ESAB India
is a leading supplier of welding and cutting products and has its manufacturing
facilities located in various states of India. The company had undergone some significant
changes recently. First, Mr Rohit Gambhir became the new Managing Director of
the Company with effect from 1st November, 2014. Second, this March, the
company changed its financial year from calendar year basis to April to March
pattern in order to comply with the requirements of Section 2(41) of the
Companies Act, 2013. Third, following a review of manufacturing capacities of
the Company's consumable Plant locations, the Board of Directors took the
decision to discontinue operations of the Consumables Plant at Khardah, Kolkata.
As a result, there was an exceptional expenditure of Rs. 11.63 crores arising
out of Impairment loss on fixed assets and one time settlement made to
contractors at Khardah Plant. This effected into a negative PAT of Rs. 4.57
crores for the March, 2015 quarter.
The latest
quarterly report of June, 2015 reflects that operations are back to normal for
ESAB India now. There is no exceptional expenditure during June, 2015 quarter. Although
total income from operations has decreased from Rs. 113.89 crores in June, 2014
quarter to Rs. 108.97 crores this quarter, net profit has increased from Rs.
6.49 crores to Rs. 7.81 crores in the same period (Refer Exhibit I). In other
words, net profit margin has increased from 5.70% in June, 2014 to 7.17% in
June, 2015 quarter.
Looking
segment wise, Rs. 79.22 crores of sales, i.e. 73.37%, were pertaining to
welding consumables and Rs. 28.75 crores, 26.63%, pertaining to equipment
products.
Overall, sales
of ESAB India have been more or less consistent in the last few quarters, as
can be seen in Exhibit I. ESAB India is still debt free which enables it to
have a strong core. Given the improvement in economy and decline in inflation,
it is our assumption that this industry will grow in the near future. ESAB
India should be able to take full advantage of this opportunity and generate
huge profits.
The current
market price of ESAB India is Rs. 601.20 in NSE. Using the discounted cash flow
method, we projected the stock price of ESAB India to be around Rs. 850.
EXHIBIT - I
Profit & Loss Statement of Last 5
Quarters
(Rs. in Crores)
|
Jun-15
|
Mar-15
|
Dec-14
|
Sep-14
|
Jun-14
|
Net Income from operations
|
107.97
|
105.28
|
109.77
|
107.64
|
112.47
|
Other Operating Income
|
1.00
|
1.31
|
1.73
|
1.17
|
1.42
|
Total Income from Operations
|
108.97
|
106.59
|
111.50
|
108.81
|
113.89
|
Other Income
|
1.54
|
2.70
|
3.10
|
1.94
|
1.98
|
Total Income
|
110.51
|
109.29
|
114.60
|
110.75
|
115.87
|
Expenses
|
|||||
Cost of materials consumed
|
59.97
|
58.23
|
58.11
|
56.36
|
57.51
|
Purchase of stock in-trade
|
10.03
|
13.39
|
11.47
|
11.03
|
13.34
|
Changes in inventories of finished goods, WIP and stock in trade
|
-2.76
|
-2.25
|
4.12
|
2.72
|
0.33
|
Employee benefits expense
|
10.86
|
11.23
|
11.77
|
10.68
|
11.42
|
Other expenses
|
18.62
|
19.09
|
18.95
|
20.08
|
17.78
|
Total operating expenses
|
96.72
|
99.69
|
104.42
|
100.87
|
100.38
|
EBITDA
|
13.79
|
9.60
|
10.18
|
9.88
|
15.49
|
Depreciation and amortisation
|
2.40
|
2.54
|
2.84
|
2.79
|
2.82
|
Profit from ordinary activities before finance costs and
exceptional items
|
11.39
|
7.06
|
7.34
|
7.09
|
12.67
|
Finance costs
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Profit from ordinary activities after finance costs but before
exceptional items
|
11.39
|
7.06
|
7.34
|
7.09
|
12.67
|
Exceptional items
|
0.00
|
11.63
|
0.00
|
0.54
|
3.55
|
Profit before Tax (PBT)
|
11.39
|
-4.57
|
7.34
|
6.55
|
9.12
|
Tax Expense
|
3.58
|
2.24
|
1.57
|
2.63
|
|
Net profit after tax (PAT)
|
7.81
|
-4.57
|
5.10
|
4.98
|
6.49
|
About the Author
This report has been prepared by
Mridul and Sanyam Mittal. Both are pursuing MBA from Institute of Management,
Nirma University located in Ahmedabad, India.
Disclaimer
This document is solely for the
personal information of the recipient, and must not be singularly used as the
basis of any investment decision. Nothing in this document should be construed
as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent
evaluation of an investment in the securities of the companies referred to in
this document (including the merits and risks involved), and should consult
their own advisors to determine the merits and risks of such an investment.
The information in this document has
been printed on the basis of publicly available information, internal data and
other reliable sources believed to be true, but we do not represent that it is
accurate or complete and it should not be relied on as such, as this document
is for general guidelines only.
