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.



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Esab India Ltd.

WELDING SOLID GROWTH FOR THE FUTURE

HERE IS WHY

Positive outlook Growth in quarterly profits

Projects restructured for better utility

ESAB India is a leading supplier of welding and cutting products in India. The company’s products are used in industries like shipbuilding, petrochemical, construction, transport, offshore and energy. The ESAB group, which is operating since 1904, is owned by Colfax Corporation. The group owns 73.72 per cent stake in ESAB India Limited.

The company operates through two segments: consumables and equipments. The consumables segment accounted for 69.2 per cent revenues in the first quarter of FY18, whereas the equipment segment accounted for 30.8 per cent revenues. Its consumables segment de-grew by 5.1 per cent sequentially; however, it has recorded a flat 1.4 per cent growth YoY. ESAB’s equipment segment grew 21.0 per cent QoQ and 28.8 per cent YoY. The company has enhanced its range of product offerings by introducing new products. The company also started exporting a range of consumables to South East Asian countries. These consumables were earlier sourced from another ESAB facility outside India.

Recently, the company has undertaken a restructuring exercise at its Taratala plant, which has resulted in optimised capacities and lower headcount. This is expected to aid in maintaining healthier margins. The company also discontinued manufacturing operations at its Khardah plant and transferred manufacturing of products to its Ambattur plant. Some of the products relating to wires are now being supplied out of the company's plant at Nagpur. ESAB is also making progress on its support service activities out of India in the areas of R&D, shared services and operational support for other subsidiaries of Colfax around the world.

Acute price pressures on some of its key product segments and volatility in steel prices subdued the company’s profitability during the last fiscal. The company’s revenue rose 5.04 per cent to Rs.1256.10 crore in FY17 compared to the previous fiscal. The company’s PBDT decreased 7.86 per cent to Rs.46.64 crore in FY17 from Rs.50.62 crore in FY16. The company’s net profit also decreased from  Rs.28.34 crore in FY16 to Rs.26 crore in FY17, registering 8.34 per cent decrease.

On a quarterly basis, ESAB posted 17.45 per cent increase in its revenue to Rs.136.66 crore in Q1FY18 from Rs.116.35 crore in Q1FY17. The company’s PBDT increased 6.73 per cent to Rs.15.60 crore in the first quarter of FY18 on a yearly basis. The company’s net profit rose 5.22 per cent to Rs.9.07 crore for the corresponding period.