Outlier in Focus – Wabag, A Water Treatment Company

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We come across a large number of interesting stocks in Capitalmind SNAP Outliers, our discovery tool for stocks with momentum. See a video of how Outliers works, and how to use Outliers to find all-time highs. Here’s a stock we found interesting that’s been an outlier. Catch them all here.


The major part of Earth is covered with Water. Yet when it comes to water for Drinking purposes, the percentage available comes down to just 2.5% of which just 1% is easily accessible.

As populations grow and move towards cities, it has become imperative to treat large amounts of waste water before disposal / re-use as also fresh water before it’s supplied to residents.

Today’s outlier is one such company that treats water: VA Tech Wabag. (See Snap Link)

WABAG is one of the world’s leading companies in the water treatment field.  Wabag started off in India under the name of Balcke Durr Cooling Towers Ltd. In 1996, the name of the company was changed to Balcke Durr and Wabag Technologies Ltd.

In 1999, Vienna based VA Technologie Group acquired the water technology business of Deutsche Babcock, the holding parent of  Balcke-Durr Aktiengesellschaft, the parent of Wabag.

In India, the water and non-water portion of the company were split. The current company is the water part of the earlier combined entity. In 2010, VA Tech Wabag came out with an Initial Public Offer (part of which was also an Offer for Sale by funds which had entered the company as Investors in 2005).

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Wabag has many firsts to its credit, some being;

  • The largest drinking water plant in Oman – Al Ghubrah SWRO
  • India’s largest seawater RO plant, Chennai – Nemmeli WTP
  • Asia’s largest wastewater treatment plant at the Jamnagar Refinery
  • India’s first wastewater recycling plant for IOCL Panipat
  • India’s largest lamella wastewater treatment plant for the Brihan Mumbai Municipal Corp. (BMC)
  • The world’s largest tannery wastewater treatment plant for the Calcutta leather complex
  • India’s first ultra-filtration plant for treated wastewater for the Vizag Steel Plant
  • India’s first wastewater treatment plant based on a BOOT model for Alandur

WABAG offers a comprehensive service range in the water sector – extending from project conceptualisation to long-term plant operation.

Financials:

This ability to provide a host of services and solutions has resulted in a growing top line. Sales have grown at a rate of 15% over the last 5 years. But when it comes to Profits, the growth falls to 9% reflecting that orders are being won at a lower margin base.

This is not surprising since the biggest customer for Wabag is the Government. In projects undertaken by Governments, the winner is decided based on weights for multiple factors but one that generally also is the one with the lowest cost.

Valuations:

The stock trades at a Price to Earnings ratio of 39 which is on the higher side given the fundamentals of the stock. Currently we are close to the extreme valuations the stock has seen in the last few years. Any drop on the other hand could bring it to the median valuation range of 25.

Our View: Expensive, But Has Momentum

A P/E of 39 reflects high growth expectancy by the market. However, profits haven’t quite grown that much and the scope doesn’t look that great for massive growth. If the stock were to fall to sub-25 P/Es it might be attractive.

On a technical standpoint it’s been on an uptrend. It could push to new highs if the volumes sustain, or it could break down below 640. If the bet has to be taken, it would be purely a technical bet, in our opinion.

Note: This is not a recommendation. This is just a backgrounder into the company as it stands.

Outlier History:

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