Systematix Bullish on Water EPC

Systematix Institutional Equities has turned bullish on India's water engineering, procurement, and construction (EPC) sector. The brokerage cited long-term structural drivers and significant under-penetration in wastewater treatment as key reasons for its positive outlook. This optimism led to the initiation of 'Buy' ratings on two prominent players.

Key Companies Rated 'Buy'

Systematix initiated coverage on VA Tech Wabag and Enviro Infra Engineers (EIEL) with 'Buy' recommendations. The firm highlighted strong growth prospects for companies strategically positioned across the water treatment value chain. VA Tech Wabag received a target price of ₹1,840, suggesting a potential 53% upside, while EIEL was assigned a target of ₹346, implying an 83% gain, both based on FY28 earnings estimates.

Drivers of Sector Growth

Analysts pointed to India's escalating water stress and low wastewater treatment capacity as critical factors. The increasing adoption of advanced treatment technologies further underpins the bullish sector outlook. Globally, a growing water shortage presents a substantial structural opportunity for water and wastewater treatment industries, with projections indicating significant market expansion.

Global Market Potential

According to Precedence Research, the global water and wastewater treatment market, currently valued at approximately $347.9 billion, is forecast to grow at a 6.5% compound annual growth rate. This expansion is expected to push the market to $652.3 billion by 2034. Key drivers include ongoing urbanization, industrial growth, and more stringent environmental regulations worldwide.

VA Tech Wabag's Strengths

Systematix views VA Tech Wabag as well-positioned to capitalize on the water EPC upcycle. The company boasts end-to-end capabilities in desalination, drinking water, and industrial wastewater treatment. Its strong order book, standing at about ₹160 billion (4.9 times FY25 revenue), provides multi-year revenue visibility.

Growth Prospects for VA Tech Wabag

The brokerage anticipates steady order inflows for VA Tech Wabag over the next three years. This growth will be supported by a shift towards higher-margin projects and an increasing contribution from operations and maintenance (O&M), which targets around 20% of revenue. The company's 'Wriddhi' strategy has also enhanced margins and maintained a net cash position for 11 consecutive quarters. International markets, particularly MENA, offer opportunities for large desalination projects.

Enviro Infra Engineers' Position

Enviro Infra Engineers is identified as a key beneficiary of rising investments in India's sewage and wastewater infrastructure. Systematix highlighted the company's strong execution capabilities in sewage treatment plants (STPs), common effluent treatment plants (CETPs), and water treatment plants (WTPs). An expanding geographic footprint is also a notable positive.

EIEL's Order Book and Expansion

Enviro Infra Engineers holds an EPC order book of approximately ₹18.8 billion, nearly 1.8 times its FY25 revenue. Management projects a 35-40% revenue CAGR over the next three to four years. The company is actively expanding into new markets like Bihar, Delhi, and southern India, backed by a substantial bidding pipeline.

Outlook for EIEL

Systematix expects strong order inflows for EIEL, with significant secured orders for FY26 and ambitious targets for FY27. The company's Ebitda margins are projected to remain healthy, guided between 22-24% over the medium term. Entry into the renewables sector is also anticipated to diversify earnings. Valuing the stock at 15 times FY28 earnings, Systematix initiated coverage with a 'Buy' rating and a ₹346 target.