The company targets touching the €1-billion (₹8,000-crore) mark around the world in the next three years to become the third-largest player in the water business glob-ally. The route seems simple enough: Completion of its order book and a few new ones in the next two-and-a-half to three years (the average duration for the completion of a project).

But analysts like Ishpreet Kaur, assistant portfolio manager at KarmaCapital, contend that the target is somewhat optimistic given the company’s guidance of 20% growth in FY21. “Even if we assume the company grows at 20% in the next three years, it is unlikely to touch the€1-billion mark. It will need to grow at a compounded annual growth rate of 30% to 40%, which seems a little difficult in the current slowdown,’’ adds Kaur. (The company says that it is difficult to comment on the impact of Covid-19 at this point of time.)

But she also notes that the past three quarters have shown improvements in revenues and profitability. Kaur expects revenues to grow by20%, profits after tax by 30% to 40%, and EPC contracts 3.9 times in the next 12 months. “The ₹550 crore stuck in the APGENCO [Andhra Pradesh Power Generation Corp.]case too is likely to be released in the next 12 to 18 months easing its working capital needs,’’ adds Kaur.WABAG’s money was blocked, despite completing the project, for two reasons. One, the Jagan Mohan Reddy(the current chief minister) government of Andhra Pradesh decided to review all the projects of the previous regime (under Chandrababu Naidu). Two, the problem was compounded because consortium partners, Tech-pro and Gammon, went bankrupt.

The company is also looking in-wards to meet its ambitious goals. For instance, till 2015, it was divided into business-led units: Municipal Busi-ness Group, Industrial Water BusinessGroup, Operations Business Group, and International Business Group. Then it changed its organisational structure, dividing the company into four clusters with Pankaj Sachdeva heading the India cluster (India and Southeast Asia business), Deep Raj Saxena (Middle East and Africa), and a three-member team of Erwin Moetz, Arnold Gmuender, and Mahmut Gedak heading the European business; the company has yet to appoint a head for its Latin American cluster. Mittal heads overall operations.

At the same time, WABAG is aware that it cannot match the revenues of the two top global players, Veolia and Suez, both from France. “They are asset-heavy companies that are into mergers and acquisitions, buying and selling entire utility facilities while VATech WABAG follows an asset-light strategy,” says Chopra. Its goal is to be No. 3 in terms of technology, the number of people served, and plants set up across the world.

In keeping with its asset-light strategy, even though water is a local business and run by municipalities, the company only bids for projects which are either funded by central governments or multilateral funding agencies (like World Bank or JICA) which have sovereign guarantees from the central government. Explains Mittal: “If you look at the top 10 to 20 projects in our order book, we have taken risks on multilateral funding agencies or on central governments and not on states.’’ Even in the countries of Africa, the “company prefers orders backed by renowned funding agencies to ensure that our receivables are secure’,’ says Chopra.

For instance, the ₹244.6-crore water supply system project in Bhagalpur, Bihar, being executed by WABAG, is funded by the Asian Development Bank. Similarly, all Delhi Jal Board projects are financed by JICA, and the Namami Gange projects by theWorld Bank.

Again, most of the initial funding is in the form of bank guarantees and not actual cash transfers. Even for bidding, every company has to provide a “bid guarantee” from the bank—1% to 2% of the total bid value—to prevent them from walking out after a win. Similarly, winners have to provide a “performance guarantee” from the bank, agreeing to meet the quality, quantity, and timeline set by the clients, says Mittal, whose focus is the emerging markets of Asia, Africa, and Latin America—they do not bid for European projects.“We can build both desalination and waste water plants at one-fifth the cost of any European player at similar levels of technology because of lower overhead and operational costs.’’

Though the world is its stage, India and its perennial water crisis is a priority for WABAG. After all, desalination plants are an obvious solution given the country has a 7,600km-long coastline which provides a reliable, sustainable, and continuous supply of water. Here, Varadarajan points to the importance of the government working in tandem with the private sector for greater effectiveness. “While it makes sense to set up low-cost desalination plants in states suffering from acute water shortage, the government too needs to plug the leakages in the pipelines, set up a national water grid, and an all-India network of pipes so that water can be distributed to other states as well,” says Varadarajan.

The right pricing of water through proper metering is essential, so that the valuable resource is not wasted, says Chopra. As important, says the government's think tank, NITI Aayog, is for any such plant to get all the environmental clearances needed to prevent the concentration of salt in one place, thus threatening marine life.

The fact, however, is that the water crisis will only aggravate as urbanisation picks up speed. Also, according to World Bank statistics, by 2050,70% to 80% of the population will be living in cities, thereby compounding the civic crisis around the world.

WABAG has its head in the game.

Take Chennai as a case study where, apart from the Nemmeli desalination plant, around 25 km from the city centre is the company’s tertiary treatment water plant in Koyambedu, which converts 56 MLD of treated municipal effluents into 30 MLD of industrial water. Treated water from a sewage treatment plant, located one km away, passes through a multistage filtration process using high-end technologies like ultrafiltration and reverse osmosis to achieve potable quality water. This is supplied to the industrial cluster at Irungattukottai, Sriperumbudur, and Oragadamthrough a 68-km long pipe.

Varadarajan contends that the water from this plant is of higher quality than the benchmark set for drinking water by the World Health Organization. “Their norm is 150 ppm of TDS (total dissolved solids) and our upward limit is only 70 ppm. But we are producing water with 35 to 40ppm,’’ says Varadarajan. Similar water is used for drinking even in developed countries like Singapore.

The opportunities are evident since India has barely scratched the surface in terms of treatment of waste water. According to a study by NITI Aayog, India produces nearly 62,000 MLD of waste water and only 37% is getting treated. However, the business faces many challenges too. “Working capital can always become an issue if a company does not get money on time because one is dealing with governments and multilateral agencies,’’ says Sumit Chandwani, managing partner at Arth Equity Advisors, a private equity firm, and a former WABAG employee.

Secondly, since projects are granted on lowest-cost basis, it is crucial to complete them within budgets and in the stipulated timeline. “So execution is key, not just because companies work on thin margins. But every treatment plant has to be unique because effluents are different from state to state and industry to industry,’’ says Chandwani. The margins on engineering, procurement and construction of plants are barely 8%-9%, and around 20% on operation and maintenance.

That level of efficiency, then, works for a player for whom the mantra is“execution, execution and execution”.WABAG clearly has the necessary skill sets, track record, and technology: At this point, it is on Mittal to decide how fast he wants his company to grow and to what extent it wants to become involved in mitigating the country's water crisis.

(This story was originally published in the April 2020 issue of the magazine.)

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