd , Trent Ltd, Brandhouse Retail, CESC Ltd, Future Retail, Arvind Ltd, kewal Kiran Clothing Ltd, S Kumars Nationwide Ltd, Koutons Retail Lyd, Maxwell Industries Ltd and Globally with I.T Limited of Hong Kong, Dickson Concepts (International) Limited also from Hong Kong, Industria DE Diseno of Spain, Inditex SA of Spain, Gunze Ltd of Tokyo, Levi Strauss & Co of US, Gucci Group NV of Netherlands, Tommy Hifiger BV of Netherlands, Marc Jacobs International LLC of USA Calvin Klein Inc of USA and Donna Karan International Inc. form USA.

Investment Rationale:
Rupa & Company is the number one knitwear manufacturer in India in terms of revenues of Rs. 829 crore for the year ended FY12. Rupa sells more than 12 million pieces of inner wear every month. Rupa’s competitive advantage lies in its owned Brands which have grown over the years, a product line range named $ DOLLAR as a brand across all categories, a formidable reputation of “Great Quality at Great Price points”, and a fact that it accepts the buyer’s specification. Due to decades-long experience in successfully launching, nurturing and managing several winning brands in a pre-dominantly unorganized industry, RUPA & Co is acclaimed by the Limca Book of Records as the largest hosiery and innerwear manufacturing and marketing company in India, for a record eight consecutive years. Also RUPA is the first Indian company to launch bacteria-resistant briefs under its exclusive brand Euro. Rupa & Company Limited own three state-of-the-art manufacturing facilities at Delhi, Tirupur and Domjur with an overall capacity to produce 7,00,000 pieces a day. It has one of the largest distribution networks through 1 lakh retail outlets across 600 locations with a dedicated support of more than 950 dealers and distributors. The company is looking for an aquisition locally. The company’s June 13 quater net sales registered a 11.44 % increase and stood at Rs. 195.63 Cr from Rs. 175.54 Cr over the corresponding quarter last year. The company’s net profit registered a 27.77 % increase and stood at a record Rs. 14.26 Cr from Rs. 11.16 Cr over the corresponding quarter last year. Net Sales & PAT of the company are expected to grow around a CAGR of 13 % and 32 % over 2013 to 2015E respectively.

Outlook and Valuation:
India is the one of the world's largest producers of textiles and garments. The potential size of the Indian textile and apparel industry is expected to reach US$ 22,100 Cr by 2021, according to the reports by Technopak's Textile and Apparel Compendium 2012. Textile industry has made a major contribution to the national economy in terms of direct and indirect employment generation and net foreign exchange earnings. This sector contributes about 14 % to industrial production, 4 % to the Gross Domestic Product, and 17 % to the country's export earnings. It also provides direct employment to over 3.5 Cr people. The textiles sector is the second largest provider of employment after agriculture in India. Thus, the growth and all round development of this industry has a direct bearing on the improvement of the economy of the nation. The textiles sector has witnessed a spurt in investment during the last five years. The industry including dyed and printed, attracted Foreign Direct Investments (FDI) worth Rs. 5,674.45 crore (US$ 104 Cr) during April 2000 to February 2013. At the current market price of Rs. 165.00, the stock P/E ratio is at 15.65 x FY14E and 13.05 x FY15E respectively. The Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 10.54 and Rs. 12.64 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 32% over 2013 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 10.97 X for FY14E and 9.54 X for FY15E. Price to Book Value of the stock is expected to be at 4.89 x and 3.84 x respectively for FY14E and FY15E. It is expected that the company's surplus scenario is likely to continue for the next three years and will keep its growth story in the coming quarters intact. This is an very slow but steady performing scrip an hence,one can ‘BUY’ into this particular scrip with a target price of Rs. 205.00 for Medium to Long term investment.  

SALES ( Crs)711.00829.00931.781,021.23
NET PROFIT (₹ Cr)43.5564.7783.85100.51
EPS ()5.488.1510.5412.64
PE (x)34.1522.9617.7414.80
P/BV (x)7.566.124.893.84
EV/EBITDA (x)18.1213.3210.979.54
ROE (%)22.1326.6627.5825.98
ROCE (%)26.6229.6330.6129.78

I would buy RUPA & COMAPNY LTD with a price target of  205 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 151.80 on every purchase(Why Strict stop loss of 8 % ?) - Click Here



Saturday, August 3, 2013


Scrip Code: 532555 NTPC
CMP:  Rs. 129.85; Buy at current levels and Accumulate at every dipps. Medium to Long term Target: Rs. 170.00; STOP LOSS – Rs. 119.45; Market Cap: Rs. 1,07,067.35 Cr; 52 Week High/Low: Rs. 175.50 / Rs. 126.55
Total Shares: 824,54,64,400 shares; Promoters: 618,40,98,300 shares – 75.00 %; Total Public holding: 206,13,66,100 shares – 25.00 %; Book Value: Rs. 88.89; Face Value: Rs. 10.00; EPS: Rs. 15.30; Dividend: 40.00 %; P/E: 8.48 times; Ind. P/E: 11.74; EV/EBITDA: 6.68
Total Debt: Rs. 47,338.33 Cr; Enterprise Value: Rs. 1,38,260.04 Cr.

NTPC INDIA LTD: The Company was founded in 1975 and is based in New Delhi, India. NTPC Limited engages in the generation, distribution, and sale of bulk power to state power utilities in India. It generates power from coal, gas, hydro, and liquid fuel sources. The company also undertakes consultancy and turnkey project contracts that comprise engineering, project management, construction management, and operation and maintenance of power plants. In addition, it engages in the oil and gas exploration, and coal mining activities. The Company’s other business includes providing consultancy, project management and supervision, oil and gas exploration, and coal mining. The Company has nearly completed execution two projects: Lata Tapovan hydro electric project (171 mega-watts (MW)), located in Chamoli District of Uttarakhand and Rammam Hydro Electric Project, Stage III (120 MW) located in Darjeeling District of West Bengal and West Sikkim District of Sikkim. The company has approximately 39,174 Megawatts of installed capacity. Company had five subsidiaries: NTPC Electric Supply Company Limited, NTPC Vidyut Vyapar Nigam Limited, NTPC Hydro Limited, Kanti Bijlee Utpadan Nigam Limited and Bhartiya Rail Bijlee Company Limited. NTPC is locally compared with Adani Power Ltd; TATA Power Ltd; Reliance Power Ltd; GVK Power and Infra; Jaiprakash Power ventures; Gujarat Industries Power Company Ltd; PTC India Ltd and CESC Ltd and globally its is compared with Aboitiz Power Corp of US; Abu Dhabi National Energy Co of UAE; Beijing Jingneng Thermal Power Co Ltd of China; Boguchanskaya GES OAO of Russia; Duke Energy International Geracao Paranapanema SA of Brazil; Eden Energy Ltd from Australia;  Electric Power development Co., Ltd of Japan; The Chuqoku Electric Power Company Incorporation of Japan; Hokkaido Electric Power Company Incorporated of Japan.

Investment Rationale:
NTPC has been allocated four coal mines by the Ministry of Coal (MOC) with an aggregate reserve of 2bn tonnes. Two of these mines are in Chhattisgarh and two are in Orissa. A total of 14 mines were allocated with estimated reserves of 8bn tonnes & production capacity of 159mt p.a that should support 32000WMs. The previously, NTPC had been allocated six coal blocks, namely Pakri‐Barwadih, Chatti‐Bariatu, Kerandari, Dulanga, Talaipalli and Chatti‐Bariatu (S), the production pegged from these mines was to the tune of 73m tonnes p.a (or 11000MWs) and the mining was to start in 2010. In 2012, three of the blocks, namely, Chatti Bariatu, Chatti Bariatu (S) and Kerandari were de-allocated on the grounds of a substantial delay in development. Subsequently, they were reallocated to NTPC. The company is yet to start producing from these mines and the total expenditure incurred on mine development till March 2013 was to the tune of Rs. 1200 Cr which is 10% of the total cost. NTPC, however, is expected to start production from its Pakri‐ Barwadih mine from FY14E. The first year production will be close to 2m tonne, which is then expected to scale up to 40m tonnes by the end of 2017. Even if the production ramps up from Pakri‐Barwadih, the Koderma‐Hazaribagh‐Banadag‐ Shivpuri‐Tori railway line, which will carry the output, is getting delayed. However, once these mines get operationalised, the company will earn regulated returns on their investments too. NTPC’s wholly owned subsidiary NTPC Vidyut Vyapar Nigam Ltd has bagged a contract to supply 300Mw round the clock power to Kerala State Electricity Board. The Power Purchase Agreement between NTPC Vidyut Vyapar Nigam Ltd and Kerala state State Electricity Board is estimated to be around 7 billion units of power supply sourced by the former from Chhattisgarh during the contract period. NTPC reported Q1FY14 Revenue at Rs. 15,383 Cr a decline of 3% yoy and EBITDA improved by 15.4% yoy to Rs. 4064.40 Cr due to lower fule expenses. Company reported its PAT which declined 2.6% yoy to Rs. 2,326.3 Cr. However, NTPC has added 500MW in Q1FY14 and expects to add about 1.87 GW in FY14  .  

Outlook and Valuation:
NTPC is targeting captive mining of about 37mmt by FY17 in a bid to secure its fuel supply position. Production at Pakri Barwadih mine (15 million tonnes, located in Jharkhand) is expected to commence in FY14. Even though NTPC imports 6% of its coal requirements, the full pass-through of costs insulates the company from the risks of a depreciating INR. Further, even as the 28% of its borrowings are in foreign currency, complete pass-through provides relief here too. A strong balance sheet provides comfort, its current cash holding is around Rs 70,000 Cr and leverage low at 0.7x. NTPC has outlined 10GW of capacity addition over FY14-FY17, lending strong visibility to growth. The company looks better placed to achieve it commissioning schedules as compared to its private power producers who are still struggling with their capacity addition plans. The company is targeting coal imports of around 16 mmt in FY14, of which orders have already been placed for 7mmt. Further, the project for an inland waterway at Farakka of 2,100 MW is expected to become operational in Q1 of FY14. NTPC has recently signed two models Fuel Supply Agreement with Coal India and expects to sign another FSA for 9 GW capacity for which coal were supplied through MOU’s earlier. NTPC can have PAT CAGR of around 6% over FY13-FY16. At the CMP of Rs. 129.85, the stock is trading at a P/E of 10.47 x FY2014E and 10.06 x FY2015E respectively. Earnings per share (EPS) of company for FY14E and FY15E are seen at Rs. 12.40 and Rs. 12.90 respectively, in my view the Fair Value of NTPC comes at Rs. 170 valuing Standalone Company at Rs. 155/share and valuing its subsidiaries & JV’s at Rs. 15/share and valuing OTSS bonds at Rs. 8/share. One can buy at current levels and accumulate NTPC  at every dips with a target price for Medium to Long term investment of Rs. 170.00 which represents 30% upwards from CMP Rs. 130.00.

SALES ( Crs)65,673.9072,004.0074,753.7080,434.10
NET PROFIT (₹ Cr)9,493.3010,238.8010,623.6011,225.60
EPS ()11.5012.4012.9013.60
PE (x)12.4011.5011.1010.50
P/BV (x)1.501.401.301.20
EV/EBITDA (x)8.608.909.209.00
ROE (%)12.4012.3011.9011.70
ROCE (%)7.806.305.505.80

I would buy NTPC LTD with a price target of  170.00 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 119.45 on every purchase(Why Strict stop loss of 8 % ?) - Click Here



Tuesday, July 23, 2013


Scrip Code: 533269 WABAG
CMP:  Rs. 442.45; Buy at Rs. 435 - 440 levels.
Short term Target: Rs. 480, 6 month Target – Rs. 550; 
STOP LOSS – Rs. 407.05; Market Cap: Rs. 1,174.51 Cr; 52 Week High/Low: Rs. 588. / Rs. 370
Total Shares: 2,65,45,772 shares; Promoters : 82,04,360 shares –30.91 %; Total Public holding : 1,83,41,412 shares – 69.09 %; Book Value: Rs. 154.77; Face Value: Rs. 2.00; EPS: Rs. 33.95; Dividend: 300 % ; P/E: 13.03 times; Ind. P/E: 11.50; EV/EBITDA: 6.56.
Total Debt: 82.19 Cr; Enterprise Value: Rs. 1,015.18 Cr.

VA Tech Wabag LTD: VA Tech WABAG Limited was incorporated in 1995 and is headquartered in Chennai, India. The company was formerly known as Balcke Durr and Wabag Technologies Limited and changed its name to VA Tech Wabag Limited in April 2000. Va Tech Wabag Limited provides solutions in the water treatment industry. The company offers life cycle solutions, including conceptualization, design, engineering, procurement, supply, installation, construction, and operations and maintenance (O&M) services. The Company has four business units: Municipal Business Group, Industrial Water Business Group, International Business Group and Operation and Maintenance Business. It provides a range of engineering, procurement and construction, and operation & maintenance (O&M) solutions for sewage treatment; drinking and industrial process water treatment; effluents treatment; and sludge treatment, desalination, and reuse for institutional clients, including municipal corporations, and companies in the infrastructure sector. The company operates primarily in India, Middle East and North Africa, central and eastern Europe, China, and south East Asia. It has overseas subsidiaries in Austria, Switzerland, Germany, Czech Republic, Romania, Macao, Algeria, Tunisia, Egypt and Turkey.  It has a joint venture agreement with Zawawi Trading Company LLC in Oman. The company came with an Initial Public Offer in September 2010 with 9.5 lakhs shares at the issue price of Rs. 1310/ share raising Rs. 475 Cr. On August 2011 the company declared the sub division of shares from the face value of Rs. 5 to the face value of Rs. 2.00. VA Tech WABAG is locally compared with Eco Recycling Limited and Ion Exchange, A2Z Maintainace and globally compared with Veolia Environment of France, Suez Environment of France, ITT Corporation of USA, United Utilities of UK, Severn Trent of UK, Thames Water of UK, American Water Works Company of USA, Nalco Company Water treatment of USA, GE Water of USA, Kurita Water Industries of Japan, Takeei Corporation of Japan, Daiseki Co.Ltd of Japan 
Investment Rationale:
VA Tech Wabag Ltd (WABAG) is an established EPC player in water management space. It offers complete life cycle solutions from project design to installation to operation & maintenance. WABAG is multinational player with presence in India, MENA region, Central & Eastern Europe, China and South East Asia. Majority of its revenues comes from various municipalities. The company runs an asset-light business model by outsourcing the capital-intensive construction business and focusing on delivering the optimum water technology solution. The company owns more than 100 process and product patents and has research centres in Austria, Switzerland and India. The WABAG brand has been in existence since 1924 and has executed projects across 17 countries. The urban share of total population in India is 31% as against 45% for Indonesia and 78% for Mexico, thus highlighting the significant room for upside in these regions. With rising urbanisation from 5,161 cities in 2001 to 7,935 cities in 2011 and the decades of negligence in water supply - sanitation is creating urgent need for up-gradation of the water and sanitation sector. Recognizing the potential growth in urbanisation, the government had launched the JNNURM in 2006 (which ended in 2012) and followed by the new improved JNNURM for the period 2012-32, this will help the company as it’s a market leader. Recently, the JV of VA Tech Wabag Ltd won a Rs. 344 Cr order from the Manila Water Co in the Philippines for design and construction of 100 million litre a day sewage treatment plant, this JV is with a local civil construction company & will also operate the plant for two years, this project is funded by the World Bank and Va Tech holds major shares in the JV. The Tamil Nadu government has announced four more desalination projects, giving fillip to the desalination business, of which two projects are for Chennai city. Of the remaining two, one is an expansion project of 150 MLD of the Nemili Desalination plant in Chennai, set up and operated by WABAG. The Nemili project is to be tendered shortly. The land required is already acquired and in possession. The other Chennai project is for 200 MLD, expandable to 400 MLD, for which detailed project report work has been initiated. The tender may be called in fourth quarter of FY14. The water and waste-water sector continues to be an attractive investment portfolio due to various factors such as urbanization, industrialization and population explosion. The growth of the water market in the Asia Pacific region is driven by growing population densities. In the Middle East, the driver is scarcity, while massive government spending will boost the Chinese market. Sea water desalination will attract investments to augment the installed capacity from 66 million cubic metres (m3) per day to 120 million m3 per day by 2016. The global water market is estimated to be around US$ 400 billion.

Outlook and Valuation:
WABAG is a global technological leader in the entire water treatment field managed by professionals and technocrats. The company has a unique business model with strong in-house research. The company has an excellent system for efficient equipment procurement, better engineering & designs. The company also enjoys higher margin due to close monitoring and cost control. VAW's order intake has increased from Rs. 680 Cr in FY09 to Rs. 2200 Cr in FY13. The company's improving credentials, expanding reference list and ability to take larger jobs is driving growth in the order intake. The company has teamed up with Sumitomo for taking Desalination projects in the MENA region. The company has already announced a major order win in consortium with Sumitomo. In the current fiscal, the company has guided for order intake of Rs. 2600 Cr – Rs. 2700 Cr. Company’s revenues are expected to grow at a CAGR of 16% over the period of FY13- FY15E, with the share of Operation & Maintenance is expected to increase in the overall revenue and expect it to account for nearly 18% of revenues in FY14 as against 14% in FY12. Margins in the international business are around 3% but there are scope for improvement on account of fixed cost leverage and strategic outsourcing of design work to low cost centres. ROE is expected to expand from 12.2% in FY12 to 15.4% in FY15, which should support valuations. At its CMP of Rs.442.45, the stock trades at 10.79x FY14E EPS of Rs. 41 and 9.61 X FY15E EPS of Rs. 46. One can buy VA TECH WABAG Ltd with a target price of Rs. 450.00 for Medium to Long term investment. 

SALES ( Crs)1,443.501,618.901,867.502,091.07
NET PROFIT (₹ Cr)73.7089.70108.60122.24
EPS ()27.8033.8041.0046.00
PE (x)16.8013.8011.4010.10
P/BV (x)1.901.701.601.40
EV/EBITDA (x)7.406.105.105.10
ROE (%)12.2013.3014.4013.50
ROCE (%)18.0516.4618.6719.10

I would buy VA TECH WABAG LTD with a price target of  550 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 407.05 on every purchase(Why Strict stop loss of 8 % ?) - Click Here


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