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

Good evening, everyone, and welcome to the Conference Call of VA Tech Wabag Limited. On the call today, we are pleased to have with us from the management team, Mr. Rajiv Mittal, Chairman and Managing Director; Mr. S. Varadarajan, Whole Time Director and Chief Growth Officer; and Mr. Skandaprasad Seetharaman, Group Chief Financial Officer. Before we begin, please note that during this conference call, the company may make certain forward-looking statements regarding business prospects and profitability. These statements are subject to the risks and uncertainties. The actual results may differ materially from those expressed or implied. This conference call will be archived, and the transcript will be made available on the company's website for future reference. [Operator Instructions] Please note that this conference is being recorded. We will start with the opening remarks from Mr. Varadarajan. Thank you for joining us today. And with that, I now hand over to you, sir.

Thank you, and thank you all for joining us today. Good afternoon. It's a pleasure to connect with you and share an important strategic development that marks a significant milestone in Wabag's growth journey. As you know, our ready strategy, one of our key focus areas has been to build long-term partnerships in finance, construction and technology. Today, we are pleased to announce that we have agreed with international investors to jointly invest up to USD 100 million over the next 3 to 5 years. This investment will support the equity requirements of public-private partnership projects in the municipal water sector. We will provide you more information on this equity partnership as we proceed ahead on the definitive agreements. At Wabag, we have always maintained our commitment to an asset-light approach. In line with this, Wabag will participate as a minority investor in this equity platform, while playing a pivotal role as the technical partner. Our core strength lies in our ability to deliver best-in-class EPC, which is Engineering, Procurement and Construction and operation maintenance services. And this partnership enables us to do so while keeping our financial exposure minimum. Looking at the industry trends, the water sector has been evolving from a contractor driven model to a performance-based model, and PPP type of models are at the forefront of this transformation. Wabag is proactively positioning itself to be future ready by establishing a dedicated platform with a long-term vision. The potential in this space is substantial. We foresee a business opportunity of around USD 1 billion in PPP projects. Our capital projects team has been actively working on identifying and evaluating opportunities and a few of these projects are already -- are ready for investment. This partnership is strategically structured to combine financial strength with technical expertise. Our financial partners bring deep experience in water sector financing, which is critical for scaling PPP projects efficiently. Meanwhile, Wabag with over a century of leadership in the water sector will provide the essential technical know-how and operational excellence. Together, this collaboration will serve as a powerful platform to address the growing demand for advanced water treatment technologies and infrastructure development, both in India and emerging markets. For Wabag, this is more than just an investment. It is a step towards strengthening our leadership position, unlocking new revenue streams and delivering sustainable value to all our stakeholders. We are excited about the road ahead and look forward to leveraging this platform to drive long-term profitable growth. We appreciate your continued trust and support. Thank you so much. We will now open the floor for any questions you may have.

[Operator Instructions] The first question is from the line of Sani Vishe from Axis Securities.

Yes. Congratulations on the new partnership. So I'm just trying to understand, I think you briefly mentioned that it will be focused on India and emerging markets. But could you just brief on what kind of geographies you will be focusing on through this partnership?

Predominantly, it will be India to start with. We will also be looking at Southeast Asia and maybe very selectively, the African opportunities also we will look at.

Okay. And most of these in terms of the PPP partnerships?

Yes. Yes. This is meant for PPPs.

Okay. So do we have any estimate on the kind of opportunity that is -- that gets expanded because of this partnership?

That's exactly what I was giving the initial introduction. But we currently see at least a $1 billion opportunity for us.

Okay. What I understood was that's a global opportunity. So that's why I asked for this particular partnership.

For us is what I'm talking about.

Okay. Okay. Understood.

And the opportunity size, global is actually much bigger. We are looking at selected geographies. And we see India itself is moving towards this PPP. If you see initially started with the central government showing a lot of interest, it opened up with Namami Gange kind of flagship program. And you would find now slowly the other rivers are also taking up. You see Yamuna is -- was in a big discussion in the recent past, you would know about it. Like in Chennai, Adyar River is the river, which is carrying sewage water. Now they are already -- it's a PPP model, they've already announced. There's another river here, Cooum River. They're planning for it. Like this, there are multiple river cleaning, there are major reverse of India, which will also being cleaned. Apart from this, the states are also coming up with various opportunities, either it is hybrid annuity model, or it is BOOT model. So it is -- the sector is opening up.

[Operator Instructions] Next question is from the line of Nidhi Shah from ICICI Securities.

Yes. So in your opening comments, you mentioned that there are certain projects that you have identified that would be fixed for this partnership, could you throw some light on what kind of projects these are, what states these are, other than, obviously, what you answered in the previous participant's question?

Nidhi, what Mr. Varadarajan mentioned during the opening comments was that there are opportunities, which are available where we are either preferentially placed or businesses that we are -- PPP projects that we are currently doing. So all of these are ready for investment. So the opportunity is there today to activate this platform.

What is the opportunity size?

So the opportunity size is $1 billion, as Mr. Varadarajan mentioned in his opening speech. See it could be in a...

[indiscernible] like the breakup that you could give of projects that are already in and the pipeline?

So the $1 billion is a 3- to 5-year outlook based on the platform that we are establishing Nidhi.

Okay. All right. And last thing, was one more. So you mentioned that there are 2 other partners. I'm sorry, not -- you cannot disclose much about that. But -- are they similar climate funds that are investing, would they be foreign funds, local funds?

They are large international investors and marquee names in the market. And we will be able to give these names out. We're not able to give it because of confidentiality, but when we do the definitive agreements, you will surely hear the names, and these are large international marquee investors.

All right. And also these projects that you will be getting into the BOOT and the HAM projects, I'm assuming what will be the margin profile for these or the ones that we normally do which is the EP and the EPC ones, what would those margins?

See, these would -- these projects are similar to the projects that we are doing on a DBO basis. We have mentioned that we want to remain asset light. So we want to be in this market for the EPC and the O&M opportunity that is there by being a technical partner and a minority investor. So for us, this is like any other opportunity. We will evaluate this like any other DBO opportunity that we are doing. So the margins will be consistent with that.

Right. And just some book -- one last question on some bookkeeping thing. So when we will go in for bidding, it's this platform that will be bidding, right? So how much will be -- like when say the bid is placed and things like that, will it primarily be driven by the funds and are these are minority share, the bidding? Or will Wabag be very heavily involved in the bidding process as well?

Obviously, the heart of this investment is the treatment plan. And being the technical partner, obviously, Wabag will have a very important role while other partners will also obviously contribute in with their financial investment. Wabag will certainly have an important role because we are the technical partners.

Next question is from the line of Anupam Goswami from SUD Life Insurance.

Sir, I have not got a clear view, but this partnership that we did, what sort of projects are we looking into this? Or is it like are we capable now to bid for higher ticket orders? How will this basically incrementally benefit us?

So Anupam, you know the market has both design-build-operate contracts as well as PPP contracts and BOT, BOOT. Now when it comes to HAM, BOT, BOOT, there is a capital investment that is required either in term of equity and, of course, from the lenders. We being an asset-light organization, we would like to minimize our capital outgo because we want to keep our ROCEs high. So we have entered into this partnership with other marquee investors who are willing to take majority investment in the platform. This platform will basically cater to the equity requirement of these PPP projects. And of course, we will take money from the lenders and the project will be developed. Wabag will remain the technical partner who is doing the EPC and the O&M. That's our interest here. We don't want the capital requirement as a restriction to our market. So we are making it as an enabler by -- through this growth initiative while remaining asset light, and what's very important to know is that we are not going to raise any funds. This is all -- this is minimal capital that we will invest through internal grows.

Sir, as I understand, we'll now be able to bid for HAM projects where the capital intensive is required. So I just wanted to get a view that how much of an order, let's say, we can incrementally get out of this, let's say, if our order book is about 143 billion, and let's say, how much of a HAM projects actually happen in the market industry?

See Mr. Varadarajan, in his opening comments, mentioned that the opportunity size considering this platform is $1 billion over 3 to 5 years. And you will see that as this grows, from an order book perspective, sky is the limit, Anupam. There will be more and more projects coming in, and we will be able to invest. So the crux of this is that we want to remain asset light. We want marquee financial partners to come in, and we have a long-term base to tap this market as well without investing capital.

Okay. Okay. So basically, our ticket size and the scope of work will also increase.

Correct.

Okay. That's great, sir.

[Operator Instructions] Next question is from the line of Vinit Manek from Karma Capital Advisors.

Congratulations on the platform announcement that you have made. Sir, just one clarification from my side that I wanted to be is that the $100 million of the investment will help us to bid what size of the projects overall on a 3- to 5-year basis. So the way you mentioned that $1 billion opportunity is there, but the $100 million of equity investment can help us support what size of bidding that we can do on the platform?

$1 billion.

Okay. So it's like 1/10 of the ratio. So you need equity of 1/10 in these projects?

Correct. We will have a mix of HAM and BOOT. But broadly, we see that $1 billion worth of opportunities can be pursued with this platform in its current level.

Next question is from the line of Ankita Shah from Elara Capital.

Yes. Firstly, congratulations on the deal. Sir, you mentioned that in the projects that you will pursue the PPP project, you will be a minority investor in that project. So what will be your financial commitment out of the total investments that you're looking at?

26% at the maximum.

At the outset, 26%. Perfect. That was the number [indiscernible]. All the best.

Next question is from the line of Mihir Dhami from Sharekhan.

Sir, my question was related to the order book in general. We were preferred bidders were around INR 2,000 crores to INR 2,500 crores of orders. This was mentioned in the quarterly call. So you got the INR 360 crore order recently. What is the status on the rest of the preferred bidder book?

See, we announced the preferential placed positions in the last call. We are pursuing all of them. They are under evaluation. You've already seen the first set coming in. You will see in the next few months. The rest of the orders will also reach its logical conclusion.

Okay. And also wanted to know how the quarter is progressing as such because we are almost at the quarter end and fourth quarter was supposed to be a good quarter for us. So I wanted to know how it has progressed.

We are progressing as expected, in line with our medium-term outlook that we have already given. That remains, and we are progressing well.

[Operator Instructions] Next question is from line of Sam Khandelwal from ICICI Securities.

Am I audible?

Yes, you are.

Congratulations on this partnership. Sir, my first question would be, we would be bidding for projects, which would be in the form of Namami Gange, and how much time would we be taking to execute these projects, like if I am to $1 billion opportunity about 5 years, approximately INR 1,500 crores per year, if I'm saying, and if I get a project worth that one for a year's time, so how much time would I be generating revenue? And when I generate that revenue, who will I be sharing it with the lenders, with the equity partners? So what would that transactional nature be, if you could highlight?

See the -- whatever the execution of project, the cycle the time, what you've seen in the past, it will remain same. For example, a desalination plant takes 24 to 36 months assume. It will remain same depending upon the capacity, the complexities that the plant, the project comes. It's not going to change. The only thing about 4 to 6 months additional time will normally be given for financial closure and completion of all the conditions precedent, nothing more than that. The tendering process, all other things will remain the same. And you're talking about accounting, yes, the EPC contract here will be Wabag, O&M contractor will be Wabag. So it's entirely in Wabag's books, whatever that we are -- there is no sharing of revenue. This is an SPV, which is holding the concession, but the entire EPC and O&M is done by Wabag. So the revenues of EPC and O&M will be 100% to Wabag.

Okay. Okay. And sir, just in the previous participant asked the question about higher equity investment. So out of, say, INR 100 crores is required, the equity would be INR 10 crores. And of that, 26% at most we would be doing. Am I correct?

See, it is, let's say, it's a hybrid annuity, 40% comes through a grant during the construction from the authority. balance 60 will have to be funded by the concessionaire. This will be the platform what we are talking about. So out of that 60, 15 will come as equity, 45 will come as a debt. This could be a typical model, okay? Out of the 15 equity, we would be a minority investor is what we are explaining, if that clarifies.

Next question is from line of Chirag from New Asset Management.

Yes. So just wanted to get some clarification regarding the Saudi Arabia order, which was previously a tender, which was canceled and then it is when we do retendering. So you said that you have a few days to evaluate before you decide to go for the retendering any bidding there. So what's the status there?

We didn't say we will reevaluate. We said we continue to remain positive about this market. We have already seen -- we have booked about a $200 million project in Saudi Arabia, probably $371 million project in Saudi Arabia already, and we are following all of the other orders, pursuing the bids, and we will be putting bids for this project as well, which is ongoing right now.

So I mean, [indiscernible] especially for that INR 2,700 crore order, which was previously canceled. So then you said when you retendering?

Correct. So the tender is already out. We are working on the tender. We will be placing the bid in the next month.

Okay. And secondly, in the Jal Jeevan Mission, we are hearing a lot of news that a lot of payments are getting stuck from the government side. So are you also facing the similar issues, working capital getting stuck up? How is the situation?

So I'm sure you know us, we are a technology system integrator. We are not into civil work. Jal Jeevan Mission is not our focus, that is all piping and civil works. We don't have any projects in Jal Jeevan Mission, so we don't face any of these.

Thank you. Ladies and gentlemen, we'll take that as the last question. With that, we conclude today's conference call. On behalf of VA Tech Wabag Limited, we thank you all for joining us, and you may now disconnect your lines. Thank you.