A Canada-India Trade Deal Could Be Big for Infrastructure: Is WSP Stock a Buy?

India could require roughly US$840 billion of urban infrastructure investment over 15 years.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published October 9, 4:40 pm EDT

Key Points

WSP already operates in India and works on major Mumbai metro projects.
Its backlog reached a record $20.1 billion in Q2.
Shares are roughly 42% below their 52-week high, making valuation considerably more interesting.

India doesn’t simply need more things shipped into the country. It needs more of the country built.

By 2036, roughly 600 million Indians are expected to live in cities. The World Bank estimates India will need about US$840 billion of urban infrastructure investment over 15 years, including transportation, water and reliable electricity.

That makes the developing Canada-India trade relationship much broader than potash, oil or another container leaving a Canadian port.

India needs engineering expertise, infrastructure investment and people capable of designing enormously complicated projects. Conveniently, Canada has some of those too.

businessmen shake hands to close a deal — Source: Getty Images

Services count as trade

Canada and India are working toward a Comprehensive Economic Partnership Agreement by the end of 2026, while a Team Canada mission heads to Mumbai and Bengaluru from October 12 through 17.

The important part for investors is that negotiations aren’t limited to lowering tariffs on physical goods. The framework includes trade in services and investment.

An engineering company doesn’t need to manufacture something in Saskatchewan, load it onto a ship and wait several weeks to participate. It can design a railway, manage construction or advise on infrastructure already being built inside India. That makes WSP Global (TSX: WSP) worth watching.

Already on the ground

Montreal-based WSP is one of the world’s largest engineering and professional-services companies. It designs and manages transportation, buildings, power, environmental and infrastructure projects.

More importantly, India isn’t a hypothetical new market. WSP has offices in Bengaluru, Mumbai and Noida and has already worked on major Indian transit projects. It’s currently part of consulting teams for Mumbai Metro Line 3 and Line 4. Line 3 stretches 33.5 kilometres underground with 27 stations. Line 4 adds another roughly 32 kilometres and 32 stations.

That’s the kind of opportunity I prefer to a vague promise that “India could be big.” WSP is already helping build infrastructure India needs, so improved commercial ties could make an existing business relationship easier to expand. It also gives Canadians buying stocks in Canada exposure to India without betting on one commodity price.

Plenty of work already

WSP doesn’t need an India trade agreement to rescue its growth. Second-quarter backlog reached a record $20.1 billion, up 23.2% year over year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) climbed 28.8% to $815 million as its margin expanded to 19.1%.

That backlog is particularly useful because consulting businesses ultimately sell expertise and employee time. More contracted work provides visibility into what those thousands of engineers could be doing next. India can add to that opportunity rather than create it from scratch.

The sell-off changes the price

The more surprising number is WSP’s share price. WSP closed October 5 around $168.25, roughly 42% below its $290.23 52-week high. The stock now trades around 14 times forward earnings. That’s considerably more interesting than paying nearly $300 for the same infrastructure story.

There’s a reason for some caution. WSP has been acquisitive, and its leverage ratio rose to 2.3 times after major deals. Integration problems, project delays or a slowdown in government infrastructure spending could hurt growth.

A Canada-India agreement also wouldn’t hand WSP contracts. Indian and global competitors will happily bid for the same work. Investors holding WSP inside a Tax-Free Savings Account (TFSA) could shelter eligible long-term gains, but the account won’t make infrastructure projects arrive on budget.

Bottom line

India needs far more than Canadian exports. It needs metros, roads, power systems, buildings and the engineering expertise required to make all of them work.

WSP already has people and projects inside the country, while its record $20.1 billion backlog shows the broader business isn’t waiting for a trade agreement to get moving.

At roughly 42% below its 52-week high, I’d consider WSP here. Better Canada-India ties could create another runway for growth without requiring investors to pretend the next trade mission comes home carrying $20 billion of new contracts.