22:26 Apr 23, 2014  

Va Tech Wabag Ltd

HSL Code: VATECH   |   BSE Code: 533269  |   NSE Symbol: WABAG  |   ISIN: INE956G01038
23 Apr 2014 | 16:00
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"WABAG’s strength lies in its proven engineering capabilities"

Dear Shareholders,

I am pleased to present the Annual Report 2012-13 with the overarching observation that the bigger the challenge, the more spirited was our response.

During an adverse economic environment, when most municipal bodies and industrial clients were inclined to prune their spending, WABAG performed creditably across all critical financial parameters. During the year under review, when consolidation would have been a natural response for most companies, WABAG strengthened its business and is now attractively positioned to widen its presence across geographies in a rapidly growing sector.

Global perspective

The global economic environment in FY2012-13 continued to be challenging and our business environment remained difficult. Major economies witnessed slower growth and the Eurozone uncertainties continued. But the contextual framework of WABAG`s business continues to be relevant.

Based on inputs derived from expert international agencies, it appears that the world is witnessing a peak water demand. The long-term supply outlook appears gloomy marked by insufficient freshwater, uneven distribution, varying quality, water losses and climate change. On the other hand, water demand is expected to exceed supply by around 40% over the next 20 years following an increase in agricultural, industrial and municipal/residential usage. Unless sustainable water management practices are adopted with urgency, there is a visible likelihood that around 45% of the projected 2050 global GDP (at 2000 prices) - USD63tn could be at risk. As a result, water is no longer going to be incidental to global growth; quite like oil in the early Seventies, it is going to increasingly determine whether countries or communities will grow or not.

This makes the water treatment business central to the progress of the world.

WABAG is attractively placed to address this global reality. Your Company continues to grow its presence in the North Africa, Middle East, China, Europe and South East Asia. During the year, the Company incorporated a subsidiary in Spain through which it plans to address regional and LatAm desalination opportunities. Your Company leverages its rich intellectual capital, passioneering culture, competence in managing project scale and complexity supported by a strong balance sheet to grow its business in a sustainable way. The successful completion of large and complex plants within the project period also gives me the confidence that your Company will now qualify to participate in large projects in every category to address the growing opportunities of the future.

The India opportunity

India is one of the most vulnerable countries in the area of water security. The country accounts for around 17% of the global population but a mere 4% of the world`s water resources.

Of the average annual 1, 869 billion cubic metre (BCM) of available water in India, only 1, 120 BCM is available for consumption. Besides, the reality is only expected to worsen; the country has arrived at a point where personal and industrial consumption are rising on the one hand while water availability is beginning to taper on the other. Besides, rising temperature and fast drying of snow-fed rivers are causing increasing concern. It is only a matter of time before water availability becomes a critical survival determinant and possibly even a core manifesto agenda in the run-up to elections.

Even from an Indian perspective, the answer clearly lies in effective wastewater treatment (physical, chemical and biological treatments) leading to the generation of recycled water for non-potable applications and ground recharge. What is heartening is that the government of the day appears to have recognised this reality through its policy urgency and direction. For instance, the National Water Policy (2012) has prioritised and ensured the economic usage of water, focused on development of urban water supplies and sewage treatment schemes, encouraged water recycling and reuse, developed a mechanism for the implementation of a remunerative water tariff system, incentivised the reuse of water, evolved from its role as a service provider to that of a service regulator, introduced the PPP model to the sector and encouraged desalination in coastal states.

The Twelfth Five Year Plan increased the outlay for Rural Domestic Water Supply from Rs. 110, 000 crores in the Eleventh Five Year Plan to Rs. 331, 091 crore in the Twelfth Five Year Plan.

The NIJNNURM scheme to be implemented between 2012 and 2031 envisages a total capital expenditure of Rs. 39. 2 lac crores, with water, sewerage and waste management accounting for a high 20% of the expenditure and operation and maintenance expenditure estimated at a staggering Rs. 19. 9 lac crores across the scheme tenure. Correspondingly, Central Government funding to NIJNNURM is expected to increase from 0. 10% to 0. 25% of GDP.

The Company possesses an unmatched track record of having delivered more than 2, 250 projects over the last three decades. The Company`s intellectual capital is reflected in its ownership of more than 100 patents, translating into tangible project achievements, lower costs and a diversified client profile. Besides, the Company enjoys local presence in emerging economies, which makes it possible to position the Company as a local one and carve out projects with a higher strike rate when announced.

A report that McKinsey helped to write predicted that India would need to double its water-generation capacity by the year 2030 to meet the demands of its surging population.

I am confident that WABAG will reinforce its positioning as a preferred water management solutions provider across the world, enhancing value for customers, employees, shareholders and communities at large.

I would like to thank all our colleagues in India and around the world for their hard work and contribution in WABAG`s success. I look forward to their continued support as we strive to make WABAG even stronger. I also take this opportunity to express my gratitude to all our stakeholders who have reposed trust in WABAG. Together, let us focus on delivering world-class plants to our customers globally.




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