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Jun 27, 2016

Esab India Ltd

Industrials-Machinery-Metalworking Machinery

Esab India Ltd


Bloomberg Code: ESAB IN

BUY

India Research - Stock Broking

Domestic Economic Revival Together with Healthy Balance


Sheet to Aid Profitability
Improved domestic industrial activity complemented by adequate
capacity headroom: Growth in investment activities and increased investments

in key sectors like steel, construction, infrastructure, power and cement are giving
an optimistic outlook for future. We believe the Gross Fixed Capital Formation
(GFCF) to GDP to improve to 33% by FY17E, also ESABs current blended capacity
utilization levels of ~60% leaves enough headroom to sustain the anticipated
increase in demand. We expect the revenue to grow at 5.9% CAGR for FY16-18E.

Profitability and return ratios to improve by FY18E: EBITDA & PAT margins

are expected to reach 12.4% & 8.3% respectively by FY18E, mainly owing
to incremental revenue from new product launches, increased revenue from
higher margin services segment. Also we believe RoE & RoCE to expand by
180 & 130 bps over FY16 to reach 10.8% & 15.4% by FY18E respectively.

Strong financial position to sustain growth: Net debt to Equity at -0.2x, Net

working capital to sales at less than 50% and cash per share of Rs.32.9 indicate
ESABs balance sheet strength to remain debt free while maintaining operational
efficiency in the revenue model that could be sustained going forward through
FY16-18E. Also, ESABs ability to produce consistent positive cash flows through
harsh times together with healthy asset turnover ratio, huge cash & investments
balance (~Rs. 1705 mn) enable it to price competitively to gain market share going
forward.

Valuation and Outlook

Recommendation (Rs.)
CMP (as on Jun 24, 2016)

561

Target Price

670

Upside (%)

19

Stock Information
Mkt Cap (Rs.mn/US$ mn)

8631 / 127

52-wk High/Low (Rs.)

689 / 435

3M Avg. daily volume

3421

Beta (x)

1.0

Sensex/Nifty

26398 / 8088

O/S Shares(mn)

15.4

Face Value (Rs.)

10.0

Shareholding Pattern (%)


Promoters

73.7

FIIs

10.7

DIIs

0.9

Others

14.6

Stock Performance (%)


1M
Absolute

Relative to Sensex

3M

6M 12M

(5) (17) (11) (14)

(11) (21) (15) (11)

Source: Bloomberg

Relative Performance*

Key Risks

1) Delay in economic recovery. 2) Increase in competition in domestic market.

110
100
90
80
70

ESAB IN

Apr-16

May-16

Mar-16

Feb-16

Jan-16

Dec-15

Oct-15

Nov-15

Sep-15

Jul-15

Aug-15

60

Jun-15

We value the company based on P/E basis. At CMP of Rs. 561, ESAB is trading at
20.5x of FY18E EPS. Historically, ESAB has been trading at 1 standard deviation
of one year average forward P/E multiple of 24.5x. Furthermore, ESAB has been
trading at an average P/E multiple of 24.5x & average P/B of 3.2x for the last five
years. We ascribe a multiple of 24.5x to FY18E EPS. We initiate a coverage with a
BUY rating for a target price of Rs. 670 representing an upside potential of 19%
for 9-12 months period.

Sensex

Source: Bloomberg; *Index 100

Exhibit 1: Valuation Summary


(Rs. Mn)

CY13

FY15**

FY16

FY17E

FY18E

Net Sales

4356

5519

4510

4740

5064

EBITDA Margin (%)

11.9

9.2

10.2

11.3

12.4

EPS (Rs.)

21.5

15.4

18.4

23.1

27.3

PE (x)*

19.5

45.0

30.8

24.3

20.5

EBITDA

Adj. Net Profit


RoE (%)

516
331

12.4

505
236

8.2

462
283

9.0

534
355

10.2

627
421

10.8

Source: Company, Karvy Research; *Represents multiples for CY13, FY15 & FY16 are based on historic market price
**FY15: for 15 months from Jan 2014 to Mar 2015

For private circulation only. For important information about Karvys rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters

Analyst Contact
Arvind Vinjamoori
040 - 3321 6273

arvind.vinjamoori@karvy.com

Jun 27, 2016


Esab India Ltd

Company Background

Company Financial Snapshot (Y/E Mar)


Profit & Loss (Rs. Mn)
FY16

FY17E

FY18E

Net sales

4510

4740

5064

EBITDA

462

534

627

Optg. Exp (Adj for OI)

4048

Depreciation

95

Interest

Other Income

80

4207

102

76

4437

102

76

PBT

446

508

601

Adj. PAT

283

355

421

Tax

128

152

180

Profit & Loss Ratios


EBITDA margin (%)

10.2

11.3

12.4

P/E (x)

30.8

24.3

20.5

0.2

0.2

0.2

Net margin (%)

6.3

EV/EBITDA (x)

17.8

Dividend Yield (%)

7.5

14.7

8.3

12.1

Source: Company, Karvy Research

ESAB India Limited started its operations in 1987 by acquiring


the welding business of Peico Electronics & Electricals Limited.
The company continued its expansion in the Indian market with
the purchase of Indian Oxygen Limiteds welding business in
1991 and Flotech Welding & Cutting Systems Limited in 1992,
followed by the merger of Maharashtra Weldaids Ltd in 1994.
ESAB Group, USA owns 73.7% in ESAB India Ltd and the
remainder of its shares are held widely. Over the years, ESAB
has established itself as one of the leading suppliers of welding
and cutting products in the country. ESAB products are now
an integral part of industries like Ship building, Petrochemical,
Construction, Transport, Offshore, Energy, Repair and
Maintenance. ESABs initiative on Total Quality Management
has resulted in ISO 9000 and ISO 14000 certifications for
four of its principal manufacturing facilities located at Kolkata,
Chennai and Nagpur. Further, the skills, know-how and
resources at its Research and Development departments,
have helped the company to offer a wide range of world-class
products for diverse applications, cost effectively.
Cash Flow (Rs. Mn)

Balance sheet (Rs. Mn)


FY16

FY17E

FY18E

Total Assets

3856

4251

4664

PBT (includes extra-ordinary items)

Current assets

1578

1908

2242

Tax

Total Liabilities

3856

4251

4664

Net Fixed assets

821

Other assets

1457

Networth

3155

Debt

Current Liabilities

658

Deferred Tax

42

804

1539
3493

716

42

802

1620
3895

726

42

Balance Sheet Ratios


RoE (%)

RoCE (%)

9.0

10.2

10.8

(0.2)

(0.2)

(0.3)

2.8

2.5

2.2

14.1

Net Debt/Equity

Equity/Total Assets (x)

0.8

P/BV (x)

14.5

0.8

Source: Company, Karvy Research

Exhibit 2: Shareholding Pattern (%)


DIIs
0.9%

15.4

Depreciation

Changes in WC

FY17E

FY18E

411

508

601

(128)

(152)

(180)

(80)

(76)

(76)

(86)

(85)

95

(139)

Others

CF from Operations

160

Capex

Investment

21

Others

80

CF from Investing
Dividends

Net change in cash

(8)

373

(72)

76

102

(76)
371

(100)

(76)

76

16

(81)

(100)

(18)

(18)

(18)

(18)

CF from Financing

102

158

(18)
275

(18)
252

0.8
Source: Company, Karvy Research

Exhibit 3: Revenue Segmentation (%)

Others
14.6%

Equipments
& Cutting
26%

FIIs
10.7%

Consumables
74%

Promoters
73.7%

Source: BSE, Karvy Research

FY16P

Source: Company, Karvy Research

Jun 27, 2016


Esab India Ltd

Industry Scenario:
Exhibit 4: Application Industries
Heavy
Machinery
10.7%

Energy
23.4%

Ship building
8.5%
Construction
19.2%

Process &
Others
14.9%

Automotive
& Transport
20.4%

Aerospace &
Defense
2.9%

Source: Industry, Karvy Research

Welding Consumables market has recorded a turnover of


~Rs. 34bn in FY15 and the same is expected to exhibit 5.7%
CAGR growth over FY15-FY20E to reach ~Rs. 45.3bn by
FY20E. Indias welding consumables market is segmented
according to product type and application. Among product
segments, the welding consumables market is dominated by
welding stick electrodes with nearly ~45% of market share.
The welding consumables market in India is moderately
fragmented, as the top six players accounted for approximately
~30% of the market share. Market leaders such as ESAB,
Lincoln Electric, Ador Welding Ltd and Voestalpine AG

have strong presence. While ESAB dominates the welding consumables market, many organized and unorganized players
also operate in the segment with significant market shares. Demand for welding consumables is directly proportional to steel
production in the country. The key driver of the welding consumables market is growth of its end-use industries, especially the
building and construction industry. Other drivers include increasing investment in the oil and gas as well as energy sectors.
End-use industries such as transportation, building & construction, oil & gas and power are likely to drive the welding consumables
market in India in the near future. However, factors such as inconsistent supply of quality raw materials, shortage of skilled labor
and competition from international companies may hamper market growth.

Surging steel consumption globally


Exhibit 5: India- Major Player in Steel Segment
Ukraine
1.0%
Brazil
2.0%

RoW
11.0%

S. Korea
4.0%

Russia
4.0%

China
50.0%

US
5.0%

India
6.0%

Japan
7.0%

EU
10.0%

Worlds crude steel production stood at 1622.8 mt during


2015, a decrease of 2.8% over 2014 based on provisional
data released by World Steel Association (WSA). During 2015,
Chinese crude steel production reached 804 mt, registering
a decline of 2.3% over the previous year. China remained
the largest crude steel producer in the world, accounting for
~73% of Asian and ~50% of worlds crude steel production
during 2015. India was the 3rd largest crude steel producer
during 2015 and recorded a growth of 2.6% over 2014.

Source: MInistry of Steel (MoS), Karvy Research

Future looks Prosperous for Indian Steel Sector


yyIndia continues to hold its position as the 3rd largest steel making nation in the world in the current calendar year. India is the
largest producer of Direct Reduced Iron (DRI) or sponge iron in the world. The country is also the 3rd largest consumer of
finished steel in the world preceded by China and the USA. The steel sector contributes to nearly ~2% of the countrys GDP
and employs over 6 lakh people. During April-December 2015, production of crude steel was at 67.1 mt, a growth of 0.9%
compared to same period of last year. Exports stood at 2.9 mt, a decline of 29.7% compared to last year. Imports stood at
8.4 mt, a growth of 29.2% compared to last year. India was a net importer of total finished steel. Real consumption stood at
58.9 mt, a growth of 4.4% compared to last year. The Indian steel industry has entered into a new era from 2007-08, riding
high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the
3 rd largest producer of crude steel in 2015 and the country continues to be the largest producer of sponge iron or DRI in the
world.

yyAs per the report of the Working Group on Steel for the 12th Five Year Plan, there are many factors which carry the potential of
raising the per capita steel consumption in the country. These include among others, an estimated infrastructure investment
of nearly a trillion dollars, a projected growth of manufacturing from current 8% to 11-12%, increase in urban population
to 600 mn by 2030 from the current level of 400 mn, emergence of the rural market for steel currently consuming around
10 kg per annum buoyed by projects like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana and Rajiv Gandhi Awaas Yojana
among others.
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Jun 27, 2016


Esab India Ltd
yyThe National Steel Policy 2005 had envisaged steel production to reach 110 mt by 2019-20. However, based on the
assessment of the current ongoing projects, the Working Group on Steel for the 12th Five Year Plan has projected that
domestic crude steel capacity in the county is likely to be 140 mt by 2016-17 and has the potential to reach 149 mt, if all
requirements are adequately met.

yyThe National Steel Policy 2005 is currently being reviewed keeping in mind the rapid developments in the domestic steel
industry (both on the supply and demand sides) as well as the stable growth of the Indian economy. With the Governments
focus on manufacturing industry coupled with spending on infrastructure (roads, rail and ports etc.), the demand for steel is
projected to increase in the coming years which may augur well for ESAB.
Exhibit 6: Indias Steel Production Vs Consumption (Mn Tonnes)
90

71

60

74

66

78

71

82

73

89
77

74

67

59

30

0
FY11

FY12
Crude steel production

FY13

FY14

FY15
Consumption

FY16 (Apr-Dec)

Source: MoS, Karvy Research

Exhibit 7: FDI Inflows into India

Exhibit 8: Sector-wise FDI Inflows

40

1.5

30

1.0

FDI (US$ Bn)

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

-0.5

FY05

FY04

0.0

FY03

10

FY02

0.5

FY01

20

Growth (%) (RHS)

Source: Department of Industrial Policy & Promotion (DIPP), Karvy Research

Sector

FDI Share (%)

Services

18

Computer software & hardware

Construction & development


Telecommunications
Automobile industry

Drugs & pharmaceuticals


Chemicals
Trading
Power

8
6
5
5
4
4
4

Source: DIPP, Karvy Research

Government initiatives & recent developments likely to boost demand environment


yyThe Government of India has earmarked Rs. 500 Bn to develop 100 smart cities across the country. The Government released
its list of 98 cities for the smart cities project in August 2015.
yyThe Government of India has unveiled plans to invest US$137 Bn in its rail network over the next five years.

yyThe Government of India has announced highway projects worth US$93 Bn, which include government flagship National
Highways Building Project (NHBP) with total investment of US$45 Bn over next three years.
yyInternational Finance Corporation (IFC), part of The World Bank group, plans to invest at least US$700 Mn in existing transport
and logistics infrastructure projects in India.

yyThe World Bank has approved a US$650 Mn debt funding for a part of the eastern arm of the Dedicated Freight Corridor
(DFC) project in India.
yyGovernment-owned Kolkata Port Trust has signed an agreement with the West Bengal government to set up a new port at
Sagar Island in South 24 Parganas district. The Sagar Island port is estimated to cost Rs. 119 Bn and will be the first port to
be built by the Union government in 14 years.

yyThe Reserve Bank of India (RBI) has notified 100% Foreign Direct Investment (FDI) under automatic route in the construction
development sector. The new limit came into effect in December 2014.
yyThe Government of India has relaxed rules for FDI in construction sector by reducing minimum built-up area as well as
capital requirement. It has also liberalized the exit norms. In fact, the Cabinet has also approved the proposal to amend the
FDI policy.
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Jun 27, 2016


Esab India Ltd
yyIndia and the US have signed a Memorandum of Understanding (MoU) in order to establish Infrastructure Collaboration
Platform. The document showcases the relationship between both the Governments which intend to facilitate US industry
participation in Indian infrastructure projects to improve the bilateral relationship and benefit both economies. The MoUs
scope envisages efforts in the areas of Urban Development, Commerce and Industry, Railways, Road Transport and
Highways, Micro Small and Medium Enterprises, Power, New & Renewable Energy, among others.
Exhibit 9: Increasing infrastructure finance needs (US$ Bn)

Exhibit 10: Growth to Unfold in Automotives (in thousands)


35000

1200

30000

1025

800

30231

1000

25000
20000

600

10th plan

11th plan

12th plan

PV

2350

5000

218

697

10000

10000

200

CV

Two & Three

FY15

Increasing infrastructure finance needs (US$ Bn)


Source: Industry, Karvy Research

19449

15000

514

3220

400

FY21E

Source: Industry, Karvy Research

Improved market dynamics coupled with adequate capacity headroom to strengthen margins
Exhibit 11: Improving Margins
15%
12.1%

11.9%

10%

10.8%

10.9%

5%

7.5%

7.6%

9.2%

10.2%

8.7%

9.9%

11.3%
10.7%
7.5%

6.3%

12.4%
11.9%
8.3%

4.3%
0%
CY12

CY13

FY15*

FY16

EBITDA Margin (%)


EBIT Margin (%)

FY17E

FY18E

PAT Margin (%)

Recent turnaround in industrial activity witnessed by RBIs


survey, along with governments initiatives to kick start the
economy by fuelling the necessary growth drivers and
increased investments in key sectors like construction,
infrastructure, steel, power and cement are giving an
optimistic outlook for future. Also ESABs current blended
capacity utilization levels of ~60% leave enough headroom
to sustain the anticipated surge in demand. We expect ESAB
to witness healthy margin expansions of more than ~200 bps
during FY16-FY18E.

Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

Healthy financial position and focus on services segment may augur well
ESAB is zero debt cash rich company with cash & cash equivalents of Rs. 507 Mn in FY16 representing cash per share of
Rs. 32.9 and the same is expected to grow at a CAGR of 42.8% during FY16-FY18E to reach Rs. 67.1 per share or Rs. 1034 Mn.
With comfortable cash position along with healthy asset turnover ratio, ESAB is well poised to aggressively position itself to gain
market share in highly competitive markets. ESABs new product launches and a potentially leaner organization structure would
augur well for sales and profitability margins. ESAB is now focused on growing services segment to cushion the impact of any
sustainable difficulties in the manufacturing segment.
Exhibit 12: Liquidity Cushion

Exhibit 13: Healthy Turnover Ratio

80%
60%

-0.2

-0.1

-0.1

48.5%

40%
20%

-0.2

26.4%

36.4%

53.4%

58.0%
-0.3

-0.2

0.0

1.6

-0.1

1.5

-0.2

1.4

-0.3

34.4%

-0.4

0%

-0.5
CY12

CY13

FY15*

FY16

FY17E

FY18E

Net Working Capital as a % of Sales


Net Debt/Total equity (x) (RHS)
Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

1.5
1.5

1.3
1.2

1.2

1.1
1.0

CY12

CY13

FY15*

1.2

1.1

FY16

FY17E

1.1
FY18E

Asset turnover ratio


Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

Jun 27, 2016


Esab India Ltd

Exhibit 14: Business Assumptions


(Rs. Mn)

FY15*

FY16P

FY17E

FY18E Comments

Revenue

5519

4510

4740

Revenue Growth (%)

26.7

(18.3)

5.1

Revenue is expected to register a CAGR growth


5064 of 5.9% for FY16-FY18E on the back of improving
demand environment.

EBITDA

505

462

534

EBITDA Margins (%)

9.2

10.2

11.3

PAT (normalized)

236

283

355

Stable depreciation expense, zero finance cost &


421 stable taxes help PAT to increase to Rs. 421 Mn
by FY18E.

EPS (Rs.)

15.4

18.4

23.1

(28.6)

19.9

25.4

Adjusted EPS is expected to grow at a CAGR


27.3 of 22.4% for FY16-FY18E mainly on account of
higher revenue & zero finance cost.

Capex (ex. Acquisition) - cash capex

(55)

(86)

(85)

(100)

Net CFO

164

160

373

371

Net Debt

(349)

(507)

(781)

(1034)

EPS Growth (%)

Free Cash Flow

108

Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

74

288

6.8

Moderate increase in employee expenses


627 together with stabilizing other expenses to aid
EBITDA margin at 12.4% by FY18E.

12.4

18.4

With optimum capacities already installed, only


maintenance capex is expected.

On the back of healthy growth in revenue &


margins, CFO remains positive.

271

Jun 27, 2016


Esab India Ltd
Exhibit 15: Revenue to Grow at 5.9% CAGR
26.7%

6000

6.8%

5.1%

40%

4510

20%

5064

4740

0%

5519

2000

4356

4000

-18.3%

-13.5%

Revenue (Rs. Mn)

FY18E

FY17E

FY15*

FY16

-40%

CY13

-20%

We maintain our positive view on domestic industrial activity during


FY16-18E. The economy is gradually reviving and the key sectors like
power, cement, mining, construction sectors along with infrastructure
segment are feeling re-energized. We also expect incremental revenue
from new product launches to boost revenue further. Thus we believe the
revenue to grow at a CAGR of 5.9% for FY16-FY18E.

Revenue Growth (%)

Source: Company, Karvy Research


*FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 16: Healthy EBITDA Margins to Stay


800

11.9%

600

10.2%

9.2%

15%

12.4%

11.3%

10%

627

534

462

505

200

516

400

FY18E

FY17E

FY15*

FY16

0%

CY13

5%

EBITDA (Rs. Mn)

EBITDA has been quite constant over CY13-FY16; on account of


challenging industrial environment coupled with high competition
from unorganized players. EBITDA margin shrank by ~170 bps during
CY13-FY16. Going forward, we expect an EBITDA margin expansion of
~220 bps during FY16-FY18E mainly due to incremental revenue from
new product launches, increased services income coupled with stabilizing
operating expenses.

EBITDA Margin (%)

Source: Company, Karvy Research


*FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 17: PAT to Grow at a CAGR of 21.8%


1000
800

7.6%

600

6.3%

8.3%

7.5%

8%
6%

4.3%

PAT (Rs. Mn)

421
FY18E

FY17E

FY16

CY13

2%
0%

FY15*

355

236

283

4%

331

400
200

10%

PAT improvement is a reflection of trickle down benefit of consolidation of


few units & improved performance of services segment. Continued focus
on services segment along with incremental revenue from new product
launches is expected to result in profitability expansion. PAT margin is
expected to expand by ~200bps to reach 8.3% by FY18E.

PAT Margin (%)

Source: Company, Karvy Research


*FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 18: Healthy Cash Flows

373

351

300

371

400

271

288

74

160

108

164

100

260

200

0
CY13
FY15*
CFO (Rs. Mn)

FY16

FY17E
FY18E
FCF (Rs. Mn)

Continuous profitability has resulted in positive cash flows for ESAB during
CY13-FY16.Going forward, we expect CFO & FCF to reach Rs. 371 Mn
& Rs. 271 Mn by FY18E respectively owing to expansion in profitability
and we expect any funding requirements for the company to be met by
internal accruals. We expect only maintenance capex in near term, as all
the capacities are in place with ~40% head room available.

Source: Company, Karvy Research


*FY15: for 15 months from Jan 2014 to Mar 2015

Jun 27, 2016


Esab India Ltd
Exhibit 19: Improving Return Ratios
20%

17.8%

16.7%
14.1%

15%

14.5%

12.4%

10%

8.2%

5%

CY13

15.4%

9.0%

10.2%

10.8%

FY16

FY17E

FY18E

FY15*
RoE (%)

Return ratios have always been healthy for ESAB even during challenging
times, considering the positivity ahead in the markets. We expect RoE
and RoCE to expand by over ~180bps and ~130bps respectively during
FY16-18E to reach 10.8% and 15.4% levels by FY18E.

RoCE (%)

Source: Company, Karvy Research


*FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 20: Increasing Shareholders Value


30

173.6
10
0

18.4

15.4

20

205.0

187.8

8.9
CY13

27.3

23.1

21.5

226.9

253.1

250
200

1.2

1.2

1.2

1.2

FY15*

FY16

FY17E

FY18E

EPS (Rs.)

300

150
100

EPS, DPS & BVPS have been quite consistent for CY13-FY16 and we
believe EPS & BVPS will grow at a CAGR of 22.4% & 39.2% respectively
for FY16-FY18E on account of increased revenue & profitability. ESAB has
so far adapted constant dividend payout policy and we expect the trend to
continue in future as well.

DPS (Rs.)

BVPS (Rs.) (RHS)


Source: Company, Karvy Research
*FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 21: Company Snapshot (Ratings)


Low
1

Exports

Net Debt/Equity

Working Capital Requirement


Quality of Management
Depth of Management
Promoter

Corporate Governance
Source: Karvy Research

33

Quality of Earnings
Domestic Sales

High

33

33

33
33
33
33
33
33

Jun 27, 2016


Esab India Ltd

Valuation & Outlook


We maintain a positive outlook on domestic economic recovery leading to revival in industrial & investment activity aided by
government initiatives and reduced interest rates. We believe cyclical trend to be appropriate method to value ESAB based on
its historical performance during various business and industry cycles. We have considered an eleven year cycle from CY06 to
FY16 to reflect current economic and market sentiments while arriving at valuation for ESAB.
Exhibit 22: One Year Forward P/E

Exhibit 23: P/BV Band


10

40

30

20

10

2
0

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 FY15 FY16

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 FY15 FY16
1Year Forward P/E

Average

P/BV

1 SD

Source: NSE, Karvy Research

Average

Source: NSE, Karvy Research

We value the company based on P/E basis. At CMP of Rs. 561, ESAB is trading at 20.5x of FY18E EPS. Historically, ESAB has
been trading at 1 standard deviation of one year average forward P/E multiple of 24.5x. Furthermore, ESAB has been trading
at an average P/E multiple of 24.5x & average P/B of 3.2x for the last five years. We ascribe a multiple of 24.5x to FY18E EPS.
We initiate a coverage with a BUY rating for a target price of Rs. 670 representing an upside potential of 19% for 9-12 months
period.
Exhibit 24(a): Comparative Valuation Summary
EV/EBITDA (x)

P/E (x)

EPS (Rs.)

CMP

Mcap

(Rs.)

(Rs. Mn)

FY15

FY16

FY17E

FY18E

FY15

FY16

FY17E

FY18E

FY15

FY16

FY17E

FY18E

8631

20.4

17.8

14.7

12.1

45.0

30.8

24.3

20.5

15.4

18.4

23.1

27.3

ESAB*

561

Ador Welding

281

3781

9.3

9.0

Source: Bloomberg, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

7.7

6.6

9.2

17.4

14.6

12.0

23.4

16.5

19.2

23.3

Exhibit 24(b): Comparative Operational Metrics Summary


CAGR % (FY16-18E)
ESAB*

Ador Welding

RoE (%)

Sales

EBITDA

EPS

6.0

16.5

21.8

9.6

5.5

19.0

FY15 FY16 FY17E


8.2

9.0

17 10.7

Source: Bloomberg, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

10.2

NA

Price Perf (%)


FY18E

3m

10.8 (14.3)
NA

5.9

6m

Net Sales (Rs. Mn)


12m

FY15

FY16

FY17E

FY18E

(10.4) (13.6)

5519

4510

4740

5064

(21.1)

19.0

3860

4060

4360

4880

Key Risks
yyDelay in economic recovery.

yyIncrease in competition in domestic market.

Jun 27, 2016


Esab India Ltd

Financials
Exhibit 25: Income Statement
(Rs. Mn)
Revenue

Growth (%)

Operating Expenses
EBITDA

Growth (%)

Depreciation & Amortization


Other Income

CY13

FY15*

4356

5519

3839

5013

(15.2)
71

(13.5)
516
112

EBIT

475

Tax

144

PBT

Adjusted PAT
Growth (%)

475
331

FY16

FY17E

FY18E

4510

4740

5064

4048

4207

4437

(2.2)

(8.6)

15.6

17.5

115

80

76

76

26.7
505
138

(18.3)
462

95

5.1

534
102

6.8

627
102

482

446

508

601

70

128

152

180

482
236

446
283

508
355

601
421

(12.3)

(28.6)

19.9

25.4

18.4

CY13

FY15*

FY16

FY17E

FY18E

Cash & Equivalents

326

349

507

781

1034

Inventory

614

540

585

615

663

Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 26: Balance Sheet


(Rs. Mn)
Sundry Debtors

Loans & Advances


Investments

Gross Block
Net Block
CWIP

Miscellaneous
Total Assets

Current Liabilities & Provisions


Debt

Other Liabilities

Total Liabilities

Shareholders Equity
Reserves & Surplus
Total Networth

Total Networth & Liabilities

274
27

437
30

454
32

481
32

513
32

1048

1219

1198

1270

1346

959

830

821

804

802

1906

31

225

3503

763

67

1961

12

270

3687

759

38

2054

12

248

3856

658

42

2139

12

257

4251

716

42

2239

12

262

4664

726

42

830

796

700

758

768

2519

2737

3002

3339

3742

154

2673
3503

154

2891
3687

Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

154

3155
3856

154

3493
4251

154

3895
4664

10

Jun 27, 2016


Esab India Ltd

Exhibit 27: Cash Flow Statement


(Rs. Mn)
PBT (includes extra-ordinary items)
Depreciation
Interest

Tax Paid

CY13

FY15*

FY16P

FY17E

FY18E

475

306

411

508

601

112

138

95

102

102

(184)

(119)

(128)

(152)

(180)

Other Income

(71)

(94)

(80)

(76)

(76)

Cash flow from operating activities

351

160

373

Inc/dec in Net WC
Other non cash items

Inc/dec in capital expenditure

(5)
24

(88)

(120)

52

164

94

80

76

76

(269)

(120)

Cash flow from financing activities

(137)

(18)

Net change in cash

(55)

371

(100)

Cash flow from investing activities

(137)

(85)

(158)

Dividend paid

(76)

(86)

(270)

89

(8)

(55)

Inc/dec in investments
Others

(139)

(18)

Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

27

21

(72)

(76)

16

(81)

(100)

(18)

(18)

(18)

(18)
158

(18)
275

(18)
252

Exhibit 28: Key Ratios


CY13

FY15*

FY16

FY17E

FY18E

EBITDA Margin (%)

11.9

9.2

10.2

11.3

12.4

Net Profit Margin (%)

7.6

4.3

6.3

7.5

8.3

EBIT Margin (%)

Dividend Payout Ratio (%)


Net Debt/Equity (x)
RoE (%)

RoCE (%)

10.9
41.2

8.7
7.6

9.9
6.4

10.7

5.1

11.9

4.3

(0.12)

(0.12)

(0.16)

(0.22)

(0.27)

17.8

16.7

14.1

14.5

15.4

CY13

FY15**

FY16

FY17E

FY18E

21.5

15.4

18.4

23.1

27.3

173.6

187.8

205.0

226.9

253.1

12.4

8.2

Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

9.0

10.2

10.8

Exhibit 29: Valuation Parameters


EPS (Rs.)

DPS (Rs.)

BVPS (Rs.)
PE (x)*

P/BV (x)*

EV/EBITDA (x)*
EV/Sales (x)*

8.9

19.5

2.4

11.9

1.4

1.2

45.0

3.7

20.4

1.9

1.2

30.8

2.8

17.8

1.8

1.2

24.3

2.5

14.7

Source: Company, Karvy Research; *Represents multiples for CY13, FY15 & FY16 are based on historic market price
**FY15: for 15 months from Jan 2014 to Mar 2015

1.7

1.2

20.5

2.2

12.1

1.5

11

Jun 27, 2016


Esab India Ltd
Stock Ratings
Buy

Sell

Hold

Absolute Returns
> 15%

5-15%
<5%

Connect & Discuss More at


1800 425 8283 (Toll Free)

research@karvy.com

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