VA Tech Wabag’ IPO prospects look good

The company has a debt-free status and has completed more than 2,250 projects over the last three decades in more than 19 countries across the world

Price: Rs1,230 - Rs1,310 per share with a face value of Rs5 per share
No of shares: 36,69,643 equity shares that includes sale of 26,53,383 equity shares by India Advantage Fund 1, Dynamic India Fund 1, Rainbow Fund Trust, GLG Emerging Markets Fund and Passport India investments
Issue size: Rs125 crore plus Rs326 to Rs347crore by offloading 26,53,383 equity shares
Issue duration: 22nd September-27th September
Listing: BSE and NSE
Book running managers: Enam Securities Pvt Ltd and IDFC SSKI Pvt Ltd

Post-listing details
Pre-issue promoter and promoter group holding: 37.45%
Consolidated restated EPS: Rs53.23 (FY10)
P/E ratio: 23.10(lower band) and 24.61(upper band)

Chennai-based multinational firm VA Tech Wabag Ltd is entering the capital market to raise Rs125 crore through a 100% book building issue. The company is engaged in providing turnkey solutions in water treatment to municipal and industrial clients having presence in India, the Middle East, North Africa, Central and Eastern Europe, China and South East Asia.

It provides complete life cycle solutions including conceptualisation, design, engineering, procurement, supply, installation, construction and operations and maintenance (O&M) services. VA Tech Wabag provides engineering, procurement and construction (EPC) and O&M services for sewage treatment, processed and drinking water treatment, effluents treatment, sludge treatment, desalination and reuse for institutional clients like municipal corporations and infrastructure sectors like power, steel and oil & gas companies. As on 31 July 2010, it has executed 113 projects and is currently executing 81 projects. It has R&D centres in Chennai, Vienna (Austria) and Winterthur (Switzerland).
It is constructing a 62.5 million litres per day (MLD) plant at Delawas near Jaipur for which it has O&M contract for 20 years. It has undertaken a turnkey project on a DBO basis with O&M contract of five years to set up a wastewater treatment plant in Tehran for the Tehran Sewerage Company with a capacity of 4,50,000 m3/d. The company has bagged a contract for a sea water reverse osmosis desalination plant with a capacity of 100 MLD in Chennai including an O&M contract for seven years. Besides, it has also completed a 455 MLD water treatment plant at Panjrapur for the Brihanmumbai Municipal Corporation (BMC).


  •  It has executed more than 2,250 projects over the last three decades in more than 19 countries across the world.
  • The company has completed the Perungudi plant on a design-build-operate (DBO) basis where it constructed a plant with a capacity of 54 MLD and has an O&M contract for a period of 10 years.
  • As on 30 June 2010, the company has an order book of Rs1,860 crore.
  • The company mainly concentrates on executing turnkey projects while the civil work is outsourced to contractors, which helps bring scalability and allows it to focus on the core activities like engineering, design and technology. Out of the 113 projects completed by the company, 83 were turnkey projects wherein civil works, construction and erection work was outsourced to third parties.
  • The company has a debt-free status. It has net worth of Rs40 crore as of 31 March 2010.
  •  Execution risks that typical in project business; ability to execute orders in a timely manner, meeting guaranteed performance requirements and within budgeted costs would be crucial.
  •  Technically qualified and experienced management team. Access to know-how/patents held by its subsidiary is also a positive.


  •  The company is heavily depended on municipal corporations of various state governments as 88% of its order book as of 30 June 2010 was contributed by municipal clients. There could be delays due to change in the central or state government, changes in policies, changes in budgetary allocation, lack of funds or the lackadaisical approach of the government departments to make quick decisions which could affect the business.
  • It derives a major chunk of its revenues from a limited number of clients. The five clients accounted for 66% of revenue and 82% of the order book in the year ended 31 March 2010.
  • It faces stiff competition in the bidding process from domestic and foreign companies.

Financial Snapshot

  • Net profit- Rs44.05 crore as on 31 March 2010
  • Total income - Rs1,233.76 crore as on 31 March 2010
  • Net cash flow negative at Rs26.17 crore as on 31 March 2010
  • Operating profit -Rs111 crore as on 31 March 2010
  • Cash and cash equivalents - Rs161 crore as on 31 March 2010


IVRCL Infrastructure & Projects Ltd, Engineers India Limited, Thermax Ltd, Hindustan Construction, Nagarjuna Constructions and Gammon India have earnings per share (EPS) of Rs2.6, Rs 9.6, Rs20.7, Rs1.4, Rs7.6 and Rs9.8 respectively. They have a P/E of 63.2, 24.6, 32.5, 36.5, 19.2, and 20.8 respectively. The industry composite P/E is 41.2. Based on the FY10 EPS of Rs53.23 the P/E works out to 23.10 at the lower price band and 24.61 at the upper price band.


  • To fund its working capital requirements at Rs64.50 crore
  •  Construction of a office at Chennai for Rs34.74 crore
  • Implementation of global IT systems for Rs11.05 crore

Analysts' notes on financials
Rating agency ICRA has assigned an 'IPO Grade 4' indicating 'Above Average Fundamentals' to the issue. The grading has been assigned based on Wabag's established position in the water/waste-water treatment project execution business, favourable demand prospects for the business driven by large investments in this sector and its comfortable financial position, characterised by growth in both revenues and profitability.

Concluding notes

Based on the EPS and PE compared to its peers, the issue looks fairly priced. Investors can consider subscribing to this IPO.




6 years ago

va tech looks strong at the time of listing after huge subscription of investor.What you are thinking for the listing?


6 years ago

Over dependence on clients type - muncipalities - local bickerings involved n financial positions of our muncipalities a skip at this stage can be given. Nothing wrong with the co. - Borkar

k a prasanna

6 years ago

The company is demanding a valuation of around 30 times of its FY 10 earnings, which is justified, taking into the account, the MNC status, the segment the company is in and its future prospects. The company offers complete life cycle solutions in water treatment. Good track record in executing large and complex projects. INVEST. FIRST CHOICE IPO.

Plan panel expects farm sector to grow by 5-6%, GDP by 8.5%

New Delhi: The Planning Commission has said growth in the agriculture sector this fiscal would be as high as 5%-6%, which would help the economy to surge by 8.5% as projected by it earlier, reports PTI.

"I am absolutely certain that this year we are going to see more than 4% agriculture growth. My guess would be that we should be somewhere in the 5% to 6% range," Planning Commission deputy chairman Montek Singh Ahluwalia said on a popular business television channel.

He said, "The underlying logic of that (economic growth of 8.5% with upward bias) quite simple is that if you get an agriculture growth of something like 5% or a little more, which is possible, that alone will add one percentage point to overall growth rate of the economy."

About the concerns expressed by experts that the economic growth would slow down in the second quarter of this fiscal (July-September) due to base effect, he said, "It is not a cause of concern."

"The 8.5% growth, which is what we are calibrating or could be a little better. This only requires just about double-digit growth in industry. So there is a lot of room for industrial growth to slow down and for our aggregate growth performance to be on track," he added.

About the industrial growth, he said that the country would end the fiscal with double digit factory output.

Asked about meeting fiscal deficit target of 5.5% of gross domestic product (GDP), he said, "There is no doubt that the third generation (3G) auctions will add money, there is also a demand for expenditure. My own guess is that we would achieve fiscal target."

Expressing concerns over the price rise, he said, "I think indications are that when we get through present phase of higher inflation in vegetable which is result of rain and disruption and so forth ... we should be able to close to 6% (inflation) by December."

About the fall in Foreign Direct Investment (FDI) flows, he said, "I would not worry too much about the trend that you see over a few months' time. I think the overall climate for FDI in India is extremely positive."

FDI flows in the month of July tumbled 49% on a year-on-year basis. The data for the April-July period was also bleak, falling 27% year-on-year.

On discrepancy in data reported by the Central Statistical Organisation (CSO), he said, "we have a long way to improve the quality of this (data) what I would call high frequency data. Some of the high frequency data is very good."

CSO had to correct economic growth data for April-June quarter after discrepancies were pointed out by some experts.


USE claims a 52% market share, but will the bourse survive?

Its revenue model is seriously flawed; and the more it transacts, the more money it will burn

In another bizarre example of how bourses are regulated and promoted in India, the United Stock Exchange (USE), India's fourth currency derivatives exchange cornered 52% market share on debut day (according to advertisements released by the exchange). Its turnover surpassed that of the National Stock Exchange (NSE) as well as the market leader MCX-SX on the very first day. Contrast this with the fact that the Bombay Stock Exchange (BSE), which now has a 15% stake in USE, had set up and shut down its own currency-derivatives market in a couple of months and you wonder what is going on.

Trading in currency derivatives is jointly regulated by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). They inaugurated a record three bourses in just a month and have now jointly inaugurated a fourth to replace the BSE's currency segment which shut down. Yet, the regulators have not found it necessary to look at a simple issue - what is the revenue model for these bourses, especially the third one?

It may be recalled that MCX-SX has dragged the NSE to the Competition Commission on the grounds that it is losing a large amount of money because NSE has chosen an anti-competitive strategy of not charging a transaction fee. In effect, the equity segment subsidises the currency derivatives. MCX-SX, a market leader, says that it is forced to do the same and is incurring heavy losses. In fact, both NSE and MCX-SX would have lost crores, based on their trading volumes. Since the regulator stipulates a Rs 100 crore continuous net worth requirement, it requires constant topping up of capital.

Into this scenario enters the trailblazing USE, which is backed by a number of banks and institutions, but has no other bourse to subsidise it. On day one, it makes news by cornering a 52% market share but also does not impose a transaction fee. So do the math: a higher market share would only mean a faster burn of its money.

Our question is, aren't the regulators - RBI and SEBI - required to check the business model of a bourse when they permit a fourth exchange to start operations while a case of anti-competition practices is already pending?

We asked SEBI and the RBI for a response. We also asked about the fact that a single substantial shareholder of the exchange Jaypee Capital reportedly accounted for over 80% of the turnover on debut. SEBI responded saying that it has left "pricing" to the bourses and cannot comment. On the turnover by a single broker, it said, it will collect and analyse the data before responding. Apparently, what is common knowledge in the market is unknown to the regulator even after such an astounding, record-making debut by an exchange.

How serious is this issue? Let's compare it with the two existing bourses operating in the currency derivatives space. According to sources, MCX-SX is sitting on a loss of around Rs110 crore. In one of its lawsuits, it has said that it is losing Rs5 crore a month. The exchange had a net worth of Rs314 crore as of 31 March 2010, meaning a third of it has already been eroded. The loss incurred by the NSE would also be in the region of Rs110 crore.

The USE on the other hand has a capital of Rs150 crore. If it incurs the same costs as MCX-SX and the NSE, it would lose around Rs25-30 crore by 31 March 2011 and the net-worth would be eroded to that extent at least. However, if USE continues to record twice the turnover of NSE and MCX-SX combined, its losses will be that much higher. Will its shareholders top up the capital to pay for this?

USE reported a turnover of Rs45,485 crore on debut day, compared to a combined turnover of Rs42,000 crore by NSE and MCX-SX. Apart from the BSE, its other shareholders are Jaypee Capital, Riddhi Siddhi Bullion, MMTC and India Potash and around 26 banks. Many of the banks are also shareholders of the NSE and MCX-SX.

According to market sources, a single trader, Jaypee Capital, who is also a significant stakeholder accounted for over 80% of the trading volumes. Concentration of trading among the top 10 traders is also very high on the two existing bourses, but significantly, the USE did not eat into the turnover of the other two bourses, but generated an all new market. Surely this is something that the RBI and SEBI need to examine in detail.

Interestingly, while inaugurating the exchange, RBI deputy governor Shyamala Gopinath compared bourses to "public utilities". It is interesting that SEBI, which has been mandating and standardising fees and often raising them substantially (arbitration fees) charged by bourses in the equity segment, has not found it necessary to recommend that they charge even a minimum transaction fee for their survival in the currency derivatives segment. It is exactly why MCX-SX has gone to the competition commission alleging bias and favouritism on the part of the market regulator. But such double standards in dealing with issues and cases has been the hallmark of SEBI regulation in the current dispensation. At the time of going to press, we are awaiting USE's response to our query on its revenue model.




6 years ago

This article is a nice sample of advocating some one. What is wrong in competition? I agree it should healthy. But people are use YOU to make them (who offer some goodies to Indian national) questionable is very dirty game.

We had seen in telecom sector, what is required here. Only an exchange in this big country thinking to have & wish to retain their totally monopoly status. This is the point here.

If this type of yellow journalism is your practice & identity, may encourage me to unsubscribe your email list.

kishore ghiya

6 years ago

The future business plan of use has to be examined. They had come to rajkot and had given presentation, their first goal is to have maximum terminals available all over india and has such they have given promotional no load free trading to present bse members.I am waiting for their equity sme exchange to come, since mcx-sx have not recd permission to trade i am guessing use will be first to kick off.Then real competition will start and they shall be succesful as today also bse caters to more retail investors than nse and bse brokers are earning better from retail brokerage then nse.
I thin use will succeed.Let us not worry and i feel sorry for nse getting more competition.I am not fan of nse and i am critic of their anti RTI stand not to supply any information to public taking away fundamental right to seek information given under constitution.I hope owners of nse are aware of anti rti stand taken by shri ravi narain.
kishore ghiya rajkot mob 9825217857

Bhavesh Morjaria

6 years ago

i seriously feel that a basic transaction cost should be decided forced on the participants in currency futures, at the end of the day people here are to make money by rendering their technology, services and trading mechanism. anti competition practices should be tracked by the regulating authorities and must do something on that asap.

If the exchanges dont make money.. i wonder how they will survive...

At the end there should be a health competition in the market, which will in return benefit the end users only.


6 years ago


A bourse is a fixed charge model. This means that irrespective of the volume the costs for the Exchange remains the same.

You are aptly correct in asking that what is the need for a third Exchange? I think we should leave it to the competition to decide as to which Exchange would survice and which will loose.

I am surprised at the costs incurred by MCX-SX. I dont know whether they are spending the money judiciously. I think it should be inspected.

I have heard of this company Jaypee Capital. I dont know much about them but have heard that they employ very young people and their office is like a bubbling Wall Street Trading Office.

They are big in commodities as well and reportedly are doing 30% of the commodities volume on MCX.

Also, no single shareholder can hold more than 5% on any Exchange. We need to check on shareholding of Jaypee Capital.

I have learnt that MCX-SX and SEBI are having a fight in shareholding and diversification but I learn from newspapers that USE is fully diversified Exchange. Even SEBI Chairman has reportedly quoted the same in newspapers.

I think if US can have more than 10 Exchanges functioning, we should not bother... India should have more Exchanges to achieve Financial Inclusion.



In Reply to Trasanah 6 years ago

the article does not say there is no need for 3 or 20 exchanges. it only questions the revenue model of USX in the backdrop of NSE's zero charge model.
MCX-SX is not diversified. True. It is 60% controlled by the Indian public sector!
On another note, if Jaypee Capital is like a "bubbling Wall Street Trading Office" that is bad news, its great for Jaypee Capital and bad news for everyone else!

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