Esab India - Stock Analysis & Target Price

ESAB India 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 Shipbuilding, Petrochemical, Construction, Transport, Offshore, Energy and Repair and Maintenance.

Recommended stock price: Rs 588
Current market price: Rs 590.80
Target price: Rs 672
Upside potential: 13.7%

For the December 2009 quarter, Esab posted a 60 per cent year-on-year rise in net profit at Rs 14.7 crore as against Sharekhan’s estimate of Rs 11.4 crore. The performance was achieved mainly on the back of higher than estimated revenues and margin during the quarter. Its net sales improved by 15.1 per cent to Rs 105.7 crore. OPMs expanded by 652 basis points to 22.3 per cent, mainly due to a decline in the raw material cost. Due to a healthy growth in sales coupled with the margin expansion, net profits increased sharply.

The demand for Esab’s products depends on the domestic infrastructure activity. Sharekhan expects the business environment to improve considerably in line with the strong focus on infrastructure development. The company’s international parentage provides it a significant technological edge.

Esab would be able to post a 14 per cent CAGR in its profits over CY2009-11. In view of the company’s strong balance sheet, high RoE and dividend yield, Sharekhan advised to buy stocks with a revised price target of Rs 672 (valuing it at 12 times CY2011 estimated earnings).
Ref: Sharekhan stock research report