VA Tech Wabag to gain from government's urban infrastructure push

VA Tech Wabag, which focuses on technology, design and engineering services related to water treatment, is looking to gain from the government’s urban infrastructure push.

With urbanisation on the rise and an improvement in the standard of living, demand for quality water services is increasing, said Rajiv Mittal, managing director, VA Tech Wabag, which is based in Chennai in India. “We are poised well to participate in this growth story.”

The government will spend an estimated Rs8 trillion on water supply, sewerage, solid waste management and storm water drains through four five-year plans ending 2031.


The company’s business can be divided into two major segments — engineering procurement and construction (EPC), which accounts for 69 per cent of its revenue, and operating and maintenance (O&M), which accounts for the rest. Around 73 per cent of its business comes from projects awarded by municipal bodies, the rest from companies. The margin in municipal work is 13-14 per cent and 8-10 per cent in the second category, said S Varadarajan, chief financial officer.

The company follows an asset light business model. The civil work related to a water treatment project, which entails fixed costs, is outsourced while the design and engineering is done by the company. It has an order book of Rs6,605 crore, of which 57 per cent is EPC business. Decentralisation of operations has helped the company reduce the cost of operations. Established in Austria in 1924, a high-cost economy, the company has diversified geographically to India, Turkey, the Philippines and Algeria.

In the past five fiscal years, ‘other expenses’ have plunged -- to Rs32.2 crore in FY13 from Rs293 crore in FY09. “For us, costs of operations in emerging economies make sense,” Mittal said. “Barring raw material, which changes as and when geography changes, we have been able to reduce our costs of operations by sheer focus on emerging economies.”

This has enhanced the company’s financial performance in the past five years. Net sales have grown at a compounded annual growth rate of 10 per cent to Rs1,603 in FY13, while net profit has grown at a CAGR of 26.5 per cent to Rss89 crore in the same period.

Having a debt-equity ratio of less than 1, the company is well poised to participate in the Indian desalination water market, which according to research firm Tech Archival, will grow at a CAGR of 30 per cent from 2013 to 2018 and reach a capacity of 5.35 million cubic metres per day.