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‘We see Middle East & Africa outperforming India'

New Delhi : VA Tech Wabag, often considered the bellwether of Indian pure-play water technology & EPC companies, has entered the third quarter of current financial year with a bang, securing three major projects worth over Rs 2100 crore in the MENA region.

But, the company’s performance in the second quarter and first-half ended September 2018 is a mixed bag – while net sales are down in Q2 and H1, net profit has risen marginally.

Wabag’s Global Head (Business Development) Rajneesh Chopra tells Girish Chadhaof India Water Review on how the company is looking to close 2018-19 on a high and maintaining its annual revenue guidance.

VA Tech WABAG has just closed the first half (H1) of 2018-19. The revenue has been down on consolidated basis while the profit after tax (PAT) has seen growth of over 16 per cent. Why was the revenue down and how do you see the performance going forward in the current fiscal year.

Yes, the observation is right. We have a marginal drop in our topline on consolidated basis. As you are aware, we are an EPC (engineering, procurement and construction) company and the business is lumpy in nature.

Last year at the first half (H1), both of our large projects like PETRONAS Malaysia and AMAS Bahrain were at the peak of execution and there has been a delay in finalization of bigger projects announced recently. Going forward, we continue to maintain our annual guidance. As a company, we continue to grow profitably as indicated by over 16 per cent increase in PAT.

The first half of the current financial year seems to be better in terms of the projects too. There have been many projects that the company has bagged. Can you give us a quick update of the projects that you have bagged so far in FY2019 and how does the entire year look like in terms of order flow momentum and topline-bottom line?

During the first half, Wabag has bagged some major orders globally including a large scale 125 million litre per day (MLD) sewage treatment plant for Marafiq in Saudi Arabia, an order for refurbishment and upgradation of a STP in South Doha, Qatar, besides reinforcing the company's global eminence in desalination with a 50 MLD desalination project in Zarat, Tunisia.

In India too, the company has bagged water treatment projects in West Bengal at Uttarpara & Rajpur Sonarpur.

Based on order intake of first half, we feel we will have a stronger order book by the end of year which will ensure our growth prospects for next fiscal year as well. As mentioned earlier, we maintain our annual guidance for current year.

Last year, the company had said the order intake was low as some large orders got deferred. Do you see closure of these during the current financial year?

Yes, of course. As a matter of fact, when the company worked out the annual guidance on order intake, this aspect was taken into account and we do not anticipate any difficulty in realizing these.

Do you also expect the AP GENCO issue to be resolved during this year?

We have already gone on record stating that we would collect a sum of Rs 350-400 crore before March 31, 2019. I would like to share with you an important development in this regard, that is, our customers recognized WABAG as the consortium leader and WABAG is permitted to do direct billing with the customer.

Secondly, on KTPP, PGTR has already been completed and before March 2019, the retention money would be collected from the customer.

As for RTPP, this is the only thermal power plant that could achieve COD in March 2018 and WABAG is preparing for PGTR by end December.

For 2018-19, VA Tech WABAG has given an aggressive order inflow guidance of Rs 5300–5700 crore and revenue guidance to the tune of Rs 4000–4200 crore. How is this expected to be achieved as there was a bit of struggle in meeting targets in FY2018?

As we said earlier, overseas business constitutes a larger pie and we would be able to achieve our target this year successfully. The order backlog has grown year-on-year (Y-O-Y).

It is currently over Rs 7000 crore, which would give us comfort in terms of revenue over next two years, coupled with this year’s strong order intake currently at Rs 2990 crore. We once again reiterate that the above mentioned is in line with our annual guidance.

The company has been awarded one water project under the Namami Gange programme so far. Is that correct? How does the order book look like under the scheme during the rest of the year or beyond? Does the hybrid annuity PPP-model (HAM) excite the company enough to bid for projects in cleaning up the Ganga?

No, WABAG has bagged two projects under Namami Gange - one at Pahari and another one at Karmalichak in Bihar.

In addition, the 140 MLD sewage treatment plant at Varanasi, which was recently inaugurated by Hon’ble Prime Minister Narendra Modi was designed, built and will be operated and maintained for 10 years by WABAG. This is the first and the largest STP to be executed and inaugurated under the Namami Gange programme that couples the concept of resource recovery by producing green energy from sludge biogas to power the STP.

The visibility in terms of order booking under the scheme is positive for WABAG given that we have bid recently for three projects in Bihar, West Bengal and Uttar Pradesh and reiterate similar interest for future projects as well. Further, for the first time in history, WABAG is planning to raise funds for the hybrid annuity (HAM) projects as part of our commitment to the Clean Ganga Mission.

The company seems to be moving away from municipal projects for a while now and looks to sharpen its focus on the international market. Is this a conscious decision or just an inference that one derives from the orders booked so far in recent past? West Asian & African markets are reportedly high on the company's agenda. Which geographies is the company looking at in the medium term?

As we already pointed out, our international business is increasing and it is by design. It may be recalled that we realigned our business into four major clusters, that is, India cluster; Europe cluster; MEA cluster (Middle East and Africa) and LATAM cluster.

Our business focus is more on Middle East and Africa, which would contribute to our growth substantially in the next few years and this MEA cluster should, in our opinion, outperform India cluster.

In the medium term, the company would focus on markets with historic presence in Middle East such as Saudi Arabia, Bahrain, UAE, Oman and Qatar and countries in Africa would comprise primarily East Africa and few countries in North and West Africa.

The company's Board had earlier this year approved a proposal to raise funds through non-convertible debentures (NCDs) of up to Rs 300 crore. How do you see this amount being utilized? Is an acquisition too on the radar?

The amount would be utilized partly to meet the working capital requirements and partly to make investment in terms of Namami Gange projects relating to hybrid annuity PPP model.

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