Geojit - ESAB

Esab India Limted

Esab India, 37% subsidiary of Charter PLC, UK, has reported decent performance for Q4 CY 2006.

Net Sales (excl. excise) grew by 32.4% to Rs. 78.7 crore (Rs. 59.4 crore) led by almost doubling of Equipment sales to Rs. 23.87 crore (Rs 12.07 crore). Consumables sales were up by 15.9% to Rs. 54.80 crore (Rs. 47.3 crore). OPM% improved noticeably to 19.4% (16.2%) mainly due to lower other expenses (to 11.16% from 15.07% of sales), thereby offsetting impact of spurt in raw material cost to Rs. 62.3% (59.9%) of sales. PBIT% of Equipment division has improved considerably to 17.5% (5.1%). Consequently, PBT (before extra ordinary income) jumped up by 49.5% to Rs. 15.1 crore (Rs. 10.1 crore). However almost doubled average tax rate of 32.2% (16.8%) restricted growth in PAT of Rs. 10.1 crore (Rs. 8.3 crore) to 21.6%.



For CY 2006 as a whole, net sales were up by 20.6% to Rs. 287.2 crore (RS. 238.2 crore). OPM% stood at 22.6%. PBT (before extra ordinary items) rose by 20.9% to Rs. 64.8 crore (Rs. 53.6 crore). PAT increased by 7.5% to Rs. 42.7 crore (Rs. 39.7 crore) in absence of extra ordinary income (Rs. 4.5 crore) as in CY 2005.



In CY 2006, company has introduced new products in both segments i.e. equipment & consumables. More impact of these introductions will be reflected going forward. Profitability will be good because these are niche products. A greenfield project for manufacture of Welding and Cutting equipments at Irungattukottai, near Chennai commissioned from June 2006. All new products will be made at new factory.



Since company’s future is linked to consumption of steel, fabrication industry is expected to perform well over next 5 years. Commissioning of new factory coupled with rigorous cost control initiatives under taken by the company is expected to boost profitability in near future.



At CMP of Rs. 346.35, the share (Rs. 10/- paid up) is trading at 12.5 times CY 2006 actual EPS of Rs. 27.7 and 10 times CY 2007 expected EPS of Rs. 34.6. Considering bright future prospects, we recommend to “BUY” the share at CMP.