Q1 Review: VA Tech Wabag's Net Profit Jumps 65% YoY

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#Q1WithBQ | VA Tech Wabag has reported a stable June quarter. Global Head of Business Development Rajneesh Chopra talks about the company's future plans. #BQLive

Transcript

00:00 Hello and welcome to BQ Prime. A very good morning to all viewers. I am Heeral Tadia.

00:06 One stock that is in focus is Vietec Vabag and this is on the back of the Q1 numbers

00:13 that have been reported by the company. Overall if you go to see in spite of the slight down

00:18 take that we've seen in revenues, a good jump in terms of profitability. Margins have improved

00:24 substantially as well for the company. So operationally a good show that the company

00:29 has put up. To discuss more, joining us on the show is Rajneesh Chopra, Global Head,

00:34 Business Development at Vietec Vabag. Rajneesh, good morning and welcome to the show.

00:40 A very good morning to you too. Thanks for having me on your show.

00:45 Always a pleasure to speak to you. Rajneesh, my first question coming to you is overall,

00:50 yes there has been a 10-12% dip in terms of top line but a good show in terms of margins

00:55 as well as profitability. Has the quarter met your internal expectations?

01:02 I think definitely it has met our expectations. If you see in last three quarters we have

01:08 been continuously informing all our stakeholders that there is a strategic shift from top line

01:15 to bottom line in cash. So it is a result of that. Now there is a, as you said, around

01:24 12% drop in the revenue. Now this drop is mainly that we have divested two entities

01:31 in Europe and that has resulted into a better TCO also for us. And going forward, I do not

01:40 think that should be a challenge because currently most of our revenue is coming from EP projects.

01:46 And in the quarters going forward, you will see that two of our major contracts, one is

01:53 400 MLE desalination plant at Chennai, the other one is a major sewage treatment plant

02:00 at Bangladesh which are EPC contracts. So maybe in terms of revenue also they will be

02:06 contributing more. But our strategic focus on margins and profitability going forward

02:14 will remain intact. Right. So Mr. Rajneesh, is this the range

02:20 that we will maintain our margins at 11 to 12% or do you think it could be somewhere

02:25 higher and similarly from a profitability front as well? We have seen a 500 crore number

02:31 this quarter. Overall, what does this mean for the year according to you then?

02:35 Okay, as we said earlier also, if you see we are at around 9.8% EBITDA. Now going forward,

02:44 I think we will definitely be able to achieve a double digit EBITDA is concerned. If you

02:50 have seen because of our execution efficiency and control on TCO as well as the interest

02:58 and finance charges, going forward, you will find that our profitability will remain intact.

03:05 And the focus is going to be on profitability going forward also. But since we have a huge

03:12 order backlog of more than 12,000 crores, so definitely we have an execution frame of

03:19 2 to 3 years depending upon the contracts. So definitely you will find that even the

03:25 revenue growth will commence going forward. Right. As you mentioned about the order backlog

03:32 as well, right, of little over 12,500 odd crores, where are majority of the orders coming

03:39 from and what is the visibility in terms of revenues for the next 2 to 3 years out of

03:43 this? I think as I told you that out of all these

03:48 orders around 4000 crores is O&M which has a longer period for execution, around 8000

03:55 crores is from our EP and EPC. These orders will definitely get executed over the next

04:02 3 years. And as far as new order intake is concerned, we are quite well placed in a few

04:10 contracts which will be in the range of 1000 to 2000 crores. And we are actively bidding

04:17 for new contracts in the range of around 5 to 6000 crores. So since COVID, we have not

04:23 been giving any forward looking guidance. But all I can say at this point of time is

04:28 that our order intake will definitely be more than what we are able to execute this year,

04:34 which in turn implies that by March 24, our order backlog will further strengthen which

04:41 will give us a clear visibility of growth going forward in coming years.

04:48 Right. Another aspect I wanted to consider specifically with regards to EPC is that it

04:53 has seen a degrowth of around 22% this time around. And that's majority of the order book,

04:59 the revenue that comes in from EPC is the largest. What's the reason for that? And when

05:04 do you see that again in an upcycle? I think what you're referring to is, you know,

05:11 our India standalone, where you would have seen that, you know, there's a dip in the

05:16 EPC. Now, as I just told you that we have two major contracts, to the tune of almost,

05:25 you know, three, three and a half thousand crores. Now, these two contracts, the execution

05:31 has just commenced, which are going to contribute substantial revenue to our, you know, standalone

05:40 India, which will automatically result into better revenues going forward. So I don't

05:46 foresee any dip as far as this financial year is concerned, both in EPC and O&M. I think

05:53 both these segments will register a good growth. I'm saying my question to you was overall

06:00 rest of the world, where are you seeing higher traction in from an execution capability perspective?

06:05 Okay, so as far as execution capability is concerned, I think we have been focusing more

06:11 on EPC contracts overseas, which includes geographies like Russia, Middle East, Africa,

06:18 especially the northern part of Africa. So I think we are well on track as far as these

06:24 contracts are concerned. So we do not find any challenge there. As far as India is concerned,

06:30 we have taken some conscious decision of, you know, large EPC contracts like 400 MLD

06:36 Salimation, we have taken another EPC large contract in Bangladesh. So going forward,

06:43 we find that maybe both, you know, India will contribute around 50% and similar revenues

06:49 will come from overseas. But overseas, the focus will remain more on EP. I'm not saying

06:55 we will not take any EPC contracts. If there are some strategic decisions to be taken,

06:59 we'll definitely go for EPC contracts also. But I think the share will largely be balanced

07:05 in, you know, almost equal between India and the overseas.

07:12 How is the modern trend looking like from a global market perspective? Where are you

07:16 seeing the traction?

07:17 Yeah, so as far as overseas markets are concerned, I think we are more focused on Middle East

07:24 at this point of time. We find a lot of opportunities in Southeast Asia and definitely one of our

07:30 key markets will remain Africa. We have been in Africa for the last 20 years. And we have

07:37 been executing orders in Senegal, Tunisia, which are all high technology desalination

07:42 orders. So going forward, also, I think Middle East, Southeast Asia, these are the two markets

07:48 which will contribute as far as Europe is concerned. Strategically, we have not been,

07:53 you know, targeting growth there. Another market which is of very good interest to us

07:58 at this point of time is Russia. We are already executing a very large EPC contract in Russia.

08:05 And we find that there are new opportunities, but all these opportunities in Russia will

08:11 be EPC, that's design, engineering and procurement. And also, we will be only accepting orders

08:18 where our payments are through LC, which is acceptable to our bankers. So payment security

08:25 will be the prime concern as far as Russia is concerned. So once that is tied up, we

08:30 find that we see traction going forward in Russia.

08:34 Right. And my last question coming to you, Mr. Ateneju, I know you don't give forward

08:39 looking guidance since COVID, but from a growth perspective, will we continue the kind of

08:44 growth that we've already seen in the first quarter? Or do you think it will be better

08:48 than that?

08:49 I think as far as first quarter is concerned, what you saw is a minor dip as far as revenue

08:55 is concerned. End of the year, definitely, it will be a growth oriented top line. And

09:03 maybe we will continue our mantra of profitable growth, where our margins will grow better

09:08 than that top line. And also, even in the coming years, our order book should be much

09:15 stronger than what it is currently. So even in coming years, we will ensure that there

09:20 is enough of predictability and visibility for growth in coming years.

09:26 Right. So that's overall with regards to where we at Tech Baba goes. Thank you, Mr. Ateneju,

09:33 so much for joining us on the show. And as Ateneju was mentioning, that though we've

09:38 seen a degrowth in terms of the top line in the first quarter, but overall for the year

09:42 will be a growth driven year from a top line perspective and margins, margin growth will

09:47 be better than the top line growth as well in any which ways. You've seen operationally

09:52 a strong quarter that has been delivered so far. Thank you so much for joining us on the

09:57 show as well. Good luck for the coming quarters and speak to you soon again. So that's the

10:02 management of VAT Tech Baba as we speak. Lots more lined up on the other side. Please stay

10:08 tuned to be deprived.

10:16 [BLANK_AUDIO]

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