VA Tech Wabag order book stands at Rs 10,400 crore: Rajneesh Chopra, Global Head – Business Development

Rajneesh Chopra, Global Head - Business Development, VA Tech Wabag Ltd., talks about the September quarter numbers, margins, order book situation, debt, international business and expected growth in domestic markets due to the government's endeavour for clean water as well as sanitation, among others, during an exclusive chat with Zee Business Executive Editor Swati Khandelwal. Edited Excerpts:

See Zee Business Live TV Streaming Below:

Q: We saw a strong performance from the company in Q2F22. What have been the execution trends and do you think that it will continue in the coming quarters?

A: There is a 23% topline growth, and the bottomline has almost doubled (around 90%). So, the growth that we have shown in the first six months is primarily due to our order book, which is quite strong. Even after the second quarter, we had an order book of over Rs 10,400 crore, which is providing a clear growth visibility for the next three years. If you will have a look at the old trend, then the second half always remains good from the first half. So, unless there is similar to the first phase of Corona, we believe that in the second half, we will deliver good growth in the topline as well as the bottomline.

Q: You have been able to increase margins in a rising commodity cost environment. How did you achieve that and what is the sales mix expected in the coming quarters?

A: As you have mentioned about the margin, our second-quarter margin has improved by almost 2% from the margin that we had in the first quarter. The major reason for this improvement is that the commodity prices have definitely moved up but we took certain contracts to contain it and we have deployed additional working capital of over Rs 200 crore so that we can minimize the increase. At the same time, to support our small sub-contractors, we have deployed this working capital. This is the reason that our topline is good in the second quarter and there is an improvement in our margins. So, in the coming six months, I think, by and large, we have absorbed the impact of commodity price rise in the first quarter. Many of our contracts are such where we have an escalation clause and it is linked with the wholesale price index and other indices due to which 60-70% of price escalation is covered by our contracts. Rest of the impact, as I have said, we have tied up with all our suppliers with cash and carry terms instead of credit to nullify that additional load of increase in the commodity prices. So in the next six months, you will see that there is an improvement in the margin as well.

Q: Can you please tell us the quantum of the expected or targeted range of margin for the entire year? Also, you have an order book of over Rs 10,000 crore. What would be the execution timeline for this and are you expecting some new orders in the coming quarters, if yes, from which verticals? What is the pipeline looking like?

A: Our order pipeline is quite robust. However, our order pipeline of last year, which was a COVID year, was not that strong but this year our order pipeline is quite good. You would have seen that in the first six months, we have received a big order worth Rs 1,220 crore from Russia. The total order book stands at Rs 1,800 crore, while the execution stands at Rs 1,300 crore, which means our order book is strengthened further. Going forward, strategically, we are focusing on high technology orders. At the same time, we also have several industrial orders in oil & gas in which globally, VA Tech Wabag is ranked among the top three due to which we got this order from Russia. Besides, a new market in form of CIS countries is opening for us where we historically didn't have a focus but now, it seems, that CIS countries will provide us. In the Indian market, there is a huge allocation from the government, at the moment, they are at the historical levels for water sanitation because India is a signatory of the Sustainable Growth Goal VI for Water and Sanitation for All by 2030. So, even in the Indian market, there will be further traction as far as order intake is concerned. As far as segments are concerned, in our order book, you will see that in our order book our O&M, which is a very stable kind of business is 35% and there is a 65% order backlog for our EPC. The EPC's order backlog will be further strengthened this year. Thanks to some very good orders which we are expecting in the coming months. By and large, we will have to focus on high technology, which will strengthen our margins also. We also expect that we will get some outside orders due to which our cash flow and margins - as per in our domestic markets, our margins remain 1-2% better in the international orders. So, if its contribution will increase then its impact will be seen in our performance in the coming six months.

Q: Can you please elaborate a bit in the context of the increase that we can see in the current order book and will you get the expected big orders in this timeline, if yes, what would be its quantum?

A: As you would have seen that for the last two years, since the outbreak of COVID, we are not providing any forward-looking guidance in numbers. Even when we used to provide guidance, we did not provide any guidance on margins, it was always on top line and order book. As I have said that our order book stands at Rs 10,400 crore and I expect that our order backlog will improve by the year-end. As far as our EPC business is concerned, normally, we have a timeline of 24-36 months to execute these orders, so, the current order book that we have is providing visibility for the next three years and any further growth in our order book will propel us to further growth.

Q: Are you looking ahead to some new markets as your international business stands at about 1/4th of your overall book? Will you maintain this mix ahead or can we expect any changes?

A: Out of intent, we will try to increase export (overseas business) - even the Indian government is encouraging us a lot to increase exports - from the current 25% gradually over 3-5 years to 50%. We expect that 5-7% improvement should happen in the near future on our international business in terms of revenue.

Q: Debt reduction is another significant thing the market is focusing on. Where does your debt stand currently and any further plans to reduce it? How is the working capital situation currently?

A: As for as the working capital is concerned, we have deployed more than Rs 200 crore additional working capital in the last six months. This is basically to counter the commodity price increase and also to support some badly affected small contractors. Most of our EPC orders will happen in the advanced component. So, going forward, we do not think that in absolute numbers there might be at the same level our working capital. But as, we expect our revenue to improve, so in the number of days of working capital, we feel that it will be better than the past.

Q: The government has an endeavour for clean water and Har Ghar Jal and is working on drinking water. So, please tell us about the states that are progressively looking forward to it and where you are more bullish domestically, from where further orders may come and what would be its incremental value? 

A: The government has a focus on Nal Se Jal, sanitation and it has launched AMRUT 2.0, which has an outlay of more than Rs 2 lakh crore for the next five years. The government has deployed an additional Rs 1 lakh crore in the Swachh Bharat Mission 2.0, which is also known as Swachh Bharat Mission-Urban; it has allocated around e than Rs 4 lakh crore Jal Jeevan Mission that talks about Nal Se Jal. So, as far as Wabag is concerned, Wabag is basically a water technology company and we are targeting the markets where high-technology is present, where impurities are available in the drinking water, which is quite harmful like arsenic, fluoride. So, we will target the areas where Nal Se Jal projects are present. When it comes to sanitation, definitely, we will be a big contender in all the STPs that will come under AMRUT and Swachh Bharat Mission. Other segments in India are also progressing like Recycle, Reuse policy. Five states have introduced the new Recycle, Reuse policy under which the treated wastewater will be recycled and supply it to the industry and agriculture. It will also be used for recharging the water bodies. So, I think, being a technology player and having very strong references - we have worked a lot in the past and currently including the industry and municipal sector, we are recycling around 500 million litres per day of water. So, I believe that it will be a very big opportunity for us. Even the NITI Aayog has also said that it has to encase the more than 7,500 km coastal line that we have, so, desalination plants will be built for it. Interestingly, in desalination, Wabag is ranked at the first position in the world's top 10 companies. So, these are the opportunities and when they will come and just to name a few, tender for desalination plant of 400 million litres per day is out in Chennai. Similarly, we expect that a few more states will bring big desalination plants. Captive desalination plants will come in industries. There are five states in Recycle, Reuse. So, there is a huge potential for growth for a water technology company like Wabag.