Q4FY22 gross sales had been at Rs 8.91 bn (down 11% y-o-y, missed our estimate by 9%) highlighting a slowdown in execution in abroad order. The weaker execution additionally led to a miss on EBITDA margin by 110bp at 8% regardless of secure gross margins.
Weak order inflows at Rs 36.5 bn was disappointing; coverage of selective bidding, whereas appreciated, resulting in weak progress: Management has guided for double-digit gross sales and order influx progress within the close to time period. However, a coverage of selective bidding centered on technologically advanced tenders within the worldwide market might result in order inflows remaining within the Rs 30-35 bn vary over FY23-25F. However, if VATW secures the massive `60-bn Chennai desalination tender, then we’d count on vital upside to our gross sales estimates.
Sales momentum could also be weak in H1FY23F resulting from lack of contribution from Russian order: Russia accounted for Rs 11 bn of the Rs 89.8-bn orderbook and because the begin of Russia-Ukraine battle progress has stopped resulting from fee mechanism points (NB: no money assortment is pending). The prevailing US and EU sanctions might make progress on this order difficult, which might influence near-term gross sales progress. Management expects gross sales to choose up within the Middle East and compensate in FY23.
Cash collections sturdy in FY22, gross margins sturdy regardless of commodity improve; remained internet money: Gross margin was secure at 23% for H2FY22 regardless of a pointy rise in commodity costs, which is a key optimistic. We estimate that with a revival in execution EBITDA margin for FY23-25F could possibly be sustained within the 8-9% vary. The orderbook is 95% funded by central authorities or multi-lateral companies, and that is mirrored in sturdy money collections in Q4FY22. Current receivables remained flattish in absolute phrases regardless of gross sales progress of seven% in FY22.
Trading at 8.2x FY24F EPS of Rs 29.8; keep Buy with TP of Rs 448
We minimize FY23/24F EPS by 31%/29% to think about influence of stalled execution in Russia and gradual tempo of order wins in FY22. We worth VATW at 14x (primarily based on sustainable ROE of 11%) FY24F EPS of Rs 29.8 rolled ahead to Jun-23 to reach at our TP of Rs 448, implying >80% upside, and reiterate Buy score. Key dangers embody slowing home capex for water.
Source: www.financialexpress.com”