VA Tech Wabag Limited (WABAG) Q1 2027 Earnings Call Transcript

Good evening, and welcome, everyone, to this earnings call, post-announcement of Q1 FY27 results of VATEC Vabad Limited. On the call today from the management team, we have Mr. Skanda Prasad Sitaraman, Group Chief Financial Officer, and Mr. Rohan Mittal, Head Strategy and Business Growth, GCC. Kindly note that, during this call, the company may make certain forward-looking statements concerning the business prospects and profitability, which may be subject to risks and uncertainty, and the actual results could materially differ from those in such forward-looking statements. The conference call will be archived and the transcript will be made available on the company's website. The company's results update presentation has been updated on the website and stock exchanges, which provides an overview about the core offerings and analysis of the results for this period. We trust that you had an opportunity to look through the same. I will now request Mr. Skanda Prasad Seetaraman to take you through the key business highlights. Thank you, Vanuvert, you, sir.

Thank you, Akra. Good evening, ladies and gentlemen. We extend a very warm welcome to all of you to the earnings call following the announcement of Q1 F527 results of VA Tech Babaz Limited. I trust you have reviewed the financial results and investor presentation already shared on our website and filed with the stock exchanges. Your continued support and engagement remain invaluable to our growth journey, and we appreciate your presence today. Joining me today is Mr. Rohan Mittal, Head Strategy and Business Growth, GCC. We have started FI27 on a strong footing across all three clusters and reporting record results, carrying forward the momentum of the previous year. The quarter was characterized by healthy execution, profitable growth, strong order intake, and continued financial discipline. Importantly, we remained net cash positive for the 14th consecutive quarter, reinforcing the strength of our balance sheet and our disciplined approach to the growth. The quality and diversity of our business continues to give us confidence. During the quarter, we strengthened our presence across key markets with important order wins in the GCC, India, and Europe. We entered Kuwait and UAE, strengthened our Indian portfolio with repeat orders in Bengaluru and Delhi, and added another technologically advanced project in Europe. These wins reflect our strategy of pursuing opportunities where Wawar's technology, engineering capabilities, and execution experience provide a clear competitive advantage while maintaining discipline on risk and payment security. The MIA region continues to emerge as an important growth engine for Vavag, with water security driving opportunities across desalination, wastewater treatment, and reuse. Our growing references and local partnerships are helping us deepen our presence across these markets. Rohan will shortly take you through the developments on the business and execution progress in this region. India also continues to offer significant opportunities. Our new projects with the BWSSB at Bairamangala and Bellandur along with Mitraoum project from BJB further strengthen our municipal water and wastewater portfolio. These projects also reflect the increasing focus on energy efficient treatment, resource recovery, and reuse. In Europe, the new project in Vienna Green forces Wabag's ability to compete in demanding markets based on advanced technology and engineering capabilities. Execution across our major projects continues to progress well at our flagship payroll decalination project in Chibnay, funded by JICA. We crossed an important construction milestone with 1 lakh cubic meters of concreting completed, the highest ever in our history on a single project. With the critical marine works already behind us, the project is progressing steadily towards completion. Our industrial portfolio Projects in India under execution for majors like Reliance Industries, Gale, BPCL, and CPCL are progressing per plan. In Europe, the team have already started to progress on the Kutai C project in Georgia, which was secured in Q4 last year. Our execution portfolio is well diversified across municipal and industrial customers, EPC and O&M, and India and international markets. Our strategy remains focused on building an asset-light technology-led water company while expanding our addressable market beyond conventional water and wastewater treatment into desalination, reuse, resource recovery, bio-CLG, digitalization, and advanced industrial water applications. This strong operating momentum is also reflected in our financial performance for the quarter. Let me briefly take you through the key numbers of this quarter. At the consolidated level, revenue from operations stood at Rs.887 crores, registering a growth of 20.8% year over year. EBITDA stood at Rs. 116 crores. Growing by 21.7% year-over-year with an EBITDA margin of over 13%. PACT stood at Rs. 90,90, registering a profitable growth of almost 37% year-over-year with an improved PACT margin at 10.2%. At the standalone level, revenue from operations stood at Rs. 739 crores, growing by over 15% year-over-year. Standalone EBITDA increased by over 22%, 21%, sorry, to Rs. 105 crores, and standalone PAT increased by over 30% year-over-year to reach Rs. 79 crores for the quarter. EPC contributed 82% of the revenues, while O&M contributed 18%. Geographically, 48% of the revenues came from India and 52% from overseas markets, emphasizing our growing global presence and geographical diversification in line with our long-term strategy. We continued our net cash positive position for the 14th consecutive quarter with a net cash balance excluding ham standing at Rs. 965 crores as of this quarter. Net working capital days for the period stood at 108 days. We continued to focus on effective cash and debt management across the group. Along with delivering healthy returns on capital with ROCE, Return on Capital, employed at 19.6% and Return on Equity, ROE, at 16% for this quarter. Our order intake during Q1 was over rupees 34 billion, over 3,400 crores, of which about 29.6 billion INR was EPC and 4.7 billion was O&M. International markets accounted for 77% of the order intake in this quarter and 23% came from India. Our order book position reached a historic high of Rs. 194 billion, that is 19,400 crores, almost $1.8 billion. Thank you. Which is over four times of our revenue base, providing very strong visibility for execution over the coming quarters and years. The backlog remains well diversified with 66% EPC and 34% O&M and evenly balanced between India and international markets. Growing the O&M business continues to remain a key focus as this segment delivers predictable revenues while being asset-like, margin-accretive, and cash-accretive. We continue to maintain discipline in order acquisition, focusing on payment security, technology fit, contractual risk, and returns. For us, order book quality is as important as its size. Our Q1 performance remained aligned with our medium-term outlook, delivering profitable growth capital efficiency and a continued net cash positive balance sheet. Looking ahead, we see a healthy opportunity pipeline across our target markets, growing water security needs driven by urbanization, climate change, industrialization, and tightening environmental standards. We continue to support demand for desalination and reuse, particularly in water stress regions. With a strong order backlog, diversified execution portfolio, healthy pipeline, and robust balance sheet, we remain confident of delivering a sustained and profitable growth for quarters and years to come. With this, I will hand it over. Thank you, Rohan, to share his perspective on the MIA market and take you through some of the important developments during the quarter. Over to you, Rohan.

Thank you, Skanda. Good evening and a very warm welcome to everyone. Let me take you through the key developments across the MIA market. The Middle East and Africa regions. Continue to be strategically important COVABAG, supported by sustained investments in advanced water infrastructure, industrial development, and a long-term resource management. The region is witnessing. A significant transformation in the way water is produced, treated, reused, and integrated with broader economic development. The GCC remains one of our most attractive markets globally, with water security a strategic priority. Population growth, economic diversification, urbanization, and industrial expansion. Our driving sustained demand, while increasing focus on energy efficiency, sustainability, reuse, and private sector participation, is creating opportunities across desalination, wastewater treatment, reuse, industrial water, and O&M. Despite recent geopolitical developments, We have seen no material impact on our projects, operations, or underlying demand. If anything, these developments have reinforced the strategic importance and reliance, resilience of water infrastructure, and the continued focus on water security across GCC. PAPA has been associated with The Middle East for more than four decades. Over the last few years, our objective has been to leverage the strong credentials we have built in the region and globally to establish a broader, more diversified GQC presence. The progress we made during this quarter is an important step in that direction. Let me begin with KUIT. During the quarter, Wabag secured the landmark 60MIGD SWRO desalination plant from the Ministry of Electricity, Water, and Renewable Energy. This is Wabag's maiden project in Kuwait and has represented an important entry into a strategically significant water market in the GCC. This project is being delivered in partnership with Hysco, a leading Kuwaiti engineering and construction company. For Babag, this project is strategically important for several reasons. First, it provides us with a marquee reference in Kuwait and further expands our addressable GCC market. Second, it strengthens our credentials in large-scale detail, an area where... Vabag has built considerably a global experience and where we see sustained opportunities across the region. Third, the O&M component fits well with our strategy of increasing revenue and maintaining a life cycle relationship with our customers. And finally, our partnership with HISCO combines Wabag's water technology and engineering capability with a local strong execution experience. The second most important development during the quarter was our Ajwan STP win in the UAE. We were awarded the third phase of the 60MLD Ajman Sewage Treatment Plant being developed as a sewage biorefinery. The design and build project is being executed through a Wabag-led consortium and goes well beyond conventional wastewater treatment. Integrating sludge management, digestion, gas handling, and power generation to recover sources and generate green energy. This reflects the broader evolution of wastewater infrastructure from treatment to resource recovery. For more information, please visit our website. Ajman is strategically significant, strengthening our UAE presence and positioning us for opportunities across municipal wastewater, industrial water, reuse, and decalination. Our entry into Kuwait and the UAE reflects our broader DTC strategy. Rather than pursuing markets independently, We are building a regional platform that leverages our technology, references, and partnership across opportunities. While Saudi Arabia remains a key market, our expanding presence in Kuwait and UAE demonstrates that this regional diversification is translating into tangible results. Beyond the GCC, Africa continues to be an important growth frontier for Wabag. We have a strong presence and water leadership in North African region for several decades, and we are evaluating opportunities across African continent. Building on our regional experience and targeting markets where water security, sanitation, and industrial development are driving infrastructure investment. Africa faces an enormous requirement of water and sanitation infrastructure, supported increasingly by multilateral institutions and development agencies. Our execution track record. Further reinforces our business momentum. At Ratanura Industrial Wastewater Treatment, all our major equipments are being delivered. Installation is complete, and the plant has entered three commissioning phases. Our Alhaya Wastewater Treatment Project is also progressing well, with engineering and procurement largely complete, and installation activities are underway. Executed through... One Vabag model involving our India, Turkey, and Saudi team, the project has demonstrated strong engineering, execution, and quality capabilities. Our ONM portfolio continues to deliver strong performance. At BAPCO, wherein nearly one year into operations, we have consistently We definitely met effluent standards. Reduce energy consumption, achieve zero LTI, and maintain uninterrupted operations, including during first major conditions, earning client appreciation. In Oman, our sixth MLD, Dukum SWRO plant has operated successfully for almost two years. In Qatar, our O&M project has received Qatar's five-star safety and environment certification for three consecutive years. In Zambia, we are demonstrating our ability to deliver innovative and sustainable solutions beyond conventional treatment through a wastewater treatment powered by green energy from a combination of biogas and solar. This project is progressing well, with engineering at an advanced stage and procurement activities underway. Our project in Senegal is also swiftly progressing towards completion. The project is currently in the pre-commissioning phase. In summary, our approach, however, remains disciplined. The size of the opportunity alone. Does not determine our bidding decisions. We continue to evaluate the project based on technology fit, contractual structure, payment security, partner capability, and risk-adjusted returns. Looking ahead, our MIA pipeline remains healthy across desalination. We are also broadening our portfolio beyond traditional municipal projects with an increased focus on industrial water and O&M alongside emerging segments such as UltraPure for semiconductors, data centers, solar PV manufacturing, Sludge management and resource recovery. The combination of our established presence in Saudi Arabia and North Africa followed by the entry into Kuwait and the UAE with continued focus on further expanding our Middle East and African presence. This gives us a much broader platform from which we will remain an important growth engine for Wabag, and we will continue to pursue opportunities selectively while building strong local partnership and leveraging our technology leadership. Thank you, and over to you, Skanda.

Thank you, Rohan, for that insightful coverage of the Middle Eastern Africa region. Before we open the floor for questions, we would like to sincerely thank our customers, vendors, subcontractors, partners, bankers, and most importantly, our Vavadites for their continued trust and support. With this, we can now move to the interactive question and answer session. Over to the moderator.

Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands-ups while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Web of Shaft from JM Financial. Please go ahead.

Yeah, thanks for the opportunity. Firstly, on the gross margins, we have seen some correction in the first quarter on a YOY basis. So, is it linked to some RM hike which we are facing, which has led to this fall? And second, on the other expenses, it seems to be on a higher end. Any one-offs or ECL provisions over there?

Hi, Vaibhav. Thank you. On the margins front, I think we have grown year over year when it comes to EBITDA. And of course, gross margin and contribution margin are usually a mix of the type of projects we have. So, this will not be directly comparable. It may be cases where we have a mix of EP projects which are higher in the last year versus having more EPC projects in this year, number one. Number two, on the other expenses, as we told you last time as well, that we continuously evolve our policies to see that with the increasing quality of our order book and the quality of orders that we take in, the policies become more stringent in terms of making provisions for delay or anticipated default. I want to reiterate, these are provisions. So based on the new policy that we have, there are provisions which are made. Nothing abnormal. These are standard provisions that are required by the accounting standards. And as the collections happen, there is an opportunity to reverse these.

Okay. Secondly, we have seen that there is a profit from associates of almost five and a half crores in the first quarter. So, from which subsidiary is it and from where it is first and could it be recurring in nature in coming quarters?

See, these are the share of profit that you see is primarily from the ham projects. Which have now moved from the construction phase into the O&M phase. While there will be, since when you move from construction to O&M, there will be certain risk releases and things. As we move forward, when the O&Ms run, the profits that are accumulated in these projects, whatever is the share equivalent to our economic interest, will be. Coming in here may not be the exact number because as I said, it also includes a part of the closure of the.

Promoing orders in the backlog and what portion of the current backlog would be currently under execution?

See, we had two framework orders, if you recollect, and we have prudently removed both the framework orders, though they are confirmed orders, signed, waiting for effectiveness. So today, the 19,400 crore order book that we have, all the orders today are effective and are in various phases of execution. Of course, the newer orders on the effective dates will start, but nothing as slow moving orders or non-moving orders.

And for last year working capital, so from March 26 levels, how do you see it moving in next couple of years? Will it be similar or we see some improvement on that front?

I think we have, considering the growth that we are expecting over the next few years, we have always said that if we stay in the 100 to 110 range, despite the increased top-line growth, which will require some amount of investment, I think we are fairly doing well, but our endeavour will remain that this is further brought. Now, you can already see in the last three years how the working capital J's have moved from 130 to 120 to 110, and now we are closer to 100. So we are moving in the right direction, but I would say from an expectation perspective. And if we are staying at 100 to 110 days range, I think we are doing very well because, as you know, we are an asset-light organization. Our only asset is working capital. And if we do not even invest three months of working capital into the business, I am so sorry to interrupt, Mr. Shah.

You may please rejoin the queue for follow-up questions.

Sure.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, kindly limit your questions to two per participants. Should you have a follow-up question, please rejoin the queue. We will take our next question from the line of Kishore Kumar from Unify Capital. Please go ahead.

Yeah, thanks for the opportunity and believing, sir.

Sir, my first question is on the execution. So, we almost received more than 6,000 crores orders in the last couple of quarters. How do you see the execution given the challenges in the Middle East? Because rest of the market contributes close to 50% in the order backlog now. And I think we import a lot of equipments for the EPC business that we do in the Middle East. So, how confident are we in the execution in the coming quarter? Do you see any challenges in terms of mobilization of labors or equipments or materials for the EPC?

Thank you, Kishore. See, this is not the first time we have had an experience around managing the business in the midst of a geopolitical event. I don't have to remind you on the multiple times it has happened in the past. This is not something that has happened in this quarter. Even the current event has been progressing for more than two, three quarters now, and we have been able to manage the projects well. I want to reiterate that the projects in the Middle East are far away from any of these stride zones. We don't do any of the sanctioned work. All these projects are social in nature. They are water, sustainable, and hence these projects generally remain fairly insulated from any of these issues. So, from a ground execution perspective, over the last three quarters or more, Even despite these events are... Second, yes. Thank you. on various phase of activity, which I think with our historical We have been... Such events also have to be seen from the lens of. It is not a normal situation. So, we have written appropriate contractual letters to our customers, and so the customers are also aware that any price increases, any time delays will be referred to them, and we will arrive. In summary, projects are progressing well. The new projects are also moving. We believe they are good to move considering the... We don't have any material concerns at this point in time, as far as.

Got it, sir, got it. Second question is a follow-up to the previous participants' question on the margin. So, I know we actually operate in multiple countries, and we have unbilled revenues or contractual assets in the balance sheet, and that actually results in the forex gain, but it's a significant portion in the bottom line in Q1. So, if I adjust for it, actually, the bottom line actually has declined, or the EBITDA. So, as the gains in end quarter being realized, or it's more of an accounting entry that we did, just want to understand this bit clear.

See, Kishore, there are two types of games, as you rightly said. There are transaction games and there are translation games. Translation is usually what happens through the translation reserve that doesn't get passed through the P&L. It only gets passed through the balance sheet. These are all games that we have from transactions. And what we need to understand is we are increasingly going international. And it is important to understand that these are the factors that we take into account, even at the time of bidding. This is an important element of the whole bidding process. Second, I don't remember that in the last year, first quarter, somebody adjusted for the forex loss when there was one. So I don't want that you also get surprised when you have a forex gain. Because when we go increasingly international, you are going to see this more and more. And these are all absolutely transactional. You raise an invoice, you collect the money, you get forex gains. You book a cost, you pay the money, you get forex gains or loss. So, these are part and parcel of the business, and that is why we are very clear that forex gains. All losses are part of our operational results.

Got it. Just a follow up here.

I am so sorry to interrupt Mr. Kumar. Please rejoin the key for more questions. Thank you. Next question is from the line of Sudrashar Padmanabhan from ASK and the PMS. Please go ahead.

Thank you for taking my question and congrats on their setup number. Sir, my question is, you know, if I look at the quality of orders that we have got in this water, one is specifically on V&R Waterworks. We have been able to, you know, get towards this high-end, you know, drinking water, and this is something very unique in terms of, you know, moving up the capability, you know, a curve for us. So if you can give a little bit more thought about, you know, do we see more inquiries around, you know, similar kind of, you know, capabilities where we, you know, move up the value chain. And, you know, now that this side of the, you know, developed market is opening, you know, for us. So what is it that we are doing as far as infrastructure is concerned and

capabilities is concerned to cater to this kind of environment?

Thank you, Sudarshan. I think it's an interesting question, but also contextual with the new Vienna order. Yes, it's an advanced technology order, but you know, Vabag is a 100-plus-year-old brand, and our core is technology-led water infrastructure. We are a technology system integrator, not an EPC organization. So, for us. The first filter to select any project is only if there is advanced technology. So the notion that only the Vienna project has advanced technology while the rest are little less advanced is what I want to first take out. You take projects like Kuwait. Which is a high-tech desalination project. Ajman, we have a wastewater treatment plant, which also is going to produce biogas. We have orders with Reliant. These are cocktail of effluents which we will treat. We have Rastanura refinery in Saudi Arabia. Again, a very, very complex project. So, that way, all the projects that... The projects apply our technologies. We have over 125 IP rights, which we internally develop through our R&D and utilize. On developing the developed markets, I think this is something where we have taken a cautiously optimistic. We remain active in this region from our historic presence. While our focus will remain the emerging economies, we don't want to let go of any project in this region as long as it falls within our contours of technology, cash flow, margins, and overall payment security. We will continue to pursue. As we said, we will be selective in this region, but we will remain active. Sure, sir. So, my second question is, you know, incrementally, we are receiving a lot more orders from the international business. So, if you can, you know, give us some color with respect to, you know, what is the execution timeline vis-a-vis what it is with India, or even the execution timelines and the contours vis-a-vis what we used to do, say, a year ago. So, that would give us a little bit more, you know, insights towards the margins as well as the timelines of the execution.

When it comes to, you know, again, India or outside, it depends on the complexity of the order, but generally, the orders outside India are faster, you know, these are more, I would say, more defined, the timelines, and you see a very good mix. of consultants, clients, all pushing us to achieve the project to be faster because these are more funded projects where the water is sold on tariff basis. So the faster you finish the project, the better it is for the developer and the EPC contractor. So, our iota would be to finish the project faster outside. Hence, you would see a more, I would say, not much, but maximum of six months faster, I think, execution timelines outside India. Say, 24 to 30 months in India. I mean, sorry, 36 months in India. Outside, you'll see more 24 to 30 months is what the timelines that we see.

Sir, one final question before I...

I'm sorry to interrupt, Mr. Padman Aaban. You may please rejoin the key for more questions. We have other participants waiting for the turn. Thank you. Next question is from the line of Dhanan Jamishra from Centrum Broking. Please go ahead.

Yeah, thanks for the opportunity, sir. Sir, you mentioned that we are going to focus more on also industrial segment, and in our order backlog, it is about 13%, 21-13% at present, and it used to be more than 20%, 2-3 years, 30 years. So, which area and which segment you are going to focus, and geography-wise, you can leave some color on that.

See, Anandjai, this cannot be seen at a point in time. It has to be seen over a period of time. You've seen in the, I remember up to 24, 25, we used to have an average of about 30% revenues coming from industrial. So these are also capex cycles and phases through which it goes. And obviously, water being a social subject will have the sizes coming from municipal. Having said that, if you see the last few orders where we have taken either from Reliance or from Gale in Pata or from BPPL for their Bina refinery, the Ras Kanura project in the Middle East or The orders for Aramco that we did in the past. So we have a good mix, both India and international in terms of the industrial clients. Two parts to it. The first one is your traditional industrial market. The traditional industrial market, 90% of it would come from oil and gas plus upstream, downstream. And this has remained our core market, whether you talk about Aramco, whether you talk about Petronas, OMB, Dangote, and the like. Of course, 10% will come from other sectors on, because the other sectors compared to oil and gas do not provide the kind of sizes that we look for in terms of economies of scale. The second part is the future energy solutions, which Rohan also mentioned in his opening remarks, data centers, solar, semiconductor, hydrogen. Here, we have repeated that these are decadal views that we have to take. This is not something that over the next one or two years that will become a significant share of the energy. of the industrial segment, but I'm sure over a period of three, five, seven years, this will become a meaningful part. Especially with the kind of water requirement that is needed in these industries, you take AI, you take the kind of data center explosion that is there for cooling, ultra-pure water for solar and semiconductors, or any demineralized water for green hydrogen production. Water is going to be the mainstay in these industries, whether as a raw material or as an important component for them to keep running. So, We would say over a period of time, our objective will remain to take industrial order mix. 20-25%. That would be a good mix to have. And the new industries also we are developing through a special initiatives team. And you will see in the next few quarters and years that this will also get developed and we will also produce meaningful results.

And secondly, sir, in Q1 order inflow, we have categorized or nature of the order like EPC, DB. So when we say DB, it is only the engineering and procurement part or construction part is not there, and it could be high margin compared to EPC. And earlier we used to give this EPC backlog or ET backlog. So how the ratio is currently now?

I don't have an immediate number on the EPC-EP backlog, but I would say today the kind of projects we have a higher EPC mix. The recent orders, of course, have a more tilt towards EP if you talk about Ajman. Doha, again, is a high-technology project, along with O&M is a design-build operator. So, you are right, the design-build project will generally be better in margin because there is no construction. Construction for us is a pass-through. Our idea would remain that to see if we can have more design-build orders, but of course, even when we take design-build-operate orders, you know, since construction is a pass-through, effectively, our margins are made only from design and build.

Okay. Thank you. All the rest.

Thank you. Next question is from the line of Selesh Raja from 361 Capital Market. Please go ahead.

Yeah. Thanks for the opportunity, sir.

Sir, we have seen single digit 7% YOY growth in the O&M revenue for the quarter. So, how do you see the O&M revenue growth for the remaining quarters as well as for the full year? When we can achieve 20% of revenue?

Also, can you update on this Kudangir project? Have you started our republishment work?

Thank you, Shailesh. I think, yes, you are right. On the O&M, the growth has been about 7% YOY. O&M by structure will grow at this pace because projects have to be completed for it to move into the O&M phase. Through this year, you will see we will complete projects and those will move into the O&M phase. For example, we have completed the Daziabad project. So that is now into O&M. And we have which is completed, that is into O&M. Next year, we will see Peru. Kodungayur will go to refurbishment now, but the O&M will continue even during the refurbishment phase. So, you will see the O&M growing. Look at it more from a two-three-year angle rather than nearly one year because there will be question crops in the growth. Your question on what is happening at Kodungayur? Kodungayur, we have signed the agreement. We also have submitted the project report to the PE. The PE is currently evaluating. While the PE is evaluating, we are, of course, still maintaining, running the plant. So the refurbishment phase should start any time now. We are only waiting for the date to start. And after that, it's a 20-year project. The refurbishment phase along with OENM.

My second question, South Arabia has been one of the biggest growth market for Wabag. So has there been any change in the tender pipeline or project towards scheduling in South Saudi Arabia? Because what is the status of this the IST project and also opportunity for us in the LTOA?

Hi, I believe Saudi, I don't think the effect of the war has been so much, and water being a critical part, part of, you know, the region, the dependency on desal, on water reuse, which is what Hadda is going to do. The water is going to be used for... So, I don't think it has been any slowdown. We are in touch with the client. So, yes, we are seeing newer and newer projects. We are seeing Sharakat, which is one of the main customers for us. They were called SWPC before. They have announced. That are a series of projects that are going to come out, and also to re-ensure their focus on water, 2027 has been announced as a year of water by Saudi. So it shows how much focus on water they have. I think that is imperative that they will not go down and slow down on any projects. We have more than half a dozen of inquiries that are actively, we are working on. So I don't see a slowdown in a bid pipeline. So this is, and we are seeing a good mix. It's not just the government entities. We have also seen a lot of private entities coming out with tendons. Which we are actively pursuing. So, as far as the market, if you take the perspective of it, there is nothing that is going on. Either you take the execution, or their seriousness, or their intent to go for more water-secure regions. So, this is what I would say.

So, the status of LTO agencies?

See, the status of LTOM, it has not been published by NWC. They are going through the tender, the submittals. But meanwhile, we have had the next tenders that are out. And looking at Saudi, we are seeing a lot of other countries also going for it, which we are actively pursuing. So I think this is a good concept. We have done it in the past. We have done it in Turkey. We have done it in Agra and Ghaziabad. So, I believe that this is the future, and I'm very happy to see that people are realizing this and making it where Vabag already has a first advantage of getting into these projects.

Okay, sir.

Thank you, sir. All the best.

Thank you. Next question is from the line of Krish Salop from Veer Growth AIS. Please go ahead.

Good afternoon sir. So most of my certain questions are answered. I just wanted to understand as we are moving more towards international projects. There will be competition from other large players where there will be they would also have a similar kind of design know-how as well. So, on what grounds we are able to compete with them and how are we and also on the domestic market. Domestic order growth has been slower this quarter. So, how are we looking in the domestic market as well if you can share some of that on that.

Yeah, so on the international, if you see the majority of Middle East in Africa, there is competition. But one thing that we have an advantage, I would say, is our extensive track record of being in the region. There are very few companies who have been four decades in the region working internationally. We are also a well-reputed brand, so that recognition and advantage comes to us. We also have our IP rights, which we use for captive use, and that is something that we also have. And the best part is that we are in the underdeveloped countries like Turkey, Egypt. And India, that's where a majority of the workforce comes from, which gives us an overhead advantage over all the competition coming out from Spain, French, or any of the European nations. So, this is something that, you know, we have a tagline called European Quality at Indian Prices. I think that suits us, and that says that how competitive we are. And a big part of doing so is that we have built 7,000 plants. We do a lot of value engineering. We have a lot of data that helps us to do a competitive bit.

On the domestic front, I think we have seen traction now coming after many quarters of Lund. You've seen over the last... Three, four quarters that it has opened up, whether on the industrial side and now on the municipal side as well. So we are seeing traction, but purely because of the sizes and the number of countries outside India, the multilateral funding flow, the kind of need for water, the significant water flow continues to remain from outside India. And that is why we've also made our strategy in line and also focused our resources on the international markets. While India will remain a very strong part of Babak's base, this is our home country, we can't leave our water leadership here. But we are seeing incrementally the sizes are much bigger outside India. I'm sure in a few years, India will also have larger projects when we will also see India growing at a similar pace.

Also, sir, on the margin scientific, we are seeing on a year-on-year basis, on our international PVT has fallen, and I understand it could be because of the product mix and APC construction mix will be higher, but however, on the overall projects and what kind of margins we can see in international markets and approach different projects than domestic markets.

See, I think we don't necessarily look at margins by region. That is not the right way to look at it. The right way to look at it is by the type of the project, the counterparty, and obviously what is the scope of the project. So whether it is EPC O&M, or is it EPEPC, or whether it is a desal versus a conventional sewage treatment plant, these are the ways to look at margins, and that is why in our medium-term outlook, we gave a blended EBITDA margin outlook of staying within 13% to 15% of EBITDA, and there you have seen in the last... We have been consistently performing on that, and our endeavor is to continue growing that more towards 15%. And this year, we are also completing that tenor of the medium-term outlook. Currently, we are working on the next long-term strategy, which is Vridi 2.0. And I'm sure in the annual investor meet, when we meet for FY27 in May next year, we'll be able to present to the investors our strategy for the next five years. I'm sure you'd have seen our presentation to the investors this year in terms of the opportunity set that is available for water. And in the next year, we will also present a more focused strategy for the next five years where you will see growth.

Thank you. Next question is from the line of Mihir Vyas from Nine Reyes Equi Research. Please go ahead.

Hi, sir. Thank you for the opportunity. So, on our operational margins, they are down from 15.8% in Q1 FY26 to 8.9% in Q1 FY27 without taking into account forex gains and losses. Do we expect these margins to improve going ahead?

Mihir, we don't understand the vocabulary of margins excluding forex. If we have more than 52% of the revenues coming from international geographies, the forex gains are going to be there. The accounting standards mandate this to be recorded in a separate line, but that does not mean these are non-operational gains. So for us, we have grown from last year to current year on operational level. We have stayed above 13%. So we want to reiterate that Forex is completely operational. We don't have Forex loans. We don't have foreign assets liabilities on which we trade. All these are working capital. These are invoices raised, invoices booked, monies paid, monies received. So these are completely operational in nature, and you will see Forex as an integral component with us going more and more global. So I would request please consider looking at it, including Forex, where you will see on year-on-year basis we have growth.

Thank you, sir. And do we see any impact of Middle East war or forex to be affecting our guidance what we have been giving?

The Middle East war has been on for the last three, four, five quarters. I don't know how long. And you have seen our numbers. We have been delivering. So I don't really see that as an impact. We explained even earlier that we have very, very minimal impact from the geopolitical. We are confident of managing it. We have the historical experience of managing it. Even in the recent past, during these trying times, you did see us performing well, and I'm sure the management is equipped enough to deliver on whatever outlook that we have given.

Sir, are we hedging or currency exposure?

We have a natural hedge, Mihir. As you know, while we have a lot of exports, a lot of these are also backed by imports from third countries, where we will have to get spec equipments from Europe, from Japan, from the U.S., and various other geographies. So we have a natural hedge when it comes to it. Whatever is the small component of difference between the revenues and the cost, that is anyway covered through a PCSD. So we generally don't have any significant unhedged components.

Thank you, sir. Thank you for the opportunity.

Thank you, Mehev.

Thank you. Next question is from the line of Amit Jain from Nunark Network Capital Limited. Please go ahead.

Hi, sir. Thanks for the opportunity. Just want to understand as a technology company, if you can provide more details on your R&D plan and new patent filings.

See, Amit, this is a continuous process, and... I would say from a competitive side, we would prefer not to make it public. We do, of course, give out what areas we work under, like, for example, ceramic membranes, like, for example, de-ammonification, the newer issues like DPAS, crystallization, membrane crystallization. So we do all of these activities, but we would prefer not to give. There's not too much of details around it.

Thank you, sir. Does these patents or IP rights help us? How does it help us in winning these projects? If you can get one or two instances, if you can just understand it better.

I think, Amit, there are multiple 125 IP rights. One of them we frequently use is something that we have a pair, which we use only for our captive use. It's flap walls. So this helps in reducing the sizing of the filter. And when you talk about a huge project, either you take a desal or a wastewater or an XTP, where you have a filtration before the water going to the RO. We use our own patented technology of clock walls. We have our own drainage flow. So many of our competitors have to buy it as a bought-out item, but we have something of our own which we produce. So this also gives us an advantage because they load over the price of, you know, the product companies. We have many like this, but if you ask for an example, I think this is the example that we have.

Great enough. Thank you. Thank you so much. Thank you.

A reminder to all the participants, kindly restrict yourselves to two questions. We will take our next question from the line of Shubham Borade from ICICI Securities. Please go ahead.

Hi. Thanks for taking my question. And congratulations on good set of numbers. So I have a very simple question. We have a record order book of 194 billion. So how much on a conservative basis we can see execution in next three quarters?

We have already guided for a 50-20% growth, Shubham, and we are confident of meeting that. And I am sure you know that our endeavour will always remain to be better than what we promised. So, I think enough said.

Thank you. Next question is from the line of Parth Thakkar from GM Financial. Please go ahead.

Thank you for the opportunity. I would like to know what is our current bid pipeline domestically and internationally? Hello.

I think as the market is opening up in the Middle East and Africa, We see a strong bid pipeline, but obviously, you know, keeping that around two, three billion dollars. I don't have the number over the top of my head, but I think that's the bidding pipeline that we have. And obviously, some of them are in advanced stage, some are in still, you know, the consultant stage. So I think that's the kind of... In India, we somewhat see around, say, 1 billion, 1.5 billion. I think that's the kind of size that India domestic gives us. So, I mean, broadly, that is the size.

So, at any point in time, across regions, if you see between Middle East, Africa, and India, we follow projects which are anywhere between 2 to 3 billion, roughly 20,000, 25,000 crores. This could be in all phases. It could be expression of interest. It could be early DPR. It could be a request for proposal. It could be a tender submission. It could be under evaluation. But that's the kind of order sizes that we follow at any point in time. So this is what we call as our pipeline because projects generally take 12, 18 months to completely fructify and come to a tender and then award. So we start very early through the phase. So that's the kind of fight. Thank you.

So, the time frame will be around 18 months for these 25,000 crore projects.

See, again, as I said, this is the total time. There are projects which we will like to bid, which we will not like to bid, but generally you can take, yeah, over the next 18 months is the timeline over which we will follow these projects and see that they get to a tender phase.

And what would we have ordering for targets for this year and also a CRL one in any of the projects?

See, we have not given an order inflow target. We have already given an order backlog multiple to be beyond three. We are already beyond four, and that we are... Confident of maintaining. There is a very good and robust pipeline. You already know from an L1 status, HADDA is something we have already announced as preferred EPC partners. There are a few other projects where we are in a preferred situation, and we will make appropriate disclosures as soon as it comes to a stage where we can announce to the market.

Last question, what would be our share of Middle East in order backlog? I would say about 40% of the order of that law would be Middle East today,

because we have Africa, we have Southeast Asia also, the rest would be India. Today, roughly it is balanced 50-50 between India and international markets. Anywhere between 35-40% would be the kind of Middle East mix that we have.

35-40%. Thank you.

Thank you. A reminder to all the participants that you may press star and 1 to ask a question. Question is from the line of Shri Harsha KJ, an individual investor. Please go ahead. Yeah.

I have just one question. In this quarter, the order backlog, it does not contract of around 611 crore previous quarter. Any particular reason for this?

Mr. Siyarsha, you have seen that from the last quarter, we have removed 600 crores worth of framework orders. This was prudently removed, though, and I did answer one of the earlier persons who had asked this question, that though these orders were in our order book, signed, stamp duty paid, but we were waiting for effectiveness, today we decided to prudently remove it, and today our 19,400 crores is all orders which are ready for execution, waiting for effective date, or already under execution or O&M which is waiting for EPC to be complete. So, that's the reason why you would see that the difference of 600 crores on a mathematical translation.

Okay. Thank you.

Thank you.

Thank you. Next question is from the line of Amir Shavda from Purnartha Investment Advisors. Please go ahead.

Hello. Hi, sir. Thank you for the opportunity. Just had two basic questions. One was that we have guided a 15 to 20% kind of a revenue growth rate. But like, is there some kind of a bottleneck that stops us from growing higher than 20%?

Amai, we have grown by 21% this quarter, so I don't believe there is a bottleneck. It is only the face of the projects. Our mantra has always been that we promise what we can, but we certainly do more than what we can. And you will see that we are always delivering on the higher side of our guidance, not on the lower side of our guidance. So there is no bottleneck as such for our growth. With the kind of order book we have, Whether you or me like it or not, we have to deliver and the consequence of revenue growth will be there.

Understood, understood. And another question was that, so we have mentioned that a lot of our projects have moved into the key commissioning phase. So does that mean that those projects will get completed within the next one to two years?

If it is commissioning phase, it doesn't take one to two years. It is generally poised for completion over the next couple of quarters. That's how close commissioning is. Commissioning is usually a one-to-two-quarter kind of affair.

Okay. Thank you so much. Thank you.

Thank you. Next question is from the line of Krish Salot from Veer Growth AIS. Please go ahead.

Thank you so much for taking a general question. I just wanted to understand from last year basis, what would be our EPC part of the construction and as we mentioned, this year EPC was higher than EPC. So, if you can give some bifurcation on that and as we are increasing our international project, could we see a further improvement in our working capital days as well as you mentioned that there's around 6 months earlier commissioning in those projects.

I'll take the second question first, Krish. On working capital, what I mentioned was, if you're looking at a growth of 15 to 20%, especially being in a construction sector, having a three, three and a half month kind of working capital is something that is not abnormal. And that is what is our only investment for the growth that is there. Yes, you are right. With more international orders, the working capital quality will certainly improve because the payment patterns, payment timelines, the contractual administration is much better outside India than in India. So you are also seeing over the last three, four years as our international mix continues to improve, our working capital days have also been sequentially coming down. I think your first question was on the mix of EP and EPC internationally. I think internationally, the opportunity to have EP orders is much higher, especially on industrial contracts. We tend to have EP. Sometimes, we have partnerships through which... In Ajman or in Doha, you would see our technology and procurement component will be significantly And these kind of orders allow us to move more EP internationally. India is still largely an EPC market because of the nature of the customers itself. But here also we see if we get an opportunity, like for example, Indosol-Solar, we are building a desalination plant on EP basis. So it depends on the market, but yes, the international markets offer you better opportunity to look at. EP projects, but as I said earlier, even if it is an EPC project, we get partners for a pass-through of construction. So, for us, the risk of profiling remains the same, though the construction revenues and cost will pass through our books. So, we don't take a bias, but if given a chance, yes, we will go more for EP orders.

So, how much would have been an EP and EPC?

Would be largely EPC. This quarter, we don't see, as I said, as a project company, it's very difficult to measure every quarter what would be the EPC, though even if I give you metrics, it may not be the right representation. You'll have to see it over periods of time. But from a number perspective, a majority of the revenues would be EPC. Our top five projects would be largely EPC.

Okay, if you can just do some understanding on a full year basis, our orders will be more and on a multi-year basis as well, our orders will be more towards easy.

See, Krish, our endeavor will be to do EP projects, but that is not our bottleneck. It's not that we have a very strict policy that we will go only for EP projects, as I said, even in case of EPC projects, because you have partners, you are practically offloading your construction risk. So for us, it is an EP risk profile, even if we go for an EPC project. So on a multi-year basis, our endeavor would be to at least do 10-20%, at least 10-20% from coming out of EP, if not more. In the past, we have even done one-third of our revenues from EP. But as I said, that is not our constraint. We will not be constrained by whether it is EPC or EP. We will focus on the quality of the project, the quality of payment security, and whether it is an advanced technology.

Thank you. Next question is from the line of Manish Maheshwari from Equity at Work Family Office. Please go ahead.

Hello, sir. Sir, what is it that we have a Chennai order? What has been the completion so far? And the revenue recognition?

Which Chennai order are you referring? We are doing a lot of orders in Chennai now.

Perùr, Perùr. PNW at this week.

Peru, the engineering is largely done. The procurement, all the major items have already reached. Construction is at a very advanced stage, and you will see the installations are underway already. We have finished the marine works. We have already done 80-85% of the concreting. We have finished 1 lakh cubic meter, the highest. In a single project in our history.

So, I would say today we are 75% there.

In terms of completion, what is left now is to finish the completion, go into commissioning, which we will do over the next few quarters.

And what quantum of revenue recognition has already done?

I have to come back to you. I don't have an exact number, but our IR team will come back to you on that percentage.

Second question is, Yamuna is a very, very profound and, you know, enormous opportunity, right? So, any orders are we sort of expecting or envisaging this year, this financial year, from Yamuna particularly, Delhi?

Yamuna. Yamuna, yes, we have already seen we have got one order from BJB in Mitra, and we are following the Yamuna cleaning plan, and obviously having the relationship with BJB for many, many years and decades now. I think we have a good opportunity there. We are following it. We are following the tenders and also working on it. And you will see in the next few quarters as the orders of our size. And our contract fit as something that fits our technology. We're not in the race for orders today. Thankfully, we have sufficient order book. So we will take orders which really create a technology. So in short, yes, we are following it. And we will look at the fit and taken order, which meets.

I mean, we are a market leader in this entire spectrum, particularly in the water space, right? Right? In terms of size it's coming. So we have all the ingredients. I'm missing out on the fact that the, you know, the, I mean, the solid B-line size discovery is not, is actually not happening.

Price discovery on the on the delivery front?

No, sir, I'm talking about the public markets, the stock ticker, the price.

We don't generally get driven by it. I'm sure the market has. To understand how to reward multiples, we focus on our performance, and we have seen that has also delivered sufficient re-rating, whether it comes to credit rating or the public market rating. We are seeing that over longer periods of time, performance is rewarded, and that is what we will focus on. Now, if the markets decide to reward us now, one year later, one year earlier, That's not in our hands, and we don't get bothered by it. We have seen over the last three, four years how the price has moved. So we understand that that is a reflection of our performance. So for us, that's the learning, and we will continue to perform in that direction.

But, I mean, the price discovery in terms of attaining a higher and higher market cap, at least 15,000, 20,000 crores, is something that we should get there eventually, right?

I can't control the market cap. I can certainly pray for it, work towards it, and we are confident from history that our market cap will continue to grow because in longer periods of time, delivery does get rewarded. We have seen that happen in the past, so we are also confident all shareholders, including you, will find the best way to reward, and price discovery, of course, will happen automatically.

Great. Thank you.

Thank you. Next question is from the line of Arjavi, an individual investor. Please go ahead.

Hi, thank you for taking my question. My question is regarding the order book, which now stands at 19,400 crores. So can you give us some visibility on how much this is expected to be executed in FI 27, 28, and 29? And as the international projects ramp up, should we expect EBITDA margins to remain 13% to 15% range or move up further? Thank you.

So, the second question first, 13% to 15% is our medium-term outlook. I think we will stick to that band for now until our long-term strategy rehash is done, when we will give you a . I'm sure you have seen that over the years we've also continually improved this margin. We've given a band for ease, but obviously year over year we try to keep improving our margins. On the first part relating to how much of the order book will be executed, we will have to first split it into EPC and O&M. O&M is more longer term. We have orders which are 5, 7, 10, 15, 20 years. So a very blind average on the backlog that we have would give us anywhere between 7 to 10 years of recurring revenues. On the EPC, Rohan did answer a question earlier. I'm not sure if you were there at that point in time. The EPC orders in the international markets. I'm generally 24 to 30 months in terms of execution cycle. In India, it's about 36 months or more of execution cycle, plus or minus a quarter, depending on whether the project requires a permanent establishment, requires a contract signing, requires some CPs to be completed. So that is the kind of cycle over which the revenues will pan out. Again, I'm giving you these timelines from a... In the order book, you will find orders in various places. Some would be in the later part of the execution, like, for example, the previous caller asked about Peru, Chennai. So that's in an advanced stage. It is in the installation and commissioning. You will see an Ajman or a Kuwait in the early stage, where it is contracting contracts and early engineering. You will find some orders like BPCR, some orders like Reliance, which are in the middle phase. So, each of these orders will be in different places, but broadly, our expectation is that these orders.

The next question is from the line of Dhruv Hingorani, an individual investor.

Please go ahead.

Hi, I'm Audible.

Yes, you are Audible Dhruv. Please go ahead.

Hi, I had two questions. Firstly, on the EBITDA front, we have given a guidance of 13% to 15% in the midterm, and mostly we have been on the lower band of it because of the product mix of EPC more recently. So, is it that in Q3 and Q4, we would be more towards the

15% margins going forward because of the mix?

And my second question is, you know, we have around, we had around 140 crores receivables from Genco that was in arbitration. So, where is that right now, and what's the visibility on its recovery going forward?

Okay. I'll take the easier question first. The T.S. Genco arbitration is subjudice. There is, we went to the Supreme Court, we also told the market about the outcome, but of course, the Indian judicial system allows challenging at various places. So, from our perspective, I think at the highest court, we have a clear verdict in our favor. That at least gives us the assurance that it is recoverable. In terms of timeline, I think you know better, whatever date I give or what you make as a yes, both of us could be correct, both of us could be wrong. So, I will refrain from giving a timeline on this. But where there are significant updates on this matter, we will certainly communicate. Shareholders transferently. In terms of EBITDA, you spoke about the 13 to 15 band. We have been more in the 13 to 14. As the name suggests, we have given a medium term outlook. So this is more a three to five year kind of outlook that we have given. With the economies of scale moving up, you will also see that the EBITDAs have to naturally be better. And I also mentioned about the long-term strategy re-hash that we have. I would also like to have 15% by the end of this year, but realistically, with the kind of projects we have, it is more fair to expect a 13 to 14% kind of bank in this year, and over the years.

Got it, got it. Thanks. Thank you.

Thank you. Next question is from the line of Chirney. An individual investor, please go ahead.

Yeah, my question is, are we shash-interred in terms of orders? Can we take more of the orders, and do we have the capacity to execute them, or do we request more capex to take more orders?

We are an asset-light organization. There is no capex required for taking orders. And as you have said, we are a modular business. So, larger the order, better it is for us. So, we don't have any such capacity constraints to take orders, but that doesn't mean that we would go for every order that's on the angle. It has to meet all our requirements. It has to meet the thresholds that we have set, the margin threshold, the cash threshold. So, we are very selective, but very optimistic about the market. We will pick the orders and ensure that our growth is intact.

Yeah, thank you. And are we having any plans to spread our wings to South America or something like Britain or other tradition?

We have tried our head at South America earlier. I think culturally, it's a very different region to be in. We are keeping our eyes on the market, whether it is South America, whether it is developing markets. We will see if the project fits our kind of filters, then we will be happy to take it, but we will not go into a region just because there is a larger order, because, you know, You need a cultural fit to work in a region. So that's the market where we have our eyes on, but we don't have our, let's say, feet in the market. Thank you. Thank you.

Thank you. Next question is from the line of Mudid Bhandari from IIS and Capital. Please go ahead.

Hi sir, just one question. In which countries are, in terms of international market, in which countries are orders in their local currency and in which countries are in some other currency, let's say INR or any other currency?

See, most of our orders outside India are either in USD, Euro, or any of the currencies which are fed to USD. So, for example, SAR, or Tatar-e-Rial, or Kuwaiti Dinar. We generally go for internationally convertible dirhams. We go for international convertible currencies only. What is required to be spent in that local market alone is taken in the respective local currency. So that way we don't have any currency conversion issues or forex related issues. So I would say almost every project. on currencies which are not internationally accepted.

Thank you so much. Thank you.

Thank you. Next question is from the line of K. Rajesh, individual investor. Please go ahead.

Congratulations for the good set of numbers. I just had one question. So in the presentation, we highlighted the new avenues for growth, like solar, PV, semiconductor, data centers, and green hydros. So how do you visualize the order and flow in the coming 12 to 18 months? And congrats for the breakthrough order in this sector.

Thank you. See, I did mention to a question earlier that these are sectors where you have to have decadal views. They are not going to give you significant order books over the – if I would say 50% of my industrial order book would come from these sectors over the next 12 to 18 months, I would practically be not selling something which is in the direction. Today, we have Rheniusis, atrophy of water. We have Indosol Solar, which is desalination. We have Ghaziabad, CVG. All of these orders, we have started seeing that the breakthrough is already there. Solar, we have already been able to make the breakthrough. Next, there is semiconductor data centers where cooling and ultra-fear water will be required, and the very long-term part will be the green hydrogen. So, I would say look at it more from a 3 to 5-year scale over the next 12 to 18 months. I'd say one or two orders selectively we'd like to pick high technology, but over a 3 to 5-year period, this is excellent.

That was the last question for today. With that, I now hand the conference over to Mr. Spenda Prasad Seetaraman for closing comments. Over to you, sir.

Thank you, friends, for your active participation in this Q1 FY27 earnings call. We have uploaded the analyst presentation on our website and also in the stock exchanges. In case of any further queries, you may get in touch with our Investor Relations Advisors at Factor IR, or feel free to get in touch with us directly. Thank you again for the participation today. Good evening. Goodbye.

Thank you very much. On behalf of VA Tech Vabag Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.