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Va Tech Wabag Ltd
NSE:WABAG
Va Tech Wabag Ltd
NSE:WABAG
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Earnings Call Transcript
Other Earnings Calls
Good evening, and welcome, everyone, to this earnings call post announcement of Q3 and 9 months FY '25 results of VA Tech Wabag Limited. On the call today from the management team, we have Mr. Rajeev Mittal, Chairman and Managing Director; Mr. Skandi Prasad Sitaraman, Group Chief Financial Officer; and Mr. Shailesh Kumar, Chief Executive Officer, India Cluster.
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 may materially differ from those in such forward-looking statements. This conference call will be archived, and a transcription will be available on the company's website. The company's results update presentation has been uploaded on the website and stock exchange, which provides an overview about the core offers and analysis of results for this period. We trust that you had an opportunity to look through the same. Please note that this conference is being recorded. We will start the opening remarks from the management, post which we will open up for an interactive question-and-answer session.
I now hand it over to Mr. Mittal to take you all through the key business highlights. Over to you, Mr. Mittal.
Good evening, ladies and gentlemen. We extend a very warm welcome to you all to this earnings call post announcement of Q3 and 9 months FY '25 results of VTech WABAG Limited. Your continued support and engagement are crucial to our growth journey, and we appreciate your presence today. Joining me today for this earnings call is Mr. Sandar Prasas Pitaraman, our Group CFO; and Mr. Shailesh Kumar, our CEO for India Cluster. I would like to begin with the great news. India Rating and Research, a Fitch Group company has upgraded WABagG's long-term rating to AA- with a stable outlook.
This milestone further strengthen stakeholders' confidence and reaffirms our position as a trusted global leader in water technology. We continue our growth trajectory into our financial performance over the past 9 months, reflecting our focus on delivering profitable growth through expanding our presence in international markets, strengthening our foothold in industrial segment, advancing our expertise in cutting-edge water technology projects, growing our engineering and procurement business, and enhancing our focus on long-term O&M contracts. Consistent with our strategy, nearly half of this 9 months revenue has come from international geographies.
Our operation and maintenance business contributed 19%, and we continue to maintain a healthy mix -- revenue mix of about 70-30 between municipal and industrial segments. As a global leader in advanced water technology, our order intake is primarily focused on desalination, water reuse and recycle effluent treatment projects. With our continued focus on emerging markets and efforts of our agile go-to-market teams, we have secured 4 significant orders in the last quarter, 2 from Middle East, from Africa and 1 from India. We have secured a significant consortium order worth approximately INR 3,251 crores for 200 MLD Alhire independent sewage treatment plant in Riyadh, Kingdom of Saudi Arabia.
This project is being developed by Mona company in partnership with Marai and NV Basics SA for Saudi Water Partnership Company, the principal offtaker for water and wastewater projects in Kingdom of Saudi Arabia. Wabag is a technology partner and also a leader of consortium will design and build the plant while consortium member Mulaklgowari contracting company will undertake the scope of laying the transmission pipeline and construction of reservoirs. We were awarded this repeat order by Neona Company Consortium, a respective client recognizing our 4 decades legacy in Middle East, our technically superior proposal and our proven execution capabilities. This order wins -- order win marks another key milestone for us in Saudi Arabia and reinforces our leadership position in Middle East region. Wabag has further strengthened its O&M portfolio by securing 7 years operation and maintenance order worth approximately INR 121 crores for BAPCO refining industrial wastewater treatment plant in the Kingdom of Bahrain.
With this order win, Wabag has reinforced its technological excellence and unwavering commitment to deliver world-class water solutions to the oil and gas sector globally. We have secured a prestige sorry, a prestigious design, build and operate order in Zambia worth approximately INR 700 crores from Lusaka Water Supply and Sanitation Company. This project is multilaterally funded by the European Investment Bank and KfW of Germany. The engineering procurement and construction phase will be completed in 36 months, followed by 24 months of operation and maintenance. We have recently also secured an order from Chennai Petroleum Corporation Limited towards design, engineering, supply, fabrication, installation and commissioning of desalination water pipeline will further strengthen our industrial water portfolio. The project is worth INR 145 crores to be completed in 12 months. During our Q2 call, we had informed you all that Wabag is a preferred bidder status for projects worth approximately INR 3,500 crores.
We are pleased to report that we have already secured 75% of these opportunities into confirmed orders. We remain on track with our target and expect more orders in the coming months. With a robust order book exceeding INR 14,200 crores, we maintain a healthy mix of 58% EPC and 42% O&M projects. and a 40-60 split between domestic and international projects with most contracts having secured payment terms. Further, our strong order book and pipeline visibility instills confidence in our ability to continue to grow and create long-term value for our stakeholders in the years to come. Looking ahead, we are further enhancing our presence and efforts in the emerging markets like Middle East, Africa, Indian subcontinent, Southeast Asia and CIS countries. I would also like to share some updates on our key projects. Our prestigious 400 MLD Peru desalination project in Chennai funded by JICA is progressing well. Engineering activities are in the advanced stage. Deliveries of equipment have commenced and civil work is progressing in full swing.
Year 2024 marked a milestone for Wabag as we celebrate our 100th anniversary. We commenced the centenary celebration with a grand event in Vienna in August 2024, followed by mega event in Riyadh in September 2024 and in Delhi in November 2024. The grand celebration to conclude the series of centenary events we held across the world will be hosted in this month in Chennai, where we will honor our customers, business partners, bankers, stakeholders for their unwavering support. As we move forward, WabagG remains steadfast on its commitment to build on its century old legacy, driving excellence in water treatment sector by integrating innovation, cutting-edge technology and strategic resilience, we continue to develop advanced sustainable solutions that address the world's growing water challenges.
Our expertise in high-technology water treatment enables us to provide state-of-the-art systems for municipalities and industries, ensuring access to clean water and safe water. With strong focus on sustainability, digital transformation and operational efficiency, we are well positioned to expand our global footprint, foster long-term partnerships and contribute to a water secure future for generations to come. I extend my sincere gratitude to our investors, partners and stakeholders for their continued trust and confidence in Wabag. Your support drives us forward as a global leader in the water sector. Now I hand it over to Skanda to take us through the financial highlights. Over to you, Skanda.
Thank you, Mr. Mittal. Good evening, everyone. I hope you have had a chance to review our recent update presentation, which has been shared on our website and with the stock exchanges. I'd like to reiterate and share the happiness expressed by Mr. Mittal about the upgrade of our long-term rating to AA- with a stable outlook. This upgrade strengthens our market perception, increases business opportunities and reinforces stakeholder trust, positioning the company for sustainable growth and success.
It is worth noting that we are already rated highest in the short-term rating at A1 -- we have experienced consistent rating and outlook upgrades over the last 4 rating cycles, which reflects Wabag's leadership in the water treatment sector, strong revenue visibility, continued focus on profitability and cash and an asset-light approach. Before diving into the numbers, I'm pleased to highlight that we continue to progress on our profitable growth trajectory with PAT growing at a rate faster than revenue in line with our long-term strategy. This reinforces the resilience of our business model, our strategic focus on high-margin projects and our disciplined execution approach. Further, with a strong order book as of December 2024 and robust pipeline visibility, we are confident in our ability to sustain revenue and profit expansion while maintaining our net cash positive position as we enter the last quarter of this fiscal year. Now let me quickly walk you through our performance highlights.
Our consolidated revenue for the 9 months ended December 31, 2024 stood at INR 2,138 crores, growing over 11% year-over-year. Stand-alone revenue for the same period stood at INR 1,835 crores -- our consolidated EBITDA for 9 months FY '25 stood at INR 289 crores, which grew by around 11% year-over-year. Stand-alone EBITDA for the 9 months stood at INR 264 crores. We have successfully maintained healthy EBITDA margins aligned with our medium-term outlook. This is a direct reflection of operational efficiency and disciplined project execution, a well-balanced mix of EV, industrial and international projects and a growing contribution from our high-margin O&M business. Consolidated PAT for 9 months stood at INR 196 crores with a PAT margin of 9.2%, growing at over 13% year-over- Stand-alone PAT for 9 months stood at INR 172 crores. As part of our strategy to reduce our exposure in the European region, we have divested 3 European subsidiaries in the last 2 years, which has further enabled us to channelize our focus and resources to the emerging markets.
On a like-to-like basis, excluding European divested entities, our consolidated EBITDA for 9 months grew by 14% year-over-year and the consolidated PAT for 9 months grew by 17% year-over-year. We are proud to report that Wabag has remained a net cash positive company for 4 consecutive years. And this quarter marks the eighth consecutive quarter of maintaining a net cash positive position, driven by our disciplined cash flow management and prudent debt control. As of December 2024, our net cash position stands at INR 262 crores, excluding debt HAM entity, which is in nature considering asset-light strategy, our net cash stood at INR 379 crores. We closed 9 months with a gross cash position of INR 659 crores.
Our strong cash results enable us to infuse necessary funds into projects, expediting execution time lines. You will remember that we have secured the approval of shareholders for borrowing limits up to INR 6,000 crores to meet the next wave of growth and order book expansion. We already have bank limits tied up for INR 4,000 crores, which we expect to increase to INR 5,000 crores within this fiscal year. We are currently in final discussion with our bankers, and we believe that the credit rating upgrade will further help us in this process. We remain steadfast to our asset-light model, delivering return on capital employed, ROCE of around 18%.
We continue to create long-term shareholder value, generating a return on equity ROE of 14.5% -- with the recent order win of 200 MLD independent sewage treatment plant, the order book now stands in excess of INR 14,200 crores and is well diversified across engineering and procurement, EP, engineering procurement and construction EPC and long-term operation maintenance O&M contracts with adequate payment securities, our order backlog is robust and provides clear revenue visibility for the coming years. International business continued to remain robust with 48% of 9 months revenues delivered by overseas projects.
International projects now constitute 40% of the order backlog, reaffirming Wabag's strong global presence. O&M business continues to grow, now making up 42% of the order book, reinforcing our focus on stable long-term revenue streams. We will continue our emerging market focus on advanced technology projects, particularly in desalination, recycle and reuse and effluent treatment. We take this opportunity to express our heartfelt thanks to the bankers, investors, fellow and all other stakeholders for the continued support extended to us. With this, we now open the floor for the interactive question-and-answer session.
[Operator Instructions] The first question from Nidhi Shah. Please go ahead.
First, I'd like to congratulate you on the robust order inflow that we have seen this quarter. My first question would be on the budget, recently it was announced that the Jeevan mission project will be renewed till FY '28. Regardless of this, we've seen minimal activity in this past year in Jaleevan.o we expect any tenders to open up in this space soon? How do we expect this to pan out?
Okay. Good one. Just to reconfirm, we had spoken this in earlier quarters also. directly Jal Jeevan Mission projects is not in our domain area because these are basically rural water supply, which consists of mainly laying thousands and hundreds of kilometers of pipeline. As we have told you earlier that strategically, we have moved away from sea. We are more into engineering and specialized procurement. So this is not a focus area for us unless there are projects where the groundwater, which they are extracting or the surface water, which they are taking needs some advanced treatment, yes, we will take part. But most of the projects are basically borehole, some minimum treatment, disinfection and then laying kilometers of pipeline. So it is not in our direct domain area.
My second question would be on the execution on 2 plants, Chennai and Bangladesh. So Chennai, we can see that the execution has picked up this quarter. So how do we expect the execution to pan out for the remaining quarter of the year and FY '26? And similarly, for Bangladesh, you had mentioned on the last call that there were temporary disruptions, but the project is back on track. So we saw a lumpy execution of this in Q2. But in Q3, again, we are seeing that the execution is significantly lower. So would we expect the execution of this project to happen in such a manner itself? Or can we expect these numbers to change in the remaining quarters and then FY '22?
Okay. So as Mr. Sailesh Kumar is with us, I would allow him to respond to your India cluster question.
Projects is our big desal project that we are executing in terms of project outcome. everyartment we are working well, engineering, procurement and construction. It is in advanced stage of construction. So for the next year, the numbers what we have -- what we are talking about, it would be or what earlier we talked about, it would be on that line only. We do not see any change on that. So it is steadily progressing, and we are seeing the end of the project as we have started. Coming to project that we are talking. Initially, we saw some impact because of the geopolitical situation that was emerging there, but we are coming to grips with that. We have tried to overcome that situation. Things are getting normal there. And going forward, we will be again aligning some derailment, some initial movement away from the expected project schedule was there, but we are getting back on track. normalcy is returning. And next year, we will be getting aligned with the number what we want.
The next question is from the line of Anupam Goswami from SUD Life.
Sir, my first question is on the margins. We have seen margins dipping about 200 basis points from the last Y-o-Y and also Q-o-Q. What could be the reason in this? And going forward, how do we look at? And also from the execution point of view, where do we see execution picking up now that the order book is pretty much in full and pretty robust, -- where do we see the growth in the numbers coming?
That is all... Anupam, your first question on margins, we have spoken in the past. I will reiterate we are a project company. Please don't look at us quarter-over-quarter. There are a mix of projects, EP, EPC, margins will say, but we will remain in that window, which we have committed for from a medium-term outlook. So you see the 13% to 15% window remaining here. You see the 9 months number that we have last year to current year, we are at 13.5%. That remains steady. We have also grown our top line by more than 10% now. So execution is also picking up. Mr. Shailesh just mentioned about the 2 top projects, which are getting into the peak of execution like in Chennai, the deliveries have come in, civil work is in full swing. Pagla next year, you will see expansion. You've seen us announce the Ahire project in Saudi Arabia. That's a large project, which will also start execution. So already, you are seeing that the top line is growing. And in the next year, you will see that it will expand meaningfully. I think I've answered both your questions.
Sir, I just missed the next year, the execution would be far better. Did you mean that?
Absolutely. It has to be because we have such a large order book. The revenues will be a consequence because we have to execute these projects within a 2-, 3-year period and all these revenues will pan out as far as EPC is concerned...
Okay. And given our order book is currently skewed towards international 60%, do we see a margin in the top range, let's say, you said about 30% to 50%, do we see about 15% given international order book?
Inshaa Allah.
Mr Anupam, does that answer your question?
Yes.
The next question is from the line of Dhavan Shah from Unique Stock Brokers.
Just wanted to understand on the Bangladesh project. I think the U.S. has top 8 towards Bangladesh. Are we affected in any manner in that Bangladesh project...
Not at all. These are projects which are committed funding from World Bank. And the committed fundings are not affected by any future decision which U.S. government or anybody will take. None of the multilateral agencies, unless there is something very serious governance issue, they never cancel the already approved fundings.
Okay. And if you can throw some light on that Saudi Arabia order, I think, which got canceled for some technicalities. If you can throw some light, I missed out the earlier part of your conversation on this thing. So if you can throw some light on that and whether we can be able to bag it again or how it is...
See, first of all, there was no order cancellation. It was a tender which went into a retendering because the client wanted to change scope, specifications, et cetera. The tender has been, as we speak, reannounced. We are working on the tender. We'll have about 8 weeks to submit the tender. We will make the submission of the tender. And please let us be very clear in our mind, there was no capability issue. There is no technical issue. It was only a customer-related.
The next question is from the line of Kaushik Poddar from KB Capital Markets.
Whereas this Jeevan mission had nothing in favor of your company. See, the recent Delhi election, what was talked about and promised by BJP is that there will be a cleaning up of the Humana river front. So is it possible that there can be a big opportunity in such kind of cleaning up of the river front?
It's not only possible, it is and we are already doing this Yamuna cleaning under the Yamuna Action plan, were part of it in Yamuna Action Plan 1, 2, now 3 and 4 will come. We have built plants like Ki, we have built plants like Keshavpur, Popanala and recently Ritala. All this is helping to clean the water in Yamuna by discharging treated sewage rather than untreated sewage in river Yamuna. This is right in the center of our domain capability, and this is the kind of project we like to work on.
So what the kind of the incremental tender that will be required to do the complete cleanup?
Depending on government as how much money they allocate for this budgetary allocation of Yuma. Whatever they allocate, we will be a strong contender for that.
Okay. And see, we see a lot of contract that you get is from the developing countries. But is it possible that you can go to developed countries and get some orders also?
Is question of survival in developed countries. infrastruct this is they already have the infrastructure developed. Now what incremental you can get some renovation, some upgradation, you don't get greenfield large projects what you get in the emerging markets where the infrastructure is developing. So why go to a crowded market with no margins, no scope for innovation. We are very happy with our strategy of remaining in the emerging markets.
The next question is from the line of Aejas Lakhani from Unifi Capital.
Congratulations on the recent order wins. Sir, previously, we had called out that we -- the Peru desal, Bangladesh, RIL, IndoSolar projects, which are largely EPC nature of projects were to be executed in the second half, and we could see that margins have dipped a bit. So how do we think about the margin trajectory going forward from here on?
I think one of our friends had asked this question. Our CFO, Skandar replied to that question. Is it something specifically you want other than saying quarter-on-quarter, don't look at margins because it's the mix of projects which determine the margin. And when you still look at a 9-month we like to be seen as at least 2, 3-year period company. But even if you see us as 9 months, it is very steady margins. So some quarters, nobody will ask us last quarter, why did we do well on the margin. Now if 1% or 2% is less in this quarter, we are getting this question. But at least see us on the 9-month period, is our margins not good enough in the range what we had projected to you in the May last year?
Sure, sir. Understood. And sir, second question was on the dividend policy. Sir, if you can elaborate on that part, please.
We have said in many, many quarters, you are the owners of the company. You are the shareholders of the company. okay? Our shareholders decide what is the best return on capital on the investments they do. As a management, because they trust us in our ability, in our judgment, we take a judgment that investing money into the project is far superior and gives us better return than giving a dividend. That's been our judgment, and that's how we have worked over the last 3, 4 years. Now if our shareholders want dividend and say, don't invest into this kind of Namami Gange HAM project, we are fine with it. So it depends where you get a better return on your capital. And you have seen over the last 2, 3 years, how the company's performance has improved on every single metric, whether it is EBITDA, whether it's PAT, whether it's cash, whether it's ROC, whether it's ROE on all fronts, the performance has improved. And I think we are on the right strategy to give this kind of return to the investors.
The next question is from the line of Harshil Parekh from Acuitas Capitall Advisors.
Sir, my question was, I would like to know what is the order bid pipeline where we are the preferred bidders. For example, as of second quarter, that amount was approximately INR 3,500 crores, out of which 75% of them are already confirmed orders. So I would like to know that value as of Q3.
Yes. I think even after booking 75% of INR 3,500 crores, we still can see our chances to project in the next 2, 3 months in the range of INR 2,000 crores to INR 2,500...
Okay, sir. And sir, my next question was that earlier we have communicated that we aspire to grow our revenues by around 15% to 20%. And if I look at our 9-month revenue growth, it was around some 11%. So are we still confident of achieving that 15% to 20% growth in FY '25?
First thing I want to remind you that these projections were not given for a quarter or 9 months or a year. This was given for a medium term, which is 3 to 4 or 3 to 5 years in our personal meeting, which we did in May last year. On that front, we are very, very confident and especially with the kind of order intake we have and the sector, which is looking up I don't see we need to doubt the projections we have given 3 quarters back. So short answer is yes, we are confident.
Sure, sir. And sir, last final question would be what is our like-to-like revenue growth on a 9-month basis, excluding the divestment of our subsidiaries?
I think this is given in our investor presentation. EBITDA and PAT growth is given, but revenue growth is about 10%, 11% we have given. 1% reported Yes.i-to-like revenue growth would be about 13%...
The next question is from the line of Jainam Jain from ICICI Securities.
So sir, my first question is, could you please give us some details on the recently won 200 MLD Saudi Arabia project? What is the execution time line? And what kind of gross margins can we expect from these orders?
See the 30-month order execution time line, we have already taken 2 months during the limited notice to proceed. In balance, we have 28 months to execute this -- and this is a very advanced technology sewage treatment plant, similar to the one we did a couple of years back in Jedda, same technology. So this is something very new for the Middle East market. And we are very confident after the successful operation of Jeddah that is suitable for this climate and the region. And that is one of our success factors for this project. It also gives us a very large reference in the GCC market, which is anyway our target market for us, and we definitely see that such projects gives us a huge exposure and confidence to the clients to consider us for future bidding also.
Okay, sir. And sir, what are the payment terms for this contract?
I think we can take it offline because I will tell you the payment terms are good because this is funded project. They also know it has to be performed, but you can connect with any of my team because it will take a long time if I to marerage the whole payment terms of this thing. So take it offline.
Okay, sir. And sir, the next question is on the 300 MLD Saudi Arabia order, which was canceled a few months back. So what was the reason for the cancellation? Like was it an operational issue? Or it has something to do with the VA? And do we expect the tender to be floated again?
I think you were on the call when one of our friends asked this question and our CFO responded exactly the same questions you are asking.
I think you were on the call when one of our friends asked this question and our CFO responded exactly the same questions you are asking. Okay, sir. Sir, what is the order pipeline looking like for India and abroad for Q4 and FY '26? Like are there any large tenders on the horizon for India? And what is your order inflow guidance for FY '26?
We don't give order inflow guidance. We have already given a guidance for the medium term on all the parameters. And to get all the parameters, order inflow has to grow at that level. Today, we have said even in today's con call that market is very bullish, sector is looking up. We are well placed. We are even preferred bidder. So in short, I would say it's looking good.
The next question is from the line of Mihir Dhami from Sharekhan.
Sir, last quarter, you had alluded that second half could see revenues of around INR 2,000 crores. So after the third quarter, do you see pickup in revenues in the fourth quarter, significant pickup.
Yes, it's always our fourth quarter revenues are always the bumper quarter. In all the 4 quarters, always fourth quarter is the biggest quarter. And I don't have any doubt that this year would be no different.
So the guidance which you gave is maintained, right?
Yes.
The next question is from the line of from thought PMS.
Congratulations on strong order inflow this quarter. So I would like to know how much would be the ratio of the bid we do for orders and how much would we have won? What would be the ratio, sir?
If I tell you specifically, it varies on conditions, conditions that win ratio... 4enompeds...
Sir, can you talk a little bit about the R&D alluded emerging there is a chance for innovation and we have 25-plus IP rights. So is there any more in the pipeline? What is the status of that department? Can you throw some light on that?
I think the department still exist. They are still live and kicking and doing some good work and they are continuously improving the existing technology, innovating new technologies, commercializing the pilot projects into prototypes. So this is a continuous exercise. We don't stop this work. This is a good work. It gives us an edge in the market with advanced technology. We would like to be considered as an advanced technology pure-play water company. I think New IP in the pipeline --
Sorry for interrupting, sir.
Yes, it's always there. We have an R&D Director sitting in Vienna. He decides which of our developed technologies we need to apply for a patent or an IP or a trademark. And accordingly, he's managing that on a day-to-day basis. So it's not that we have a plan that 3 IPs this year we will take or 10 IPs we will take. He takes a decision based on the type of the project, type of the technologies we do. Plus this being a centenary year, we have come up with an initiative called Blue Seed. This is to help the new start-ups with the pre-seed and seed capital to encourage them, develop them not only by giving money, but also sharing with them the water technology knowledge, help them to perfect their technologies and also help them in commercializing because we are present in 27 countries. So we can also help them in marketing in those countries.
The next question is from the line of Mohit Kumar from ICICI Securities.
And my first question is, sir, have you heard anything on the Mumbai desalination plant? I thought that is the retendered. Is that right?
Mumbai desalination plant, it last 3 years is off and on. Yes, it's not the first time it's going to be retendered. I hope they will find some interest in it, the way they have structured it. But as of now, the way they have structured it, there are no takers for that. So we have to wait and watch how does it develop.
Understood, sir. My second question, sir, of course, you have done very well in the Middle East, but the Indian opportunity looks like to be very, very low. So are you seeing the pipeline for the Indian project building up? And are you hopeful that some of the new orders, especially on the Namami Gange 2.0 will likely to take off in F '26?
Surely, it has to take off. What we have seen so far is just the tip of the iceberg. -- because it's only we have worked on our Ganga as a river, but we have huge river fronts, which we have to work on and the government has made it very clear what they have started as a good pilot with Ganga. They would extend this to all the rivers, whether it's Godawari, Krishna, Bhramaputra, whatever. They are going to extend the same model to all rivers. Just imagine if they are extending to all the rivers and also it was announced in the interim budget, 100 cities, they are going to extend this HAM model, which they will make sure they are bankable projects. I think there's no dearth of opportunities, as I said before. There's enough in this water sector, which is looking up, and we remain very bullish about...
Can we see in the medium term, few tenders getting closed in India, large tenders?
Why not? Keep your fingers crossed. Yes, it will happen.
The next question is from the line of Ashwini Singh from Stat Fintech Private Limited.
Congratulations on the fantastic results. I have 2 questions, but you have already answered one. So just one question. So I would like to know what is the goal of OBagG where do you see yourself in 3 to 5 years' time in terms of business value, in terms of international expansion and in terms of your business in India?
What is the goal of See, let me tell you and share -- maybe take this opportunity to share a new vision statement which we have given to our colleagues in Waba because it's 100 years. We have talked about as a responsible water company, conserve water. That is a responsibility we have given to ourselves. That means do everything to make sure this limited resource, which we all consider is unlimited, which is not true, it's a myth. It's a very limited resource water, we should conserve it. That's the first target we have given to ourselves. The second we have said is protect environment. because if we do the proper treatment, we use the right technology, we use the green technology, we don't emit out greenhouse gases. All these things, if we do well, we are protecting the environment. That's the second target we have given to ourselves. Third, we all have not realized what is the importance of water for a growing economy, for our GDP growth. That is another emphasis we have brought in -- we have said we are the guys who are going to power the economy. How you are going to power the economy by making sure water is available to commercial and industrial units, uninterrupted, reliable water source at an affordable price. This has been our mantra. So that is what is our contribution to the society.
The next question is from the line of Hardik Ganti from HPMGhares Securities.
Congratulations on a good set of numbers. Just one single query on the big order which we received from Saudi Arabia. So here, the orders number is INR 3,251 crores. So just a small question on that, where that is the whole INR 3,251 crores that will be coming on our books? Or will we be -- is that the contract and we'll be distributing that amount with our other partners who is forming the pipes and infrastructure on the side?
Obviously, we have mentioned that. It's a consortium order. It's not a WA order -- and the other partner is a partner, not a subcontractor. So his revenues will not pass through our books, neither we want it that way that it's a pass-through our books and just to show our top line, we have organized that his revenues will be in his book, our revenue will be in our book. Our order what will be passing through our books will be about INR 1,725 or something... So INR 1,725 crores will be passing through our books and rest of it. So 55-odd percent could pass through our books.
The next question is from the line of Siraj Ram from Ashika Institutional Equities.
In recent times, there are a few listed companies who are making close to 25% EBITDA margin, and they are in similar segment, what we lose. So I understand what can be the take on this? I would like to understand what's your take.
It's on a lighter side, my friend. -- we have to learn from this company. In my 41 years career, we have not seen this kind of thing. So maybe they are doing something which we are not aware of. So maybe they have to answer what they do to make this kind of thing. I think in our business, if you make around 14%, 15% EBITDA, we are doing well with generating free cash flow. That is our aim. That is our target. We are fixed to it. We don't look at what others do. I think it's their business. They know what is their business model.
Got it, sir. Got it. Sir, I understand we have plenty of opportunities in Saudi Arabia and countries. But in U.S., there is something called PFAS initiative that is government as Veolia, Ecolab are grabbing a lot of orders there. So can we expect Wabag also going to bid for those projects anywhere in the future?
If you're talking about U.S., no. We have been very clear and very focused on the direction we want to go and that we will have no change of mind. There's no requirement to change the mind because the business opportunities in the emerging world is tremendous. This developed world, I think we want to stay away from till there is a need that we need to go. As of now, there is no need that we go to the developed...
The next question is from the line of Siddharth Gupta from Minda Global Capital.
I just wanted to ask a question on the O&M part. So since the O&M would be a recurring kind of revenue, right, due to the EPC. So will the margins on the O&M side be higher? Like I understand your guidance for the medium term, but typically, what are the margins of the O&M side after the EC...
Yes, I'll take this question. As you rightly said, O&M is a different business, not like EPC, less risk. And as told you, it is we have a good mix of O&M and EPC and that makes the business sustainable. As far as margin is concerned... Rightfully said, it is more predictable, more in grid. So margin will be slightly higher than the normal EPC. And that is the way we are performing over the years, and we foresee that the similar trend will continue to do. It is definitely better than...
The next question is from the line of from Axis Securities.
So my question is a little subjective. I don't expect a definitive answer to. But we see that there is a lot of order inflow. But are there any constraints on Wabag side, how much you can execute in a particular quarter? Is there an upper limit given that resources like human capital or whatever you need? So is there any conraint?
I would say not at all. If there's a concern, we will not even book the order. It's unfair for a customer that we take the order and don't execute it or don't execute it on time and to the requirement what we have signed the contract. So far, we have grown from a company from a start-up to what we are today as a globally #3. So we have always grown with the orders, and we believe that we have enough strategy in place in recruiting and hiring people, training people, developing them under the NAP, all schemes which government has given us, we do run almost like a university to train water engineers. And so far, it has worked for us, and we are very confident going forward, it will work.
One more thing, I'll leave it for your digestion. See, as the size -- ticket size of the orders are going up, the number of manpower required to execute an order is definitely coming down or per million revenue, the manpower required is definitely coming down. So this is also helping us to focus on a few large orders rather than tens of small orders. This is also making it more efficient and profitable for...
Okay. So the only risk on execution side is possible delays on approvals from customers or unforeseen situations, which are not equal to the business operations. sir?
Let's have a separate session on risk. I don't think we can count in our fingers what are the possible risk. It's not about risk. Life is full of risk. It's your ability, your experience, your past track record in managing this risk. Risks are -- I don't think you can count on your fingers. There are many, many risks, especially in project business. So worst of a company is managing the risk and mitigating those...
The next follow-up question is from the line of Anupam Goswami from SUD Life.
Sir, one question. What is the peak order book that we can go before we stop taking any orders? That is one. And are we selecting or choosing our order? And what are the criteria do we look for when we filter out the order intake?
So naturally, there's no limit to which we can go and stop taking orders. that's not the DNA of Wabag. As we said earlier, we have grown from a start-up to where we are. And from now to grow where we want to grow, I think we are aggressive. We'll remain aggressive, but very disciplined. And that's your second part of your question, what is the criteria you select. Like we have told you a few years back that we don't take state government funded orders. That's one example. We go for multilaterally funded orders. We go for orders which have payment security. We go for orders which have a good cash flow. We go for orders which have an advanced technology. We go for orders which have operation and maintenance revenue. So these are some of the criteria which has been given to our sales and marketing guys. They select the project based on that, not based on the size of project or anything. We remain very disciplined. If something we have to let go, we let go, like Mumbai projects. We decided to let go. We worked on it for 11 years, but we decided to let go because it did not fit into the screen what we have kept. It did not pass through the screen. So I would say, yes, we have a capacity. Yes, we can build further capacity. There's no reason to say no to an order which fits into our screening criteria.
And sir, what is the internal IRR that we look for out of this order?
We work on EBITDA basis. We don't work on IRR that we have given you already 13% to 15% and 9% to 10% at PAT level. This we will maintain.
And sir, last, rest of India, the order book where we see a sharp drop in margins as well as how do we see the pipeline building up over there? And since we have seen a robust Saudi and Middle East orders, how much of a sustainability can we expect out of this? That is also.
Your question is not at all clear to me at least. Can you be very specific what you want to know?
Yes, sir. Sir, I wanted to know on the export orders, how -- what is the run rate or what is the pipeline that we see? Have it built up from what we have seen right now, it is pretty robust. But going forward, how do we see it?
See, we are in the emerging markets. As we said, where infrastructure is required, urbanization is happening. So pipeline is robust, will remain robust for the decades to come, I don't even say years to come, for decades to come. It will remain robust.
The next question is from the line of Sam from ICICI Securities.
So firstly, congratulations on a good set of numbers for this quarter, especially where there was a kind of CapEx dry up in the Q2. My question is on the order that was canceled. I heard that the new tender has opened up, and we have 8 weeks to apply. So if you could just share some color on the scope of the new tender that has come? Will it be the bigger size or what has exactly changed?
See, it just came a few days back. Our team is reviewing the scope and the changes. It's too early to give you what maybe another week, 10 days you give us. After we have reviewed, our teams have analyzed it, we can share that differences.
Okay. Sir, second question is, I understand that we are shifting from an engineering, procurement and construction company to only engineering and procurement company. But we still are into construction of a few orders. So on those orders, do we have a price escalation clause built in the contracts that we enter -- or are we exposed Because...
Our contracts are always long-term contracts, especially in India. Anything more than 18 months, we always have a price escalation built in where the Government of India RBI indices will be the basis and that more or less covers about 70%, 75% of our cost...
Sir, lastly, just one clarification on the consortium order that we have received in our scope. Is there any part of construction that we are doing or it is entirely engineering and procurement?
No, no. The treatment plant, we will do the construction within a boundary of a treatment plant. Anything outside the treatment plant boundary, which is laying of pipelines, constructing of reservoirs, we don't get in there because of all the issues of getting permissions, right of way. So we don't do that. That is what our partner is doing. We will limit ourselves within the boundary.
As there are no further questions, I would now like to hand the conference over to Mr. Mittal for closing comments.
Thank you once again. And friends, thank you for your active participation in this Q3 and 9 months FY '25 earnings call. We have uploaded the analyst presentation in our website. In case you have any further queries, you may get in touch with our Axactor IR team or you can also feel free to get in touch with us directly. Thank you once again. Enjoy the evening.
On behalf of VA Tech Wabag Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.