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

Good evening, and welcome, everyone, to this earnings call post announcement of Q2 and H1 FY '25 results of VA Tech Wabag Limited. On the call today from the management team, we have Mr. Rajiv Mittal, Chairman and Managing Director; and Mr. Skandaprasad Seetharaman, Group Chief Financial Officer. Kindly note that 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 the 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. We will start with the opening remarks from the management, post which we will open up for the interactive Q&A. I now hand it over to Mr. Mittal to take you through the key business highlights. Over to you, Mr. Mittal.

Thank you. Good evening, ladies and gentlemen. We extend a warm welcome to you all to the earnings call post announcement of Q2 H1 FY '25 results of VA Tech Wabag Limited. Joining me today for this earnings call is Mr. Skandaprasad Seetharaman, our group CFO. We closed another strong quarter of earnings, continuing our growth trajectory. We stayed on course in our profitable growth journey while remaining steadfast to the cornerstones of our long-term strategy, advanced technology projects, emerging market focus, net cash positive position and asset-light approach. This quarter marked a number of significant milestones from an order inflow perspective. Recently, we secured a prestigious 300 megaliters per day seawater desalination plant in Yanbu, Kingdom of Saudi Arabia from Saudi Water Authority worth INR 2,700 crores. Saudi Water Authority formerly known as Saline Water Conversion Corporation, SWCC, manages over 15 million cubic meter of water mainly in 40 desalination plant and also some ground and surface water purification stations. The plant will employ state-of-art technologies and will be engineered for exceptional water quality and power efficiency. Scheduled for completion within 13 months period this project commences our relationship as a reliable water partner for Saudi Water Authority. Wabag has also secured a mega order value of INR 1,000 crores a from Indosol Solar for 100 MLD seawater desalination plant, marking our entry into the solar PV sector, this project will provide water security for the 10 gigawatt integrated solar PV manufacturing facility of Indosol. The EP project, which is to be delivered over 38 months will be followed by 15 years of operation and maintenance. Further, reflecting our enduring client relationship we secured a large repeat order from Reliance Industries to deliver water system for their Dahej and Nagothane facility and also a repeat order from Chennai Metro Water Supply and Sewerage Board worth INR 415 crores to operate and maintain the Nemmeli desalination plant, which was built and commissioned by Wabag in 2013. For a further period of 7 years, reaffirming the trust and confidence our clients place in Wabag's reliable performance and expertise. Looking ahead, we are further enhancing our presence and efforts in the emerging markets like Middle East, Africa, Indian subcontinent, Southeast Asia, and CIS countries. This promising order pipeline, we are confident in sustaining our growth momentum through the second half of the financial year and in line with our medium-term outlook. Our focused business development efforts are leading remarkable results as demonstrated by the order inflow of over INR 4,600 crores secured in H1 with 57% coming from international clients and 31% coming from industrial sector. You would refer that we had informed our preferred bidder status in project worth INR 6,000 crores and you can see that we have already converted more than 75% of the sale. As we speak today, we are happy to inform you that we are preferred bidder in the orders were over INR 3,500 crores, which we expect to convert through the next couple of months. With over INR 8,000 crores order inflow outlook already in sight for this financial year we are on track to reach an order book position of over INR 16,000 crores by the end of this fiscal year. Our order book position, which stands today at over of INR 14,500 crores as of H1 with a healthy mix of 59% EPC projects and 41% O&M projects provides a robust revenue and growth visibility. I would also like to share some updates on our key projects. Our prestigious 400 MLD payroll desalination project in Chennai, funded by JICA is on track with peak engineering activities underway. Civil works progressing well. Marine intake and outfall pipe material are received at site and equipment deliveries will commence from H2 this year. Our 200 MLD Sewage Treatment Plant in Pagla, Bangladesh, where we had a couple of months of temporary disruption is largely back on track with construction activities resuming swiftly, procurement activities are also progressing well. Projects like SIBUR and Senegal, where deliveries are largely complete have entered the installation and commissioning phase and are on target. I'm also happy to inform that Kolkata HAM project, our first HAM contract with NMCG has achieved COD, commercial operation date has started. As we advance our mission will shape the future of sustainable water solutions, we are also taking a moment to honor the journey that has brought us here. This year, Wabag reached century celebration -- century year, and we commenced the celebration of this landmark milestone with a brand even in Vienna in August. Honoring a century of innovation, leadership and sustainability in water sector. Continuing this centennial activities, we hosted our key customers business partners, bankers and other stakeholders across the Middle East with a vibrant celebration in September in Riyadh, Kingdom of Saudi Arabia. As we look into the future, Wabag remains committed to building on this 100 year legacy combining innovative technologies with resilient strategy to drive growth across emerging markets. Thank you once again for your continued support and confidence in Wabag. Now I will hand it over to Skanda to take us through the financial highlights. Over to you, Skanda.

Thank you, Mr. Mittal. Good evening, everyone. I hope you have had a chance to review our results update presentation, which has been shared on our website and with the stock exchanges. Let me walk you through our performance highlights for the half year and quarter ended 30th September 2024. Before I move into the numbers, I'm pleased to note that we continue our profitable growth journey into this half year as well with our EBITDA and PAT growing at a rate faster than the top line as envisaged in our long-term strategy. With the strong order position as of H1 and a robust pipeline visibility, we are confident of revenue and profit expansion to continue along with a net cash positive position as we step into the second half of this fiscal year. Now let me take you through the key financial highlights. Our consolidated H1 revenue, which stood at INR 1,327 crores grew 11% year-over-year compared on a like-to-like basis, excluding divested European entities. The strong order book position provides us a good visibility of revenue expansion. Our stand-alone revenue for H1 stood at INR 1,159 crores. For the quarter, revenue on consolidated and stand-alone basis stood at INR 700 crores and INR 613 crores, respectively. Our consolidated EBITDA for H1, which stood at INR 184 crores, grew by around 19% year-over-year compared on like-to-like basis, excluding divested European entities. We continue to maintain EBITDA margin in line with our medium-term outlook. These strong margins reflect our focus on efficient execution, a good mix of EP, industrial and international projects as well as a growing share of revenues from O&M. Stand-alone EBITDA for H1 stood at INR 171 crores. For the quarter, EBITDA on consolidated and stand-alone basis stood at INR 103 crores and INR 92 crores, respectively. Our consolidated PAT for H1, which stood at INR 126 crores, with a PAT margin of 9.5%, grew by around 31% year-over-year compared on a like-to-like basis, excluding divested European entities. Stand-alone PAT for H1 stood at INR 108 crores for the quarter. PAT on consolidated and stand-alone basis stood at INR 71 crores and INR 58 crores, respectively. As you would know, we have been a net cash positive group for the last 4 years consecutively. Notably, this quarter marks the seventh consecutive quarter that we have maintained a net cash positive position driven by disciplined cash and debt management. As of H1, our net cash position stands at INR 222 crores. Excluding debt on HAM entities, which is transitory in nature, considering our asset-light strategy, our net cash position stood at INR 338 crores. We closed H1 with a gross cash position of INR 645 crores, which consisted of INR 294 crores in cash and bank balances and INR 351 crores in term deposits. We are well placed on the cash front to infuse funds into projects to expedite necessary progress and also, we are in the process of enhancing our bank lines both from Indian and international banks to be ready with the non-fund limits to support the next wave of order book growth. We remain steadfast to our asset-light model, delivering a return on capital employed, ROCE of around 18%. We continue to create long-term shareholder value, generating a return on equity ROE of over 14.5%. Turning to the order book front, our international business remained robust with 54% of H1 revenue delivered by overseas projects and international projects constituting 39% of our order backlog. We continue to build our O&M business with 41% of our order backlog coming from long-term O&M projects. Our order book remained robust at over INR 14,500 crores as of H1 with a healthy mix of EP, EPC and O&M projects backed by adequate payment securities. We will continue our emerging market focus on advanced technology projects, particularly in desalination, recycle and reuse and affluent treatment. We have also identified future growth opportunities in ultrapure water for semiconductor manufacturing, solar PV and green hydrogen and also generating clean fuel from biogas, which will propel the group through its next growth way. Business development efforts are being invested on these opportunities and already the first success we witnessed to the desalination order for Indosol Solar. These opportunities are perfectly in our sweet spot of contributing to creating a greener, cleaner and bluer planet. We are deeply grateful for the trust and support reposed in us by our bankers, investors, WABAGites and all stakeholders who to continue to champion our vision. With this, we'll be pleased to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Nidhi Shah from ICIC Securities.

First of all I want to congratulate you on the excellent orders inflow that we've seen this quarter. I had a couple of questions on the new projects that we have won. Firstly, the Indosol plant. This 100 MLD is for the entire 10 gigawatt line that you're putting or is it only partial and we can expect more orders from this plant?

So this is for the complete line, this will be implemented in about 4 or 5 phases as they keep on investing towards that. And that's the reason the time frame we mentioned will be over 38 months. And after we have built this plant for the full 100 MLD then our O&M period of 15 years start.

All right. All right. And on the Saudi Arabia order that we received recently, what is -- basically, in the orders that we have received there, what is the timeline for execution of that order?

As I mentioned in my speech earlier, it's about 30 months.

And is it -- the 30 months, do we see that there will be, say, execution in equal parts, say, in 6 or 10 months blocks? Or do we see that execution is heavier towards the second half?

It's -- never, projects of this magnitude and if you have been following the company over the years, the first part, which is 15%, 20% of the time, it's normally for engineering it. And during that time, the numbers, you see the invoicing, you see will not be proportionate. Then the phase comes up about 50% to 60% of the project time where things pick up, the construction, the supplies and everything. And then again, towards the end, 15%, 20% of the time, it's the installation and commissioning phase, again, it would slow down. So it is like a slowing -- slow start, peaking up and again slow end.

All right. And also, the PV company that we have received this order from....

May I request you to please limit your questions to two. We'll move to the next question, which is from the line of Mahesh M., an Individual Investor.

Am I audible?

Yes, you're.

Yes. First of all, congratulations for the orders won in this quarter and the visibility of the great order book that we have in FY '25. I have noticed that we have been winning orders. The order book has always been multifold. It was around INR 9,000 crores in '22. It has -- it is almost -- it has crossed INR 15,000 crores now. But the execution has remained the same, close to a bit less than INR 3,000 crores every year. So I just wanted to know the reason why the execution pace hasn't increased the same as the order book? And what are we doing to increase the execution pace? And what could be the revenues in the coming years?

Very good question, and that's for all our business here. I think I'm sure the question you have is very valued for many of our other friends. See, as I said to the earlier participant, that whenever we get an order, as it is a design, construct and operation and maintenance, more than half of -- almost half of our order book is because of operation and maintenance, which can only start generating revenues after we finish the construction and commissioning of the plant. Generally it takes anything between 3, 3.5 years to complete the construction and commissioning of the plant. So now we talk about the rest of the half of the order book or new orders even we get. The first 20-odd of the time, as I said, will take to set up the project go to site investigation to do the design, get the design approved, then start ordering and then start doing the stable construction physically at site. So that is the reason you will see a little lag in the initial phases for any order to pick up. But post that initial 20%, 25% of the time it picks up exponentially. And that goes on for the 50% to 60% of the time when construction is happening, equipments are getting delivered and then again, towards the last 20-odd percent when installation and commissioning happening, again the revenues will come down. So this is the nature of the business we are in. And you will see that some of the large projects, which we got almost a year back, have finished that initial 20% period. And now it is picking up because the construction, as I said in my speech, was in full swing, say in Perur, in Chennai. The ordering has started, the orders will start getting delivered in the H2. So naturally, we will see the revenues picking up from the orders, which we booked over the last one year. And orders, which we have booked in this quarter, maybe it will take another 2 quarters to start generating appreciable revenues.

So what kind of revenue visibility do we see in the next 2 years? Considering the backlog of the orders we already -- or we are going to execute in the next few quarters, and then we start the maintenance for the same?

See, this we have discussed with all of you when we had a physical meeting in Mumbai, after our annual results in the month of May and -- earlier this year, and we have given a clear medium-term outlook. And that we said that we are very, very bullish on not only our order intake, but also the revenue growth and we had given a number of 15% to 20% CAGR for our medium term, which is 3 to 5 years. This is the number we expect the top line to grow.

The next question is from the line of Aejas Lakhani from Unifi Capital.

Yes. Congratulations team on the order. Mittal sab, I had 2 queries. First one being that if I take your revenue guidance of 15% to 20% for the year, that effectively means that the second half delivery of about INR 2,000 crores in the second half. So could you specifically talk about your projects? You had mentioned in the last quarter, for example, of how 2 projects were coming on stream where you are executing. Similarly, could you just sort of call out, which projects are coming on stream or revenues of which you will book in the second half?

I think earlier I said and to the -- just before you, the participant, I mentioned that, like the biggest project we have today in our order book is Chennai Desal project. That will start now peaking. For the next 4 quarters, we would see this project really peaking because that is where next 4 to 6 quarters, you will see a lot of construction happening. Luckily, the monsoon is out of our way, peaking will start, the marine work where we have to move offshore that should start early next year. Our equipments will start getting delivered from next quarter onwards. So a lot of this will happen. Same will happen with our Pagla project in Bangladesh. It would have started a few months earlier because of the reasons known to all of us, a couple of months, there was disturbance and the work has to slow down. But luckily, everything is settled. We are back on the track. Our people are back on site, work is happening. Reliance projects, which we recently won. Reliance projects are always and always on fast track. We will see good revenues coming in. Indosol, at least the first phase, we have a very challenging timeline to do the first phase and give them some water. So that will start peaking at least a part of that project. So this -- we are very hopeful and very rightly said that we expect in H2 close to INR 2,000 crores of revenues.

Got it, sir. That was very helpful. Sir, we had 3 HAM projects and congratulations on COD of 1 of the Kolkata project. So could you just call out now the -- I mean we had debt against all the 3 HAM projects. So has the HAM, the Kolkata project debt that we had invested, have we plowed it back? That's point number one. And what is the stage of the other 2 HAM projects? And when do you expect COD? And when do you expect the release of our funds there?

Aejas, I think first, to clarify, of the 3 HAM projects, 2 have been already divested. There is no HAM debt on our books. Number two, the way that the concession agreement works here is that we can flow our cash out only at COD plus 3 years. So we have already invested only a small amount. We have explained it earlier also, our strategy means that we take minority economic interest. And we are there only to put our skin in the game, maybe 3%, 4% of the project value is the maximum we invest. And this amount is also plowed back at COD plus 3 years. And our -- let's say, our remit in the project or our interest in this project is only because we get the EPC and O&M. We are a technical partner and there is a financial partner who holds majority. So even in this case, we have brief COD and the financial partner has an option to buy us out at COD plus 3. This is the same case for the other 2 HAM projects. Now out of the 3 projects, 2 are divested. There is no HAM debt. The third project also, we will look to divest very soon. But such project has achieved COD, Kolkata. The second project Digha-Kankarbagh, and the third project Ghaziabad. Ghaziabad is largely complete in terms of the project activities. Digha also is in a very, very advanced stage of completion. So we would expect also to complete these projects in H2 -- more expected in H2. So our interest would be that all these projects are completed within this year, Aejas. So that then we have 3 years of stabilization, and we will flow back our capital.

Got it. Just a follow-up. So the INR 117 crores of debt today is against Kolkata or all the 3?

Only Ghaziabad is consolidated today, and that also once divested will go out. And that is why I mentioned in my speech Aejas, that the debt we excluded since it is transitory in nature, our core business has close to a INR 340 crore net cash position.

The next question is from the line of Mihir Dhami from Sharekhan.

So I had a few questions on financial management. The employee expenses has increased this quarter from the last -- from the previous quarter and other expenses has going down. Sir, particularly what was the reason for this?

I think the reason as we have informed to the stock exchange a few months back, this is our centenary year. And the Board had approved ESOP scheme for our employees for motivating and retaining them. So a part of this increase, what you are seeing is because of the provision as per the rules, we have to provide for ESOPs, which we have granted to our employees.

Okay. So they are one-off in nature, right, the employee expense.

And also, I think some of the other expenses, which you are seeing is reduced, it's also because of the 3 European subsidiaries, which we have divested. So some of the cost of those subsidiaries you are not seeing in this quarter.

Okay. On the working capital side, the payables have reduced this quarter because of some payments, which were made. Do we see -- I mean, do we see a payable days continuing this number? And also, if you can give some guidance on the receivable days as well, would they remain at a similar number going forward?

See, Mihir, we -- usually H1 versus H2, if you see, H2 is the more stronger quarter. H1 is more in terms of putting in cash into the projects, expediting it because you have the monsoon, you have -- you're just off the budget. So there is requirement of working capital investment. And in any case, our payables have remained on track. We have been very timely in paying our vendors because we know that's going to expedite the progress, number one. Number two, you will see that this will also pay off into the H2 when monsoons are done, deliveries of some of the projects, which Mr. Mittal also mentioned, will start. Construction can run at a good pace. So this is a cycle. H1 versus H2, 40-60, 35-65, the usual mix of revenues, and we have more pumping up cash in H1 and more recovery of cash in H2. And of course, I think what you should also see here is despite this trend, we have even in H1, maintained a net cash position. We had about INR 340 crores, if you see in March, excluding HAM. And in September, also we have a similar number. So we have also managed our cash well. We have also improved the collection cycle. You will also see that the trade receivables have come down by 5% despite our revenues growing by 10%. So the cash cycle is improving. The vendors are being funded for expedited progress, and you would see that H2 revenue expansion will also start as a result of this.

The next question is from the line of Chirag Khasgiwala from Neo Asset Management.

Yes. So I mean, as you just explained regarding the working capital positioning. So if you look at your operating cash flow that has continued to remain in negative territory. So given all the working capital investment that you are talking about, is there any road map to bring this operating cash flow in the positive territory or it will continue to remain in negative?

I think history is a testament of what we deliver. You have seen in the last years, we have generated free cash. Last 3, 4 years, you can check even in recent history. We have generated free cash. We have generated operating cash and I have explained H1 versus H2. Usually, this is the case. Look at it at a full year basis, you will surely see that we will generate cash, number one. Number two, as I said, [ the vector ] trade receivables reduction, you are seeing cycles improving. H1, you have to invest cash. This is the nature of the business that contractors have to be fed to keep the project ongoing. And we've also still kept a net cash position. That means on an overall basis, we are doing well from the working capital front, considering the context. But yes, you should see it on an annual basis. You should also see compare how historically we have done. We have generated free cash, and we will continue to generate because that is the core of us.

For execution of the future projects, are you sufficiently funded? Or will you be required to go for fundraising?

We have INR 600-plus crores of cash, Chirag and we have cash -- liquid cash in our bank, which will fund the projects. We have long-term deposits of INR 350 crores. I mentioned this in my call -- in my speech, which we will use at appropriate time. We have INR 4,000 crores of bank lines. We can go -- we have already applied for another INR 1,000 crores. We came to the shareholders for enhancement this AGM, and we have an enhanced limit of up to INR 6,000 crores. So there is enough and sufficient buffer for all the order book growth that we are envisaging. We don't need to raise any cash.

And lastly, sir, as you have been guiding that your revenues could grow by around 15%, 20% CAGR over the next 3 to 5 years. But on a quarterly basis, if I look this last quarter, so revenue growth has been just mid-single digits. So this quarterly, I mean, variation will be there or is it something one-off?

See, I think we have explained enough this thing. We are not into a consumer business as a quarter-on-quarter company. That is the reason we have not even given an annual guideline -- guidance. We have given us medium-term guidance for 3 to 5 years. So if you track the company that way and as we said that you will see the growth over the next 2 quarters and H2, you will see that we achieved the 15%, 20% number, which we have given. And we expressed our confidence. Yes, we know we have to achieve INR 2,000 crores revenue in the next 2 quarters and we're confident of it.

And just to supplement Mr. Mittal. Chirag, you'd have seen our investor presentation. You've seen in the last 4 years, our PAT has grown at a CAGR of 45%. We concentrate on profitable growth. Sales is a consequence, but profitable growth, cash growth is what we focus on, and that is what is our strategy today.

And also, we had mentioned earlier that our strategy is to move away from EPC to EP. So we may see a little subdued top line. In spite of that, we have still given an outlook of 15%, 20% growth because what we are as a technology company, we excel in advanced technology where we hold the patents and trademarks for more than 125 products and processes. This is what we want to leverage and improve our margin and working capital, and we have demonstrated that in the last few years.

The next question is from the line of Jainam Jain from ICC Securities.

So can we expect the margins to touch 15% in FY '25?

Can you please repeat your question?

Yes, sir. Can you expect the margins to touch 15% in FY '25?

Sorry to interrupt you, Mr. Jainam but your voice is not audible.

Okay. Rutuja, I've got the question. Jainam, we have guided a 13% to 15% EBITDA margin, and this is for the 3- to 5-year period. And we are confident and comfortable that we will be in this range.

Okay, sir. And how is the Middle East market looking like in terms of orders?

Can you complain about this market? There is enough and more. It is so abundant that, I mean, we are lucky to choose projects, which are in our sweet spot.

And this we had also mentioned, we were also lucky as India was going through general election, we expected a slowdown in India for 2 to 3 quarters. And we could shift some of our resources to this market and you can see the results, the resources, which we shifted timely to the Middle East market is giving the necessary results what we expected to give. So I think, of course, we were smart to shift it, but we were also thankful that the country was going through a general election.

Okay, sir. And sir, how does the margin profile looks like in the new order that we received during this quarter that's pertaining to 300 MLD plant in Saudi?

We don't do a project-wise margin guidance. I think if you have been in the previous calls, we've always said that we pick projects only, which meet our threshold margin requirements. We are in more desperation to pick projects for the sake of top line. We want advanced technology projects. We want good cash flow projects. We want projects to be in the emerging markets and with adequate payment securities, either backed by multilaterals, backed by a bilateral funding, sovereign fund or letters of credit. These are our criteria. And any project that we pick will need a certain internal threshold margin. And you have seen in the past years how our contribution margin and EBITDA have grown. This project will be no different.

The next question is from the line of Dhiraj Ram from Ashika Institutional Equities.

First of all congratulations for...

Mr. Dhiraj, may I request you to please speak a bit louder.

Can you hear me now?

Yes, please go ahead.

First of all, congratulations for the fantastic results. So I just wanted to know what is the amount of client retention money that you expected to be released in H2 FY '25?

See, there are -- this is a cycle Dhiraj, at least 2, 3 projects, which -- where we see retentions are there should get liquidated. I mean if it's okay, you can connect with the team to understand it a little better. I don't have a number off the cuff now but our team can help you on this.

Got it, sir. And one last question. Sir, are we facing any receivable delays from this particular Senegal project?

Not at all. This is, again, a multilaterally funded project. This project, as soon as the work is certified by our client, our bills are sent to JICA Tokyo and the payments are received directly from JICA Tokyo.

The next question is from the line of Harshil Parekh from Acuitas Capital.

My question was mainly related to our domestic acquisition. So if I see this quarter, we degrew by some 7%. Is it related to election-related execution issues or there is anything specific that you would like to disclose?

Also, you have seen a trend. Our order intake has also moved more international. Naturally, the revenues will also come more international, which is obvious. So there's no delay in India and we have not seen delays because of election because there was adequate budgets available. So whatever we have aggregated, we are getting paid as per our expectation.

Sir, my question was that the domestic revenues have degrown by some 7% in Q2. So I understand the international mix going up because of higher growth in international but my specific question was on the domestic revenues being degrown.

See, domestic revenues can only grow if our other backlog will also grow. Here, our order backlog has not grown to the same extent as international order backlog. So naturally, you will see the international revenue growth will be higher and maybe the Indian degrowth will happen. And as my colleagues Skanda mentioned, that this second quarter is always a little difficult quarter. From 2 points of view. One, the construction activities slow down because the country is going through monsoon where the construction gets slowed down. Second, also the budgets are getting approved towards April, May. And finally, they get implemented. So the speed of that acquisition because of budget is also a little bit slower. Always in the second quarter, you will see this happening.

And, Harshil, just to supplement Mr. Mittal. He also kind of explained earlier, it is also the stage that the project is in. And we are not a quarter-over-quarter company. We could have projects in procurement phase in the last year. They are maybe in the installation and commissioning phase this year. So it depends on the mix of projects and the phase in which the projects are. So one is the international project mix and second is also you have to see us more on an annuated basis. Look at us more in a 1- to 3-year range at least instead of just looking at it quarter-to-quarter segmented so much.

The next question is from the line of Omkar Chitnis from Trade Brains Private Limited.

Sir, my first question is, with operations spanning across multiple countries you have, how are you managing geopolitical risks that might impact project executions and profitability in the coming future? And what are the regulatory challenges you are facing in different countries as of now?

As you know, Wabag has been a multinational company. And for decades we have been doing this business. Somehow, we have mastered this part of managing this geopolitical risk. Simple rather than giving too much detail into our business USPs like we do, simple is we paid the payment security. Like Skanda mentioned earlier, we take contracts where the payment guarantees, like multilaterals are told that some of this, it goes to Tokyo and JICA is paying directly, it is not coming through local governments. So that is number one. Second, we take sovereign guarantees like Saudi Arabia. It's directly government of Saudi Arabia, who's placing these orders on us and they will pay us directly. Thirdly, where we don't have both this available, we go for letters of credit. Plus we always try to split the contracts to the extent possible between offshore and onshore. We try to take a local currency for onshore activities, and take in U.S. dollar for offshore activities. So that also protects us against currency risk, payment risk and we have seen over the years that this strategy has fully worked for us and protected us against that. And where we find that there is some risk, the Indian government provides us with ECGC coverage for the projects, which provides us against both the commercial risk and the political risk. So these are some of the instruments we use to mitigate this risk.

Okay, sir. And second question is, are you expecting any projects in energy generation like in thermal or nuclear from PSU companies in India for the upcoming financial years?

Why -- are you asking us whether we would get into this?

Are you expecting any projects from PSU companies, sir?

From PSU companies?

Yes. For thermal and nuclear wastewater management.

Yes. If you are talking about the PSU companies, yes, I think we see some traction starting on again thermal, okay? And thermal plants need a tremendous amount of water. And there's a clear guideline from government of India and NITI Aayog that all these plants will have to use recycled water for their power plants from a sewage treatment plant, which is in the radius of, I think, 25 or 50 kilometers, okay? So if they are going for expansion, they are not going to get fresh water. They are going to depend on recycled water. So naturally, these are all going to give us a tremendous business to provide the water, which is the core of our technology, recycle of water. So this is what we have done. And if you see other oil and gas sector companies like IOCL, companies like MRPL, they are investing in the growth. As we speak, we are working for few projects in IOCL where they are putting up the additional capacities and additional lines. Same is with MRPL. They have gone for desalination plant to have a water security. So yes, we do work with PSUs and have successfully executed these jobs.

The next question is from the line of Dhruv Joshi from Nuvama Wealth and Investments.

I just had one query on the future prospects of the business that we're getting into. So primarily, we had tied up with Peak Sustainability Ventures where we are planning to establish about 100 CBG plants. I just wanted to understand when and how much can this contribute to our business?

It's not above, again, a top line. It is more about our commitment to sustainability. Our commitment to climate change. This CBG plants are not, which are going to give you a huge top line because what we are trying to do, okay, this is a value adder for such plants is getting this power or fuel, which is green, clean and sustainable rather than going for conventional thermal fuels. So to reduce the greenhouse gases to have a cleaner environment that no smoke is there. So that is where we are coming in as a sustainability company. And I think these plants, we have started educating the clients to see that it is also a win-win for them. There is in it something for them also, not only for us. So I think that is working very well. There are at least 4 projects, which have moved well. I hope in the next few quarters we will be able to announce a few orders based on this CBG technology what we have.

The next question is from the line of Samarth Khandelwal from ICIC Securities.

Sir, most of my questions have already been answered, and you have answered them very patiently. Sir, I wanted to understand how ultrapure water would be different from the current desalination that we are supplying?

See, ultrapure water is a ultrapure water. Now obviously, there are industries, which need ultrapure water is growing. Take an example of semiconductor is growing at a brisk pace. Take an example of PV, that is growing at a brisk pace. The new line of business, which is green hydrogen, which is again growing swiftly and very soon, it will be economically viable. All this needs ultrapure water. What is ultrapure water? ultrapure water is like a distilled water where you do not have salts, inorganic salts in the water, you remove those salts so that it does not result in scaling, scaling of your cells, scaling of your electrodes, so that the life and efficiency of your plant goes up. And that is what we -- is our business like desalination. We have 40,000, 50,000 of salt in a seawater. This brings it down to 200, 300. And now ultrapure water, we'll have to bring that 200, 300 down to what is required by clients, some may insist for 5, 10, 20, that is what we say is ultrapure water. So we see a huge transaction in ultrapure water, UPW, as we call it short form. And you will see in the next few years, this business will really pick up globally.

The next question is from the line of Kaushik Poddar from KB Capital Markets.

This year going by the figures you have supplied, it looks like you'll be getting INR 8,000 crore plus worth of orders. Can we have similar run rate for the next few years?

Why not. As we are now in Middle East, we say Inshallah, God willing, why not.

Okay. Okay. Okay. Yes. In that case, your guided the level of 3x your order -- 3x your turnover being order book, it will be exceeded by a substantial measure.

I think that's good. We overdeliver than what we commit.

So can we take it that whatever the table you have given at the end of your presentation, these are the medium-term goals. That is your -- I mean that is the minimum we can expect?

I think we are not saying that but I'm sure you're smart enough to make your judgments.

The next question is from the line of Basil Bansal, an Individual Investor.

When I see our segment results, I see that the margin on the rest of the world is increasing, whereas on the India operations, it is coming down. So last year, that is September '23, the margin was around 24%. This now stands at around 14%. So can you give some color on it?

See, India is a mother company. There are a lot of corporate expenditures, which are booked in India. And because we don't break up so much on India and international because we are submitting via consolidated results. And if the revenues of India are coming down, our overhead will not come down proportionately because some of the overheads are fixed, okay? So that should not be at all a concern area those overheads will remain. That doesn't necessarily mean the project margins are coming down.

Okay. Got it. Got it. And I think we see your billing in the rest of world is all into U.S. dollar or they are in the different currencies?

See, some of them -- or most of them is U.S. dollar but some of the subsidiaries that we have in the Central and Western Europe, like Austria and others, they do billing in euro.

Okay. And how do you gauge your receivables?

Sorry?

How do you gauge your receivables? I mean, from foreign currency fluctuation point of view, how do you gauge your foreign currency receivables?

We do a lot of imports also. And also, we buy or also we borrow in foreign currency, packing credit, foreign currency. So there is a natural hedge that is created. And hence, we don't have too much that is left unhedged. So the concept of hedging is not -- I mean, it's a natural hedge. We don't need to typically hedge your receivable.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Mittal for closing comments.

Thank you. Thanks for your active interaction. And I thank you once again for your participation in our Q2 H1 FY '25 earnings call. We have uploaded the analyst presentation in our website. In case you have any further queries, you may get in touch directly with Adfactors, our Investor Relations adviser based in Mumbai, or you can also get in touch with us directly. Thank you. Bye for now.

Thank you. On behalf of VA Tech Wabag, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.