We are confident of achieving profitable growth in FY23 going forward, says Rajneesh Chopra, Global Head of Business Development, VA Tech Wabag Ltd
What is your vision of the global and domestic water treatment industry? What emerging macro trends are you seeing?
Water has become a priority area for governments as well as industries, due to the climate change observed globally. This led to the creation of 17 Sustainable Development Goals (SDGs) by the United Nations with 193 signatory countries. SDG 6 focuses on “clean water and sanitation for all by 2030”, which has become the main driver for governments as well as urban local bodies to enable higher allocation to the sector and ensure implemented faster. Furthermore, I would like to draw your attention to the fact that SDG 6 is directly or indirectly linked to the 17 SDGs. The main ones are shown below. The image depcist onessociation of SDG-6 with other UNSDGs.
As the SDGs drive sustainable and resilient growth of water and wastewater infrastructure, industries have also realized the scarcity as well as the importance of water and are implementing ESG for sustainability. This has led to significant traction in:
Water treatment projects in developing and underdeveloped countries are expected to grow at a CAGR of 5.4% over the next decade.
Improved water supply leads to higher generation of wastewater and its treatment according to environmental standards, as well as the existing gap of generated wastewater must be closed.
Water scarcity drives water recycling and reuse in agriculture, horticulture, industries and aquifer recharge.
In coastal regions, desalination is emerging as an affordable, reliable and sustainable alternative water source for the municipal (drinking water supply) and industrial (captive desalination) segments.
VA Tech Wabag’s consolidated EBITDA and PAT for FY22 showed strong year-over-year growth of 13.5% and 20%, respectively. What are the factors responsible for your outperformance?
Without a doubt, FY22 has been a year of growth for us despite all the challenges. After being impacted by the global pandemic over the past few years, our projects have experienced booming execution, which has positively contributed to our revenue. Nevertheless, it could have been better if our Russian order was not on hold.
We have focused more on the execution of our EP projects, which is our main strength, ie design engineering and process optimization. These projects have contributed to our revenues by ensuring better margins and good cash flow with faster turnaround. The factors contributing to a better margin are the mix of Indian and foreign projects as well as the mix of EP & EPC projects. We are confident of achieving profitable growth in FY23 going forward.
VA Tech Wabag has seen strong order intake over the past few months. Can you give us an overview of the overall order book and its execution?
Having orders worth over Rs 10,107 crore, our current backlog is very healthy with the right mix of projects and 3X visibility. Most of our recent orders are international and high-tech EP orders. Here are some of our recent orders:
New EP order from Daelim Korea worth €18 million (Rs 149 crore) for the treatment of brine water from EuroChem’s methanol plant in Russia.
The DBO order from SONES, Senegal, for a 50 MLD SWRO plant (expandable to 100 MLD), which is again a high-tech order worth 146 million Euros funded by JICA.
Ghaziabad Nagar Nigam’s 40 MLD TTRO plant under a hybrid annuity model.
On the execution side, we have a successful track record of executing ambitious projects in various geographies. With 98 years of execution experience, our primary focus would be to complete projects on time to support our profitable growth.
Also with a 35% share of our backlog, our operations and maintenance business will contribute significantly to our revenue growth with long-term annuity, better margins and predictability.
Can you highlight your main growth triggers?
With growing demand in coastal regions, the desalination industry is expected to grow at a CAGR of 8.8% over the next five years globally.
Recycling and reuse is going to be another growth driver, which is expected to grow at a CAGR of 8.7% over the next five years globally.
Investment in the Hybrid Rent Model (HAM) project extends beyond the NamamiGange projects with an innovative approach to private investment in the water sector with a long-term O&M of 15 years.
Massive spending by government initiatives under AMRUT – 2.0 (Rs 2.7 lakh crore) and JalJeevan Mission (Rs 2.8 lakh crore) for a period of five years.
Focus on the Middle East (KSA, GCC) and African countries, which are expected to drive the growth of desalination, wastewater treatment and recycling.
Additionally, we see more opportunities in greenfield projects as well as brownfield projects in the industrial segments of Russia and CIS countries.
Currently, what are your three main strategic objectives?
Currently, we are actively pursuing more EP and high-tech orders in new geographies and overseas where Wabag, as a pure water technology company, can leverage its main strengths.
As evidenced by our recent orders, we are working to secure more international orders to expand Wabag’s geographic presence and thus ensure growth.
We also plan to increase the contribution of our services activities up to 20% of our turnover in order to improve margins.
What is your earnings outlook for FY23?
Going forward, we expect good prospects in terms of new orders as well as growth for FY23. We are already actively working on several target orders both domestically and internationally. We are confident that our backlog at the end of FY23 will further strengthen. We look forward to profitable growth, where our margins on profit will grow much better than on sales.