Recommendation from Electrodes & Graphite Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
ESAB INDIA .:DOING WELL DESPITE THE ODDS
HERE IS WHY
✓Focus on cost control
✓Expected rise in demand
✓Strong liquidity position
ESAB India Limited is a small-cap capital goods’ company engaged in supplying welding and cutting products in India. It has a wide and comprehensive range of welding, cutting and allied products and services. The product range covers welding consumables, cutting machines and others for specialised welding, cutting and allied needs. These are manufactured to stringent quality control measures in its four state-of-theart manufacturing units. It is a subsidiary of US-based Colfax Corporation, an industrial group. In terms of the financial performance of the company in FY 2021, it has reported de-growth of nearly 2.4 per cent in net sales of ₹ 681 crore as compared to ₹ 698 crore in FY20.
Lack of large orders like the previous year led to reduction in sales. This is not much of a surprise given the pandemic breakout last year which dealt a blow to the financials. The EBIDTA too witnessed a decline of over 15 per cent as it stood at ₹ 94 crore in FY21 as against ₹ 110.7 crore in the previous year.
Although employee costs were lower due to travel restrictions, high input cost has affected the bottom-line. Also, the profit after tax stood at ₹ 59.3 crore while it was at ₹ 71.4 crore in FY20. PAT has declined by 17.6 per cent.
However, in FY21 it incurred capital expenditure of ₹ 13.15 crore on account of productivity improvements, capacity enhancements and upgrades of the IT systems. It also aims to focus on new product offerings and enhancements to boost growth and market share. On the brighter side, the cash flows from operating activities increased from ₹ 57 crore in FY20 to ₹ 72 crore in FY21 by 26.3 per cent. For the latest quarter ended December, revenue grew by 22.71 per cent YoY to ₹ 225.7 crore from ₹ 183.93 crore in Q3FY21. On a sequential basis, the top-line was up by 2.03 per cent.
PBIDT exclusive of other income was reported at ₹ 26.33 crore, up by 33.99 per cent as compared to the year-ago period and the corresponding margin was reported at 11.67 per cent, expanding by 99 basis points YoY. PAT was reported at ₹ 18.97 crore, up by 28.96 per cent YoY. The PAT margin stood at 8.4 per cent in Q3FY22, expanding from 8 per cent in Q3FY21. The company has done well on the returns front. The ROE stood at 19.86 per cent while the ROCE was even higher at 27.57 per cent, which is quite rewarding for the stakeholders. Besides, it has a decent dividend yield of 1.56 per cent. Shareholders need not worry on the debt side as the company is almost debt-free.
The stock is trading near a price-toearnings multiple of 52 times. It has a reach in global markets as well as it exports its products to the Middle East, Asia Pacific, Europe and the US through their group companies in Sweden, Singapore and Dubai. With about 200 distributors spanning across India, it has built a strong distribution network. The Union Budget 2022 is slated to promote capital expansion and therefore capital goods companies have become a popular theme, which is why we expect the company to do well in the next 6-12 months’ time. By virtue of all these factors, we recommend our readerinvestors to BUY the scrip.
