VA Tech Wabag Limited (WABAG.NS) Earnings Call Transcript & Summary

Good evening, and welcome, everyone, to this Earnings Call Post Announcement of Q2 and H1 FY '23 Results of VA Tech Wabag Limited. On the call today from the management team, we have Mr. Rajiv Mittal, Chairman and Managing Director; Mr. Skandaprasad Seetharaman, Group Chief Financial Officer; and Mr. Anoop Kartha, Head, Special Initiative. Finally note that this -- during this call, the company may make certain forward-looking statements concerning the business prospects and profitability, which may be subject to risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. The conference call will be archived and a transcript will be made available on the company's website. The company's results update presentation has been uploaded on the website and stock exchanges, which provides an overview about the core offerings and analysis of the results for this period. We trust that you had an opportunity to look through the same. I now hand the conference over to Mr. Mittal to take you through the key business highlights. Over to you, sir.

Thank you. Good evening, ladies and gentlemen. A warm welcome to you all on the earnings call for -- following the announcement of Q2 and H1 FY '26 results of VA Tech Wabag Limited. Your continued encouragement and trust remains invaluable to our growth journey, and we truly appreciate your presence this evening. Joining me today are Mr. Skandaprasad Seetharaman, our Group CFO; and Mr. Anoop Kartha, our Head, Special Initiatives. We are pleased to report continued profitable growth for the half year, driven by our disciplined financial management, efficient resource utilization and unwavering focus on quality execution. Our bottom line grew profitably by 20% year-on-year. We maintained our guided EBITDA margins and continued to deliver healthy top line growth with a PAT margin of 10%. We further strengthened our balance sheet by reducing debt and sustaining a net cash positive status for the 11th consecutive quarter, reflecting our prudent financial stewardship. This year, nearly half of our revenues were generated from international projects, underscoring WABAG's leadership and growing stature in the global water industry. In line with our committed strategy, we continue to focus on increased contribution from our O&M business, providing stable, predictable cash flow and long-term value creation. Our order book continued to expand with significant strategic wins. As of H1 FY '26, it stands over INR 160 billion, comprising of well-balanced mix of 62% EPC and 38% O&M projects, ensuring strong revenue visibility and deepening client relationship. International projects continue to contribute nearly 50% of the order book, driving margin improvement and reinforcing our global footprint. In addition, WABAG has emerged as a preferred bidder for marquee projects worth over INR 30 billion, which is almost INR 3,000 crores, both in India and overseas. Among our key wins in this quarter, we bagged 2 breakthrough orders in the future solution -- energy solutions sector. We bagged an advanced technology order to deliver ultrapure water, effluent treatment plant and zero liquid discharge solutions for RenewSys solar cell manufacturing facility in Hyderabad. This aligns with our strategic focus to expand into emerging sector such as solar, green hydrogen and semiconductors. Another milestone achievement is our breakthrough project for setting up of biogas upgradation unit for compressed biogas production. The project captures and upgrades raw biogas into clean renewable CBG fuel preventing methane emission and replacing conventional fossil fuels, an excellent demonstration of circular economy in action, turning municipal waste into clean green energy and our contribution to India's carbon reduction goal. This project will leverage the benefits of SATAT, Sustainable Alternative Towards Affordable Transportation scheme of Government of India, which offers a very high attractive framework for CBG producers with both commercial and strategic advantage. The scheme provides government-backed support and assured offtake by public sector oil marketing companies at a benchmark price fixed by Government of India, ensuring consistent demand, stable revenue streams and sustainable business model with strong growth potential across both urban and rural sector. In line with our continued focus on long-term O&M portfolio, we also secured a repeat O&M order for 5 years valued at BHD 5.12 million, which is approximately INR 1,181 million for 40 MLD AMAS, which is Madinat Salman sewage treatment plant in Bahrain. Let me now share a few updates on our ongoing projects. The JICA funded 400 MLD Perur desalination plant in Chennai has been doing well, has achieved a major milestone with the completion of all marine activity. Civil construction is progressing well. Key equipment deliveries have commenced. Plant piping, prefabrication activities is set to begin shortly and the project is on schedule. 200 MLD Al Haer STP project in Saudi Arabia, another prestigious repeat order from Miahona is moving swiftly and all project activities are in full swing. 300 MLD Yanbu mega desalination plant in Saudi Arabia is progressing well. While we await the effective date of commencement, we are significantly ready with our basic engineering package submission to the client. Key personnel have been deployed and the procurement of long lead equipment has started. Lusaka sanitation project in Zambia funded by EIB and KFW Germany is also on track. Construction drawings for major structures are being finalized. Purchase orders for key equipments are getting issued, and civil subcontractors getting mobilized to the site. Under the One City One Operator model, WABAG continues to manage the cities of Agra and Ghaziabad successfully. We recently introduced robotic sewage cleaning system in Ghaziabad, an innovation that enhances safety, efficiency and hygiene. This initiative underlines our commitment to deliver technology-driven, citizen-centric and sustainable urban sanitation solutions. We also had a privilege of hosting a national conference on One City One Operator in Agra under the theme of transforming cities through responsibility, one operator, one solution, one future. The event brought together over 100 delegates, including government officials, utility leaders, bureaucrats, industry experts reaffirming WABAG's role as a thought leader in India's water management space. Looking ahead, we remain steadfast in our strategy to expand into new markets, advanced technology adoption, maintaining strong financial discipline and driving sustainable growth. Our healthy balance sheet, robust order book and a strong pipeline of opportunities, WABAG is well positioned to sustain its growth momentum and create enduring value for all stakeholders. Before I close, I would like to thank each one of you for your continued confidence in WABAG and for supporting our mission to deliver sustainable water and environmental solutions globally. With that, I now hand it over to Anoop to share his insight on new initiatives. Over to you, Anoop.

Thank you, Mr. Mittal. Good evening, everyone. I'm delighted to have this opportunity to share our business strategy for the Future Energy Solutions segment, and this covers solar, green hydrogen, semiconductors, compressed biogas and data centers. This marks an exciting phase in WABAG's journey as we align our strength and expertise to serve these fast evolving high-growth sectors that are shaping a sustainable and technology-driven future. Over the past year, we have implemented several strategic initiatives that have already delivered tangible results, including 2 breakthrough orders to establish an integrated water and wastewater treatment facility for PV solar manufacturing facility and compressed biogas treatment system. For over a century, WABAG has partnered with a global client to deliver sustainable technology-driven water and wastewater solutions. Our proven expertise in producing demineralized and deionized water using both resin-based and advanced membrane technologies, as well as our long-term operation of zero liquid discharge systems has provided us with rich experience forming the foundation for our entry into the ultrapure water segment. Our recent order from RenewSys Hyderabad marks a major milestone where we are designing and building an advanced technology plant featuring ultrafiltration, reverse osmosis and electrodeionization to produce ultrapure water, which is essential for wafer cleaning and conditioning in solar cell manufacturing. The plant will also recycle and evaporate effluent to ensure zero liquid discharge fully aligned with the RenewSys' sustainability goals. Now with strong policy support through Make in India and the PLI schemes, India is targeting 130 gigawatt of solar cell manufacturing by 2030, which will drive demand for our 100 to 150 MLD of UPW or ultrapure water capacity. Similar requirements are emerging across green hydrogen, data centers and semiconductor fabs where high-purity water and recycling are critical. Our execution capability and track record position WABAG to become a leading player in this fast-growing market. In the CBG segment, we achieved a significant milestone with the latest order to establish a CBG plant from Uttar Pradesh. The project will convert sludge into biogas through anaerobic digestion followed by advanced purification to produce fuel-grade methane. This initiative represents our transition from conventional biogas utilization to high-value CBG production, creating a true circular economy. Supported by the government incentives under the SATAT scheme, India CBG sector is poised for rapid growth with a vast feedstock potential from existing STPs. We are currently pursuing multiple tenders, and we see a strong opportunity ahead. In the Data Center segment, we are actively engaging with the market to explore the emerging opportunities as major IT players expand their data center capacities across India. The demand for reliable water, particularly for cooling tower -- cooling operations is expected to rise significantly. City administrations can address this sustainably by recycling the treated sewage through advanced membrane technologies and promoting water use within data centers. With the proven expertise and award-winning tertiary treatment RO plants in Chennai and Ghaziabad, WABAG is ideally positioned to partner in developing sustainable water infrastructure that enables India's data center growth to remain both resource efficient and environmentally responsible. To conclude, WABAG's strategic foray into the ultrapure water for solar, hydrogen and semiconductor sectors, comprehensive water management solutions for data centers and leveraging the thirst on biofuels through CBG projects underscores our commitment to sustainability, innovation and long-term value creation, shaping the next era of green, circular and future-ready water energy solutions. Thank you again for this opportunity. I will now hand over to Mr. Skanda.

Thank you, Anoop. Good evening, everyone. I trust you have had the opportunity to go through our results update presentation, which is available on our website and has been filed with the stock exchanges. The first half of this fiscal year has been gratifying on multiple fronts. We continued our journey of profitable growth with PAT growing faster than the top line and margins remaining firmly in line with our midterm outlook, driven by enhanced execution efficiency, quality industrial and international projects and the increasing contribution from our high-margin O&M business. For H1, our consolidated revenue stood at INR 1,569 crores, marking a growth of over 18% year-over-year, while stand-alone revenue was INR 1,330 crores. This top line performance was primarily driven by timely project execution and new and large projects picking up pace. Our O&M business continues to perform strongly, contributing 19% to the total revenue, while international business accounted for 47% of the revenue during the half year, further reinforcing WABAG's global leadership in water technology solutions. On the profitability front, consolidated EBITDA for H1 stood at INR 216 crores with a margin of 13.8%, in line with our target band of 13% to 15% EBITDA as per the medium-term outlook. Stand-alone EBITDA stood at INR 189 crores. Consolidated PAT for H1 stood at INR 151 crores with a margin of 10%, growing 20% year-on-year. Stand-alone PAT stood at INR 131 crores. Consistent with our mantra of profitable growth, over 5 years, consolidated PAT has had a CAGR of 38% with the earnings per share more than tripling, 3.6x to be precise, reflecting strong shareholder value creation driven by execution excellence, a quality order book, growth in O&M portfolio, increased international business from marquee industrial clients and efficient cash management. Turning to our balance sheet. Despite the top line growth, we maintained control over the net working capital, which compared on a year-on-year basis in H1 was lower despite the growth in top line. This strong control over working capital was further reflected in our net cash positive position for the sixth consecutive year and 11th quarter in a row. As of September 2025, our net cash position stood at INR 561 crores. Excluding the transient debt under our HAM entity, our net cash stood at INR 675 crores. We closed the half year with a robust gross cash balance of INR 798 crores. Through disciplined cash management and prudent debt control, we have consistently reduced debt levels year after year. This focused approach has turned our net interest cost into a net interest income scenario. Remaining true to our asset-light model, we continue to deliver strong returns with a return on capital employed of around 18.5% and return on equity of 15%, reaffirming our commitment to long-term value creation for all stakeholders. All our efforts on profitability improvement, excellence in execution and robust balance sheet status has also reflected in consistent upgrades in our credit rating profile and outlook over the last 5 years. As highlighted by Mr. Mittal and Anoop, this year, we have secured 2 breakthrough orders in the emerging Future Energy Solutions sector, further opening new strategic venues for growth. This is a sector where we have taken a decadal view of growth and expansion and we remain steadfast in our focus to build and develop specialist teams to win and execute orders for leadership in this niche space. During the first half, we achieved new order intakes almost worth INR 3,500 crores. Consequently, our order book position rose by 17% since the start of the year to reach over INR 16,000 crores as of September '25, supported by strong payment securities. The order book continues to reflect a high-quality and robust backlog with a balanced mix, 38% comprising of O&M contracts that ensure steady cash flows and predictable long-term revenues. International orders accounting for nearly 50% of the total order book further reinforce WABAG's position as a global leader in water technology solutions. With a strong order pipeline, robust financial position and continued execution excellence, we are well positioned to sustain our growth momentum while remaining firmly aligned with our midterm guidance. Guided by our Wriddhi strategy, we continue to focus on profitable growth, maintaining a net cash positive position and creating long-term value for our shareholders. Before I conclude, I want to take this opportunity to thank our bankers, investors, customers, vendors, subcontractors, partners and all our WABAG heads for their unwavering trust and support. With this, we will now open the floor for the interactive question-and-answer session. Over to the moderator.

[Operator Instructions] The first question is from the line of Kishore Kumar from Unifi Capital.

Sir, my first question is on the gross margin impact. Is it because of the EP via-a-vis EPC proportion and that change actually led to some impact at the gross margin level?

Kishore, yes, you have seen that even in our midterm guidance, we did mention about growth, and it's obviously a case of mix of projects. And you have seen we presented last year that our EP mix in the EPC was about 1/3. But it's an average over a period. So it is based on mix of projects. But again, with volume, we have guided this band of 13% to 15%, within which we are firmly there. We are at 13.8% with the growth. So I don't see any impact, if at all, we are only growing the margins year-over-year.

Got it, sir. Is similar -- a follow-up on this, actually, similar mix expected in the coming quarters as well, sir?

Yes, of course. If H1 is good, we should know that H2 is much better on revenues. It should only be better.

Got it, sir. And my second question is on the ForEx gain actually for this quarter. So if I look at the USD-INR rate, the depreciation is about 4% to 4.5%. And if I convert it into USD revenues, whatever we actually got it from the rest of the world, the growth is about 20%. But the gain is about INR 30 crores compared to INR 9 crores in the previous year Q2. How should I look at it, sir, actually? Is it because of any onetime impact or because the number is very huge. How should I look at it actually?

First, we want to confirm to you there is no onetime impact. Our business is spread over 27 countries. And as you know, we said even today, that around 50% of our revenues come international and 50% come through the local Indian business. So naturally, if we do an invoicing on a certain date and we receive a payment on another day, so that is what will go into ForEx gain. So exactly, we cannot measure what is the exchange. And we have to see the date of invoicing and the date of payment received. These 2 dates will decide what is the exchange gain. And that gain what you have seen is fully based on this ForEx gain. There is -- again, I repeat, there is no onetime gain in this.

Got it, sir. And is there -- do we hedge 100% of the invoicing value whenever we rise invoice for the overseas project, sir?

See, we only hedge the delta. You must understand that as we receive our money, we also have a liability to pay and sometimes we also take a packing credit in U.S. dollar. So this becomes a natural hedge for us. If you take a packing credit in U.S. dollar and also the payments we have to make to contractors and suppliers are also in foreign exchange. So we don't hedge the full amount. If there is a small residual amount, that is the only amount we hedge. Otherwise, we mostly depend on natural hedge. As we get paid, we'll pay to our suppliers and contractors.

Got it, sir. That's clear. I have one more question, if I can ask. Sir, any update on the monetization of the existing HAM projects to the investment platform that we created? And I also see that you have mentioned the biogas project as BOT. Is it through that platform that we are actually pursuing?

See, yes, because of -- we told earlier also because of we have marquee international investors into the platform, their due diligence and getting the agreements finalized and signed. We are in a very advanced stages of finalizing these agreements. Once these agreements are finalized and the platform is in place, which should happen very soon, then only we can think of transferring some of our assets into the platform, including the present CBG project.

So this is through our own stand-alone entity. It's not through the platform, the biogas BOT.

As of today, yes, you are right.

[Operator Instructions] The next question is from the line of Priya from B&K Securities.

Congratulations for good results. So my question is on the follow-up of the previous participant. So can you provide us out of the overall order backlog of INR 160 billion, INR 92.1 billion stands for the EPC. Can you quickly mix between the EP and the EPC?

See, these are of course very [ wet ] period. I would probably put it at more 80-20, 85-15 at this point. But yes, as you would know, when new orders come, the mix keeps changing. But for us, every order is the same. We look at benchmark margins irrespective of what is the scope of the project.

Okay. Understood. And the next question that I had was, in the previous calls, as mentioned the Saudi NWC long-term O&M contract [those ] segments, we have mentioned that there is a very good business opportunity in that segment. So can you please explain what is the status on these long-term projects? Also, in the Middle East region in the near- to medium-term in which region you see more business opportunities, the new projects coming up?

Yes, true. I think as we have mentioned, probably we were the first company in India who gave enough emphasis on O&M, both in India and now we are continuing the same emphasis internationally. And we mentioned this opportunity, which is Saudi is more towards privatization. So these are the existing assets which they have. They want to upgrade it and also do renovation because some of them are old assets, they want to renovate it and also they need to upgrade the plants to the present standards. So they want this small investment to be funded by a private sector and then they give you a long-term O&M, and that is a reason they call it LTOM, long-term operation and maintenance, where the investments are small, but the O&M revenues over 15 years is a huge number. So we have participated in some of these projects. And we definitely -- it's a matter of time. We will secure one and experiment it. But there's a big pipeline of projects which are expected in the next couple of years.

Just one last question.

Sorry to interrupt, Priya, but I request you to rejoin the queue for the follow-up as there are many participants left in the queue. The next question is from the line of [ Hardik ] from Securities.

Hardik, we can't hear you. You have to come closer to the speaker and speak up because we can hardly hear you.

Can you hear me now?

Yes, better.

I just wanted to ask why have other income increased materially?

Sorry?

Why has other income increased materially?

We just said it's basically only ForEx. Rest everything is interest income and all have been standard. The main difference last quarter was ForEx loss and this quarter is ForEx gain. That is the only material change in other income. And as we explained, being an international company, global company with presence in more than 27 countries and 50% of our revenue is coming in foreign exchange. So this foreign exchange income or losses is part of our business. And that's how I explained to the earlier participant, how do we manage this ForEx gain and loss in our business. So it is purely -- that is the nature of our business.

The next question is from the line of Anupam Goswami from SUD Life.

Sir, my first question is on the margins. When you say margins without the other income, then we see a dip, right, from Y-o-Y as well as Q-o-Q. So what's the reason behind it? I think it's percolating due to lower gross margin as well. So what is that impact for us?

My friend, it's not true. If you would have concentrated on the few of the other participants who asked questions before you, all this we discussed. The only difference is the other income, which consists of ForEx. And if you just take the ForEx part, which I just explained why it is a business income or loss for us. If you take that, it is well within guided margin of 13% to 15%. There is no drop of margin and there's no drop of our operating margin or gross margin.

Okay. Yes, I'll take that in off-line, sir, I need to --. Sir, also if you can give a little color on what kind of orders we have in our pipeline in the second half? And how do you look at the order inflow versus last year? Last year, we did about INR 5,600 crores. How do you think we could end up this year?

See, I think as -- earlier it was told to the participant and also in our interview, see, we have a very, very solid order pipeline where we are already a preferred bidder, like L1 bidder, both in India and internally. We have a good INR 3,000 crores or INR 1.5 billion of order -- sorry, INR 3 billion -- INR 30 billion, INR 3,000 crores of solid backlog of orders which are in pipeline, which can get converted in the next few months. So that is very solid. And this includes some seawater desalination, includes sewage treatment plants, includes some industrial plants for oil and gas, also includes one unique technology we are using for brackish water reverse osmosis, where we are using ceramic membranes. So all this pipeline is good. And another at least INR 2,000 crores, which we are very sure in the next couple of months, we should get a good position in that, which is under evaluation, and we are very hopeful of those projects also getting closed. And some of them, again, even are in Indian oil and gas sector where we are very bullish about our success.

So mostly are the domestic or international orders?

As I told you, some of them are international orders, like large ticket orders are international, but there are orders which are in India, both on the municipal side and also on the oil and gas side, where we are placed well. Some of them are already in the preferred status. Some of them we are expecting in the next couple of months to get into the preferred status.

Okay. Sir, lastly, on the HAM platform that we have invested, are we getting any traction so far?

Just can you emphasize exactly what you mean by traction in which area you are looking for?

Sir, the partner in HAM that we have tied up with. So there are we seeing any new inquiries or order pipeline build?

The partners we take are not strategic partners because we -- from a qualification perspective, from execution perspective, from O&M -- long-term O&M per se, everything is done by our company. So we are looking mainly for financial partners, and that's what we have so far. And even in the platform which we are creating, which is a $100 million platform, there also, we will have financial partners. So we will only leverage their financial experience, management experience, but all the technical experience, domain expertise will remain with WABAG.

[Operator Instructions] The next question is from the line of Harshil Parekh from Acuitas Capitall.

Sir, my question is on your preferred order book, which we mentioned last year, where we were the lowest bidder in Doha's desalination plant. So sir, what's the status update on that project?

See, first, I would say it's not last year, it's last quarter, okay? And this is a project which is in Kuwait for the Ministry, and we are a declared L1 bidder. This is under the evaluation process. Generally, it takes about 4 to 5 months. I would say that they are in advanced stage of evaluation. Post evaluation, they will recommend to the Ministry for acceptance. And post that, they will announce the order announcement. And then I think we can inform you if that happens in the next couple of months, we are hoping for we can make an order intake announcement.

Fair enough, sir. Sir, the second question is more targeted towards our other expenses line item. Q-o-Q, if we see, right, Q2 is usually better than Q1 in terms of revenues. However, if I look at the other expenses part, the other expenses have declined drastically from INR 48 crores in Q1 to INR 23 crores in Q2. So sir, what's the reason for that?

See, you will have to -- and that's why I would urge you to look at the investor presentation where we have separately disclosed the ForEx part. When it is a loss on account of ForEx, which was the case in quarter 1, it gets reported under other expenses. And when it is a gain, which is the case in quarter 2, it gets reported under other income. So other expenses of Q1 and Q2 do not have comparable elements. So please look at the investor presentation that will give you a better view.

The next question is from the line of Raghav from KamayaKya Wealth Management.

Yes, I had a couple of questions. First is about the order book turnaround time, specifically asking for the EPC orders.

This is, as we have said many times, generally, it's about 3 to 3.5 years depending on the size and the complexity of the project.

Okay, sir. And also just to understand a bit better, is there any upper cap on the order intake that the management feels that, yes, this should be the upper cap?

I think I can only tell you dil maange more that there is no upper cap. We only have a criteria for shortlisting our tenders where we like to bid. So we have a very strong screening process, which bids we should bid, which we should let go. That -- if it is cleared that, then there is no upper cap because financially and technically, we are able to handle much more than this. And you have seen that the starting of the company, it was almost like a startup or more than 25 years back, we just started as 6 people. Today, we are more than 1,500. We started with the revenue, which was in lakhs. Today, we are talking about moving towards INR 4,000 crores. So I think we know how to scale up, and we have a demonstrated track record of that. So we don't put unnecessarily cap on things which can grow profitably.

Understood, sir. And any competition you are facing because there are so many entrants in this industry?