1st Quarter Analysis Report: ESAB India Ltd. (BUY; Estimated Price: Rs. 850)

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.

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