VA Tech Wabag Limited (WABAG) Earnings Call Transcript

Good evening, and welcome, everyone, to this Earnings Call Post Announcement of Q1 FY '27 Results of VA Tech Wabag Limited. On the call today from the management team, we have Mr. Skandaprasad Seetharaman, 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 uncertainties, 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. Skandaprasad Seetharaman to take you through the key business highlights. Thank you, and over to you, sir.

Thank you, Agrat. Good evening, ladies and gentlemen. We extend a very warm welcome to all of you to the earnings call following the announcement of Q1 FY '27 results of VA Tech Wabag 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 FY '27 on a strong footing across all 3 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 Wabag's technology, engineering capabilities and execution experience provide a clear competitive advantage while maintaining discipline on risk and payment security. The MEA region continues to emerge as an important growth engine for Wabag 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 Byramangala and Bellandur, along with Mitraon project from DJB 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 reinforces 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 Perur desalination project in Chennai, 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, GAIL, BPCL and CPCL are progressing per plan. In Europe, the team have already started to progress on the Kutaisi 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-CNG, 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 INR 887 crores, registering a growth of 20.8% year-over-year. EBITDA stood at INR 116 crores, growing by 21.7% year-over-year with an EBITDA margin of over 13%. PAT stood at INR 90 crores, 9-0, registering a profitable growth of almost 37% year-over-year with an improved PAT margin at 10.2%. At the stand-alone level, revenue from operations stood at INR 739 crores, growing by over 15% year-over-year. Stand-alone EBITDA increased by over 22% -- 21%, sorry, to INR 105 crores and stand-alone PAT increased by over 30% year-over-year to reach INR 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 INR 965 crores as of this quarter. Net working capital days for the period stood at 108 days. We continue 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 INR 34 billion, over INR 3,400 crores, of which about INR 29.6 billion was EPC and INR 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 INR 194 billion, that is INR 19,400 crores, almost $1.8 billion, which is over 4x 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-light, 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 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 to Rohan to share his perspective on the MEA 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 MEA market. The Middle East and Africa regions continue to be strategically important for Wabag, 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 are 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 the 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. Wabag has been associated with the Middle East for more than 4 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 GCC presence. The progress we made during this quarter is an important step in that direction. Let me begin with Kuwait. During the quarter, Wabag secured a landmark 60 MIGD 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 HEISCO, a leading Kuwaiti engineering and construction company. For Wabag, 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 desal an area where Wabag has built considerably 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 HEISCO combines Wabag's water technology and engineering capability with a local strong execution experience. The second most important development during the quarter was our Ajman STP win in the UAE. We were awarded the third phase of the 60 MLD 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 Wabag, Ajman is strategically significant, strengthening our UAE presence and positioning us for opportunities across municipal water -- municipal wastewater, industrial water, reuse and desalination. Our entry into Kuwait and the UAE reflects our broader GCC 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 Ras Tanura Industrial Wastewater Treatment, all our major equipments have been delivered. Installation is complete and the plant has entered decommissioning phase. Our Al Haer wastewater treatment project is also progressing well with engineering and procurement largely complete and installation activities are underway. Executed through a One Wabag model involving our India, Turkey and Saudi team, the project has demonstrated strong engineering execution and quality capabilities. Our O&M portfolio continues to deliver strong performance at BAPCO, wherein nearly 1 year into operations, we have consistently met effluent standards, reduced energy consumption, achieved 0 LTI and maintain uninterrupted operations, including during force majeure conditions, earning client appreciation. In Oman, our 6 MLD Duqm SWRO plant has operated successfully for almost 2 years. In Qatar, our O&M project has received Qatar's 5-star Safety and Environment Certification for 3 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 MEA pipeline remains healthy across desalination, wastewater treatment, reuse and industrial water. 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 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 East and 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 Wabagites for their continued trust and support. With this, we can now move to the interactive question-and-answer session. Over to the moderator.

[Operator Instructions] The first question is from the line of Vaibhav Shah from JM Financial.

Firstly on the gross margins, we have seen some correction in the first quarter on a Y-o-Y 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 [ sales ] provisions over there?

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. There 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 have -- 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 as well.

Okay. Sir, secondly, we have seen that there is a profit on associates of almost INR 5.5 crores in the first quarter. So from which subsidiary is it 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 construction part.

Okay. Okay. And sir, any slow-moving orders in the backlog? And what portion of the current backlog would be currently under execution?

See, we had 2 framework orders, Vaibhav, if you recollect. And we have prudently removed both the framework orders, though they are confirmed orders signed, waiting for effectiveness. So today, the INR 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 nonmoving orders today.

And sir, lastly on 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 are considering the growth that we are expecting over the next few years, we've 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 endeavor will remain that this is further brought down. You can already see in the last 3 years how the working capital days have moved from 130 to -- 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, 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 3 months of working capital into the business, how do we even grow.

[Operator Instructions] We will take our next question from the line of Kishore Kumar from Unifi Capital.

Sir, my first question is on the execution. So we almost received more than INR 6,000 crores orders in the last couple of quarters. How do you see the execution given the challenges in the Middle East because the rest of the market contributes close to 50% in the order backlog now. And I think we import a lot of equipment for the EPC business that we do in the Middle East. So how confident are we in the execution in the coming quarters? 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 2, 3 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 strike 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 3 quarters or more, even despite these events, our projects have been progressing well, and this is what Rohan also mentioned during his opening remarks. Second, yes, all events bring different kind of challenges, whether in terms of price, whether in terms of supply chain, whether in terms of -- on various pace of activity, which I think with our historical record, we have seen -- we have been able to manage it well, and I'm sure we will manage this also. Such events also have to be seen from the lens of force majeure because some of these events will create situations where 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 at an amicable solution. So in summary, projects are progressing well. The new projects are also moving at the pace at which we believe they are good to move considering the backdrop that we have. And we don't have any material concerns at this point in time as far as our international revenues are concerned.

Got it, sir. Got it. The second question is a follow-up to the previous participant's 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 has the gains in second quarter being realized or it's more of an accounting entry that we did? Just want to understand this [ with peer].

See Kishore, there are 2 types of gains, as you rightly said. There are transaction gains and there are translation gains. Translation is usually what happens through the translation reserve that doesn't get passed through the balance sheet -- sorry, pass through the P&L, it only gets passed through the balance sheet. These are all gains 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 the 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 or losses are part of our operational results.

Next question is from the line of Sudarshan Padmanabhan from ASK NDPMS.

My question is even if I look at the quality of orders that you have got in this quarter, one, is specifically on Vienna Water Works we have been able to get towards this high-end drinking water. And this is something very unique in terms of moving up the capability curve for us. So if you can give a little bit more color about do we see more inquiries around similar kind of capabilities where we move up the value chain. And now that this side of the developed market is opening 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 a demand?

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 Wabag is a 100-plus year-old brand. And our core is technology-led water infrastructure. We are a technology system integrator, not a 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 a 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 Reliance. These are cocktail of effluents, which we will treat. We have Ras Tanura refinery in Saudi Arabia, again, a very, very complex project. So that way, all the projects that we do irrespective of the region, always passes through this filter of advanced technology. There is no -- we don't do run-of-the-mill projects per se. And then -- and all these projects apply our technologies. We have over 125 IP rights, which we internally develop through our R&D and utilize in our projects. On developing the developed markets, I think this is something where we have taken a cautiously optimistic view. 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. So this we will continue to pursue. As we said, we will be selective in this region, but we will remain active in this region as we have done even in the past.

Sure, sir. Sir, my second question is incrementally, we are receiving a lot more orders from the international business. So if you can give us some color with respect to what is the execution time line vis-a-vis what it is with India or even the execution time lines and the contours vis-a-vis what we used to do, say, a year ago. So that would give us a little bit more insights towards the margins as well as the time lines of the execution.

When it comes to, again, India or outside, it depends on the complexity of the order. But generally, the orders outside India are faster. These are more, I would say, more defined, the time lines. 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 fast -- the better it is for the developer and the EPC contractor. So our iota would be to finish the project faster outside. Hence, you will see a more, I would say, not much, but maximum of 6 months faster, I think, execution time lines 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 time lines that we see.

Next question is from the line of Dhananjay Mishra from Centrum Broking.

You mentioned that we are going to focus more on Industrial segment. And in our order backlog, it is about 12% to 13% at present and it used to be more than 20% 2 to 3 years. So which area and which segment you are going to focus and geography-wise you can give some color on that?

See, Dhananjay, 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 would see the last few orders where we have taken either from Reliance or from GAIL in PATA or from BPCL for their Bina refinery, the Ras Tanura 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 will -- this has remained our core market, whether you talk about Aramco, whether you talk about PETRONAS, OMV, 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, semiconductors, hydrogen. Here, we have repeated that these are decadal views that you have to take. This is not something that over the next 1 or 2 years that will become a significant share of the Industrial segment. But I'm sure over a period of 3, 5, 7 years, this will become a meaningful part of the industrial mix, 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, ultrapure 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 to be around 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 there.

And secondly, sir, in Q1 order inflow, we have categorized the -- niche of the orders 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. Earlier we used to give this EPC backlog or EP 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, with 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, it's a Design, Build, Operate. 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 -- since construction is a pass-through, effectively, our margins are made only from design and build.

Next question is from the line of Sailesh Raja from 360 ONE Capital Market.

Sir, we have seen single-digit 7% Y-o-Y 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? By when we can achieve 20% of revenue? Also, can you update on this Kodungaiyur project? Have you started our refurbishment work?

Thank you, Sailesh. I think, yes, you are right. On the O&M, the growth has been about 7% Y-o-Y. 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 Ghaziabad project. So that is now into O&M. We have [indiscernible], which is completed that is into O&M. Next year, we will see Perur. Kodungaiyur will go into 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 2-, 3-year angle rather than merely 1 year because there will be [indiscernible] in the growth. Your question on what is happening at Kodungaiyur. Kodungaiyur, we have signed the agreement. We also have submitted the project report to the PE. 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 through -- and after that, it's a 20-year project, 1.5 years of refurbishment phase along with O&M, followed by full operation for 18.5-year period. So anytime soon, we will start the refurbishment, Sailesh.

Okay. Sir, my second question, Saudi Arabia has been one of the biggest growth market for Wabag. So has there been any change in the tender pipeline or project award scheduling in Saudi Arabia? So what is the status of this IST project and also opportunity for us in the LTOM, sir?

I believe Saudi, I don't think the effect of the war has been so much and water being a critical part of 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 agricultural and beautification reasons of the wastewater. So I don't think there has been any slowdown. We are in touch with the client. So yes, we are seeing newer and newer projects. We are seeing Sharaqat, which is one of the main customers for us, they were called SWPC before. They have announced that a series of projects that are going to come out. And also to reinsure 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 tenders, which we are actively pursuing. So as far as the market, if you take the perspective of it, there is nothing that is slowing down. 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.

The status of LTOM sir?

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 Wabag has already -- Wabag already has a first advantage of getting into these projects.

Next question is from the line of [ Krish Salot from Veer Growth AIF ].

Sir, most of my questions, I think questions were answered. I just wanted to understand as we are moving more towards international projects, there will be competition from other large players, where they would also have a similar kind of design know-how as well. So on ground look 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 shed some light on that?

Yes. So on the international, if you see the majority of Middle East and 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 4 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 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 bid. On the domestic.

Yes. On the domestic front, I think we have seen traction now coming after many quarters of flood. You've seen over the last 3, 4 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 order flow continues to remain from outside India, and that is why we've also made our strategy in line and also focus our resources on the international markets. While India will remain a very strong part of Wabag 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 as international markets.

Also, sir, on the margin front it looks like we are seeing on a year-on-year basis on our international PBT has fallen -- and I understand it could be because of the product mix and EPC -- construction mix will be higher. But however, on the overall project front, what kind of margins you can see in international markets and as well different projects in 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 EP, EPC 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, we have -- you have seen in the last 3 years, 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 tenure of the medium-term outlook. Currently, we are working on the next long-term strategy, which is Wriddhi 2.0. And I'm sure in the Annual Investor Meet when we meet for FY '27 in May next year, we'll be able to present to the investors our strategy for the next 5 years. I'm sure you 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 5 years, where you will see growth, especially profitable growth and cash back growth will remain our focus.

Next question is from the line of Mihir Vyas from 9 Rays EquiResearch.

Sir, on our operational margins, they are down from 15.8% in Q1 FY '26 to 8.9% in Q1 FY '27 without taking into account ForEx gains and losses. Do we expect these margins to improve going ahead?

Mihir, we don't understand the vocab 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 nonoperational 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 asset 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 would see on year-on-year basis, we have grown.

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 3, 4, 5 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 situation. 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 our 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 equipment 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 PCFC. So we generally don't have any significant unhedged components of our cash.

Next question is from the line of Amit Jain from Monarch Networth Capital Limited.

Just want to understand as a technology company, if you can provide more details on your R&D expense and new patent filings?

See, Amit, this is a continuous process. 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, deammonification:50, the newer issues like PPAS, membrane crystallization. So we do all of these activities, but we would prefer not to give too much of details around it.

And second, sir, does these patents or IP rights help us how does it help us in winning or winning key projects? Sir, if you can give 1 or 2 instances, if you can just -- just to understand it better.

I think, Amit, like there are multiple 125 IP rights. One of them we frequently use is something that we have, which we use it only for our captive use is flat valves. 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 STP, where you have a filtration before the water going to the RO. We use our own patented technology of flat valves. 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 the product companies. We have many like this, but if you ask for an example, I think this is the example that we have.

[Operator Instructions] We will take our next question from the line of Shubham Borade from ICICI Securities.

Congrats on good set of numbers. So I have a very simple question. We have a record order book of INR 194 billion. So how much on a conservative basis we can see execution in the next 3 quarters?

See we have already guided for a 15% to 20% growth, Shubham, and we are confident of meeting that. And I'm sure you know that our endeavor will always remain to be better than what we promised. So I think enough said.

Next question is from the line of Parth Thakkar from JM Financial.

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, keeping that around $2 billion, $3 billion. 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 the consultant stage. So I think that's the kind of market that we look at. In India, we somewhat see around, say, INR 1 billion, INR 1.5 billion. I think that's the kind of size that India domestic gives us. So I mean, broadly, that is the size. Parth, at any point in time across regions, if you see between Middle East, Africa and India, we follow projects, which are anywhere between INR 2 billion to INR 3 billion, right, roughly INR 20,000 crores, INR 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, selectively targeting projects, which are a fit for what our organization need. So that's the kind of pipeline that we generally follow across India, Middle East, Africa and the regions that we work.