Esab India - Quality Small Company
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30 July 2009 Esab India was promoted by Esab Holdings UK, a subsidiary of Esab Sweden. It started operations by acquiring the welding business of Peico Electronics & Electrical in 1987. It has established itself as one of the leading suppliers of welding and cutting products in the country. ESAB products are an integral part of Shipbuilding, Petrochemical, Construction, Transport, Offshore and Energy Industries. Esab made it to our Quality Small Company low PEG Stock screen shortlist for the Indian stock market. It looks to be a good business in a "boring" industry. Check out its 5year stock performance and firm up your thoughts on stock valuations.
Data, Analysis contributed by Ashwin Shah, Baroda
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Looking at the above picture makes you feel good isn't it? There's hardly much to fault. Esab India is a debt free company enjoying high margins in a competitive industry. Its products command a price premium as a result of higher value add. Consistently high Return on Assets (RoA) and Return on Equity (RoE) of over 40% is a result of the high margins and good Asset Turnover ratio it manages to maintain.What is more heartening to see is the consistently increasing Free Cash Flows. Very few manufacturing companies can boast of maintaining an over 7% Free Cash Flow/Sales ratio. So it seems that it does enjoy some competitive advantages. Esab India's parent is one of the top two players in welding technology, globally. The technology intensive nature of the business acts as barrier. To understand the sustainability of its competitive advantage, sure we need to dig more. But while we do that, it will pay you to add this stock to your watchlist! And what about stock valuations? Check that out, below.
Data, Analysis contributed by Ashwin Shah, Baroda
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We can see immediately that the stock was available much cheaper throughout 2008, and obviously run up a bit since the markets recovered. To me, that's a good sign, that tells me again, hey its worth tracking this stock, closely.If you check the quarterly and half-yearly stock results, you would see that sales and profits are struggling to keep pace. Its almost flat, actually lower than last year,corresponding half-year. That's understandable given the weak industrial growth. Remember its customers are from Shipbuilding, Petrochemical, Construction, Transport, Offshore and Energy Industries. Another flattish quarter and we might see lower prices that are more tempting. That prospect makes me feel good; once the revival kicks in, Esab's performance could be pleasing to a lot of us! So watch it! Closely.
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