Poll Risk Spurs Wabag Asia to Africa Order Hunt: Corporate IndiaArchana Chaudhary
VA Tech Wabag Ltd., India’s biggest water-treatment company, will focus on overseas contracts to maintain 30 percent order growth as a looming general election slows projects at home.
Foreign customers spanning nations from Oman to Egypt to the Philippines will account for half the company’s orders over the next two years from about 40 percent currently, Rajiv Mittal, Wabag’s managing director, said in an interview. In India, the election due by May will prevent bureaucrats from authorizing investment projects, he said.
“The settling of the new government will take time,” Mittal, 53, said in a telephone interview from Wabag’s base in Chennai in southern India’s Tamil Nadu state. “We will focus on other geographies. This being an election year, decision making will be slower in India.”
Mittal said Wabag will scour Africa, the Middle East, Latin America and Asia, seeking to escape poll uncertainty in India where more than $160 billion of infrastructure projects are stalled awaiting approvals. While the rupee’s drop in the past year may help the company, Wabag faces larger international rivals in a global water treatment and distribution market that Veolia Environnement SA estimates is worth about 400 billion euros ($543 billion).
The company booked more than 30 billion rupees ($487 million) of orders in April through January, up 30 percent from the whole of the fiscal year ended March 2013, Mittal said.
Wabag is striving for Indian contracts before the announcement of poll dates, he said. The election commission imposes a code of conduct that prevents governments from sanctioning new projects once election dates are announced.
Wabag reported 174.2 million rupees profit in the three months through Sept. 30, less than the 207 million-rupee median of seven analysts’ estimates compiled by Bloomberg. The shares have slipped 9.4 percent in the past year, trailing the 5.7 percent rise in the benchmark S&P BSE Sensex index.
Unlike rivals in the developed world, Wabag’s base in India provides an “effective cost structure and their track record shows they will win margin-accretive orders,” said Raj P. Gokul, Bangalore-based analyst at HBJ Capital Services Ltd.
Wabag, a former unit of Siemens AG, said Jan. 10 that it won a $40 million contract to build a 130 million-liter (34 million-gallon) a day plant in Tanzania. The company is building a 192 million-liter a day desalination plant in Muscat, Oman by December 2014, Mittal said.
It has sold treatment plants to Reliance Industries Ltd. and Adani Enterprises Ltd. among Indian groups.
The falling cost of water desalination has opened up a larger market for using treated seawater across India and overseas, Mittal said. Wabag operates a 100 million-liters a day desalination plant at Nemmeli in Chennai.
The Indian company’s global competitors include Suez Environnement Co. and Veolia, both based in Paris. Suez and Veolia have won water and sewage treatment contracts in Asia’s third-biggest economy, in the cities of Pune and Nagpur in western Maharashtra state.
About 360 million people in Indian cities need almost 50 billion liters of municipal water every day, according to a report by the Central Pollution Control Board. That will more than double to 110 billion liters by 2050 as the number living in the nation’s towns and cities exceeds 800 million, it said.
One risk to India’s ability to afford enough sewage and desalination plants may lie with regional politicians offering free water to court support before polls, according to Mittal.
In the national capital region of Delhi, the one-year-old Aam Aadmi Party took power after pledging to fight corruption and offering each household 700 liters of free water.
Shiv Sena, the party which runs the municipal government of Mumbai, has offered to supply 1,075 liters of free water to every home, the Economic Times reported on Jan. 7.
“There is nothing free in this world,” said Mittal. “Every party has the responsibility to give service to people and if they cannot build new projects, if they cannot give more water, how can they serve people?”