VA Tech Wabag Stock Rises To Highest Since October 2019 As Nomura Ups Target
Shares of VA Tech Wabag Ltd. rose to the highest in more than a year after Nomura raised price target on the sewage and water treatment solutions provider.
The research firm’s revised price target of Rs 446 apiece against Rs 432 earlier implies a potential upside of 82% from VA Tech stock’s Friday closing. “Past concerns on debt build-up, low cashflows and slow-moving orders are largely addressed,” Nomura’s Priyankar Biswas said in a note. “Financial closure of HAM (hybrid annuity model) asset and a strong, well-funded order book provide long-term sales visibility.”
VA Tech on Thursday informed the bourses about financial closure of its HAM project received from the Kolkata Metropolitan Development Authority. It had earlier signed a Rs 575-crore HAM concession agreement under the Namami Gange programme. The company will execute engineering, procurement and construction of this project over 24 months, followed by operations and maintenance of 15 years.
Nomura expects a similar agreement for the company’s Patna HAM project worth Rs 247 crore. “Orderbook is largely government-funded or multilateral funded, providing comfort on cash collections,” the research firm said in the note.
VA Tech’s net debt has declined to Rs 140 crore from the FY19 peak of Rs 430 crore and Rs 200 crore in FY20, according to Nomura. “This is in spite of non-receipt of Rs 480 crore of stalled receivables pending since FY18.”
Nomura, however, cut its EPS estimate for VA Tech by 35% and 18% for FY21 and FY22 to account for the loss of execution due to the lockdown. A slowdown in domestic capex and a sharp rise in commodity costs for overseas contracts are some key risks.
Shares of VA Tech gained as much as 7% in early trade on Monday to Rs 262 apiece — the highest since October 2019. Of the four analysts tracking the company, two each recommend a ‘buy’ and ‘hold’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 26%.