VA Tech Wabag Eyes 20% Revenue Contribution From Operation And Maintenance

VA Tech Wabag Ltd. has recently secured a significant repeat order worth Rs 415 crore, which shows the company’s focus on expanding its operation and maintenance business. This shift is a key component of the company's broader business outlook, according to Chief Financial Officer Skandaprasad Seetharaman.

“We have a very clear strategy to increase the share of our O&M business in our overall revenues. Currently, O&M contributes about 15-16% of our revenue, and our medium-term goal is to increase this to 20%. And this order is pivoted that way in furthering this revenue stream,” he said.

The leading player in the water treatment and desalination sector received the order from Chennai Metropolitan Water Supply and Sewerage Board, on Aug. 13. It involves operation and maintenance of SWRO Desalination Plant at Nemmeli in Chennai for seven years.

“We built the plant and it was commissioned in 2013. This was the first desalination plant for domestic water supply in all of India. And we have been maintaining it for the past 11 years. Now, we have secured an order for seven more years that makes it an overall about 18-year life cycle.”

The company’s margins in the first quarter rose to 13%. “We have provided medium-term guidance because our business can be quite variable year-to-year, with 78% of our revenue coming from EPC. But, we have given a band of 13% to 15%, within which we would like to maintain the Ebitas going forward," Seetharaman said.

Over the last year, the company has seen revenue growth particularly with the current order book. This order is very profitable and exceeds its usual expectations, he said.

Despite political turmoil in Bangladesh, Seetharaman is confident on the stability of the company's projects in the country, due to its World Bank and AIB funding.  

When it comes to the order book, the company's focus is on securing only those orders backed by multilateral funding, federal government schemes or payment guarantees like letters of credit and sovereign guarantees, he said. "We prioritise secure payments, and over 98% of our EPC orders reflect this approach."

The company has a strong order book currently and there is a strong pipeline, particularly in the Middle East and Africa. He acknowledged a slowdown in India over the past 9-12 months, due to the election but expects increased activity in the second half of the year.

While India remains a core market, the company sees significant growth potential in the Middle East and Africa, with emerging markets like Southeast Asia and CIS countries also being key areas of focus, Seetharaman said. “We’ve refocused from our European operations and have nearly zero exposure in Western Europe, concentrating instead on regions with significant water infrastructure needs."