India has 18% of the world's population but only around 4% of its freshwater resources. At the same time, industries are expanding, cities are growing, and a new wave of water-intensive businesses like hyperscale data centres is coming up.
The result?
Wastewater is no longer just waste. It is becoming one of India's most valuable resources. For years, the wastewater treatment industry largely depended on government spending.
But something important is changing.
Apart from the government's capex cycle, a completely new demand driver has emerged: Data Centres.
These facilities require massive quantities of pure water for cooling systems. Since freshwater availability is becoming increasingly constrained, treated and recycled wastewater is gradually becoming the only scalable solution.
This means the industry is no longer dependent on just government orders. It now has both policy-driven and structural demand supporting growth.
According to Modor Intelligence, India's water and wastewater treatment market is expected to grow at a 9.62% CAGR between 2026 and 2032.
Why is this industry growing so fast?
Multiple long-term drivers are working together.
Freshwater scarcity is becoming a serious challenge across India.
Governments are tightening environmental norms, especially around Zero Liquid Discharge (ZLD) for industries.
Large schemes like AMRUT 2.0 are increasing investments in urban water infrastructure.
Industries are increasingly recycling wastewater instead of depending on freshwater.
And now, AI infrastructure and hyperscale data centres are creating an entirely new demand pool.
Instead of treating wastewater as something to dispose of, companies are now treating it as an alternative source of fresh water. That is a structural shift. To understand the sector better, let’s first decode its business models.
Understanding the Business Models:
Before analysing any company in this sector, it's important to understand how these businesses actually make money.
1. EPC (Engineering, Procurement & Construction)
This is the traditional project execution model. The company designs and builds the treatment plant and hands it over after completion. Margins generally range around:
15-30% in industrial/private projects
10-12% in government or municipal projects
Revenue depends on winning new projects continuously.
2. O&M (Operations & Maintenance)
Here, the plant has already been built. The company simply operates and maintains it under long-term contracts, often lasting 10-20 years. Margins are comparatively lower.
However, this creates highly recurring, annuity-like cash flows, making earnings far more predictable.
3. HAM (Hybrid Annuity Model)
HAM combines both EPC and long-term operations into a single project. The company builds the plant and then continues operating it. Among the three business models, HAM generally offers the highest profitability while also providing long-term revenue visibility.
Let's Look At One Of The Biggest Players: Va Tech Wabag
VA Tech Wabag is one of the world's leading pure-play water technology companies. Unlike diversified engineering companies, WABAG focuses entirely on water treatment and wastewater management.
Its business spans:
Drinking water treatment
Sewage treatment
Industrial wastewater treatment
Water recycling & reuse
Desalination
Zero Liquid Discharge (ZLD)
Sludge treatment
Energy recovery solutions
The company executes projects across multiple business models including EPC, O&M, DBO, BOOT and HAM.
Global Scale That Often Goes Unnoticed:
WABAG is among the Top 3 private water operators globally. Today the company has operations across 25+ countries and serves more than 96 million people worldwide. Its execution track record is massive:
329 Drinking Water Treatment Plants
497 Sewage Treatment Plants
352 Industrial Water Treatment Plants
176 Industrial Wastewater Plants
72 Desalination Plants
77 Sludge Treatment Plants
Around 73 Water Recycle & Reuse Plants
98 Operational O&M Plants
Unlike many engineering companies, WABAG follows an asset-light, technology-focused business model, combining both EPC and O&M across municipal and industrial customers.
Execution Continues To Improve:
One of the biggest positives from Q1 FY27 wasn't just revenue growth. It was management delivering almost every medium-term target they had previously committed.
Medium-Term Targets vs Delivery:
Order Book: Target was 3x annual revenue. Current order book stands at more than 4x revenue.
Revenue CAGR Guidance (15-20%): FY26 delivered close to 20% growth, reaching the upper end of guidance.
EBITDA Margin Guidance (13-15%): Delivered 13.3%
ROCE Target (>20%): Currently approaching 19-20%
O&M Mix: Target is increasing contribution from 17% to 20%, and management reiterated they remain on track.
The company also reported:
FY26 Order Intake: ₹7,500 crore (vs ₹5,700 crore last year)
Closing Order Book: ₹17,200 crore, up 26% YoY
Management repeatedly highlighted two things during the earnings call: "Robust revenue visibility." And equally importantly, "Robust pipeline visibility."
Another strength is how diversified WABAG's business has become.
Revenue Mix (Q1 FY27):
EPC: 83%
O&M: 17%
Customer Mix
Municipal: 80%
Industrial: 20%
Geographic Mix
India: ~50%
Rest of World: ~50%
This diversification reduces dependence on any single geography or customer category.
Management's Big Bet: Manufactured Water:
Perhaps the most interesting takeaway from the recent earnings call was management repeatedly talking about "Manufactured Water." Managing Director Rajiv Mittal explained that future water security will largely come from two permanent sources.
1. Desalination
Unlike rivers or reservoirs, the sea doesn't run dry. Management described desalination as a drought-proof source of water.
2. Water Reuse
His second point was even more interesting. "As long as people exist, wastewater will continue to be generated." In other words,
Used water is becoming a renewable resource.
He also challenged one of the biggest misconceptions around desalination. According to management,
Desalinated water costs roughly 8 paise per litre
Recycled water costs around 5-6 paise per litre
Both are significantly cheaper than bottled drinking water.
An Asset-Light Business Built On Technology:
Another interesting aspect of WABAG is that it doesn't spend heavily on manufacturing facilities or equipment.
Management repeatedly highlighted that the company's biggest assets are:
Its engineering talent
Its proprietary technology
Its intellectual property and patents
That allows the business to remain capital efficient while still competing globally.
The Middle East Could Become The Next Growth Engine:
Another opportunity management highlighted is the Gulf Cooperation Council (GCC) region. The company estimates this market could see nearly $5 billion of annual opportunities over the next decade.
Saudi Arabia alone is witnessing massive investments under Vision 2030, supported by infrastructure development ahead of the 2034 FIFA World Cup. Growth opportunities are also emerging across Oman Vision 2040 and urbanisation projects across the GCC.
For a company that already has strong international execution capabilities, this could become another meaningful growth driver over the coming years.
Our Takeaway:
Water has quietly become one of the most important infrastructure themes of the next decade.
The demand is no longer being driven only by government spending. It is now being supported by urbanisation, industrial expansion, stricter environmental regulations, freshwater scarcity, water recycling, desalination, and the rapid rise of hyperscale data centres.
That creates a long runway for companies operating in this space.
Among them, VA Tech Wabag stands out because it combines global execution, an asset-light model, strong technology capabilities, a growing international presence, and improving financial execution.
As India and the world move toward treating wastewater as a valuable resource rather than waste, early leaders with proven execution capabilities could remain well-positioned for the long term.
Sometimes, the biggest investment opportunities don't come from discovering a new technology.
They come from solving an old problem that the world can no longer afford to ignore.
Disclaimer — This article is for information purposes only and should not be considered investment advice or a recommendation to buy or sell any security. Please conduct your own research or consult a qualified financial advisor before making any investment decision. Reco Wealth is a SEBI-registered Research Analyst.