Esab India Ltd - Karvy Reccomendation on 27 Jun 2016

1

Jun 27, 2016Esab India LtdIndustrials-Machinery-Metalworking Machinery

Esab India LtdIndia Research - Stock Broking BUYBloomberg Code: ESAB IN

Recommendation (Rs.)

CMP (as on Jun 24, 2016) 561Target Price 670Upside (%) 19

Stock InformationMkt Cap (Rs.mn/US$ mn) 8631 / 12752-wk High/Low (Rs.) 689 / 4353M Avg. daily volume 3421Beta (x) 1.0Sensex/Nifty 26398 / 8088O/S Shares(mn) 15.4Face Value (Rs.) 10.0

Shareholding Pattern (%) Promoters 73.7FIIs 10.7DIIs 0.9Others 14.6

Stock Performance (%) 1M 3M 6M 12M

Absolute (5) (17) (11) (14)Relative to Sensex (11) (21) (15) (11)Source: Bloomberg

Relative Performance*

Source: Bloomberg; *Index 100

Analyst ContactArvind Vinjamoori040 - 3321 [email protected]

Domestic Economic Revival Together with Healthy Balance Sheet to Aid ProfitabilityImproved 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 ESAB’s 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 ESAB’s 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, ESAB’s 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 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.

Key Risks1) Delay in economic recovery. 2) Increase in competition in domestic market.

For private circulation only. For important information about Karvy’s 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

Exhibit 1: Valuation Summary

(Rs. Mn) CY13 FY15** FY16 FY17E FY18E

Net Sales 4356 5519 4510 4740 5064EBITDA 516 505 462 534 627EBITDA Margin (%) 11.9 9.2 10.2 11.3 12.4Adj. Net Profit 331 236 283 355 421EPS (Rs.) 21.5 15.4 18.4 23.1 27.3RoE (%) 12.4 8.2 9.0 10.2 10.8PE (x)* 19.5 45.0 30.8 24.3 20.5Source: 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

60

70

80

90

100

110

Jun-

15

Jul-1

5

Aug-

15

Sep-

15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

ESAB IN Sensex

http://www.karvy.com/

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Jun 27, 2016Esab India Ltd

Company BackgroundESAB 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 Limited’s 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. ESAB’s 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.

Exhibit 2: Shareholding Pattern (%)

Source: BSE, Karvy Research

Exhibit 3: Revenue Segmentation (%)

Source: Company, Karvy Research

Balance sheet (Rs. Mn)

FY16 FY17E FY18E

Total Assets 3856 4251 4664 Net Fixed assets 821 804 802 Current assets 1578 1908 2242 Other assets 1457 1539 1620 Total Liabilities 3856 4251 4664 Networth 3155 3493 3895 Debt 0 0 0 Current Liabilities 658 716 726 Deferred Tax 42 42 42

Balance Sheet Ratios

RoE (%) 9.0 10.2 10.8RoCE (%) 14.1 14.5 15.4Net Debt/Equity (0.2) (0.2) (0.3)Equity/Total Assets (x) 0.8 0.8 0.8 P/BV (x) 2.8 2.5 2.2 Source: Company, Karvy Research

Cash Flow (Rs. Mn)

FY16P FY17E FY18E

PBT (includes extra-ordinary items) 411 508 601 Depreciation 95 102 102 Tax (128) (152) (180)Changes in WC (139) (8) (76)Others (80) (76) (76)CF from Operations 160 373 371 Capex (86) (85) (100)Investment 21 (72) (76)Others 80 76 76 CF from Investing 16 (81) (100)Dividends (18) (18) (18)CF from Financing (18) (18) (18)Net change in cash 158 275 252

Source: Company, Karvy Research

Company Financial Snapshot (Y/E Mar)

Profit & Loss (Rs. Mn)

FY16 FY17E FY18E

Net sales 4510 4740 5064 Optg. Exp (Adj for OI) 4048 4207 4437 EBITDA 462 534 627 Depreciation 95 102 102 Interest 0 0 0 Other Income 80 76 76 PBT 446 508 601 Tax 128 152 180 Adj. PAT 283 355 421 Profit & Loss Ratios

EBITDA margin (%) 10.2 11.3 12.4Net margin (%) 6.3 7.5 8.3P/E (x) 30.8 24.3 20.5 EV/EBITDA (x) 17.8 14.7 12.1 Dividend Yield (%) 0.2 0.2 0.2Source: Company, Karvy Research

Consumables74%

Equipments & Cutting

26%

Promoters73.7%

FIIs10.7%

DIIs0.9% Others

14.6%


3


Industry Scenario:

Surging steel consumption globally

Exhibit 4: Application Industries

Source: Industry, Karvy Research

Exhibit 5: India- Major Player in Steel Segment

Source: MInistry of Steel (MoS), 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. India’s 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

World’s 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 world’s crude steel production during 2015. India was the 3rd largest crude steel producer during 2015 and recorded a growth of 2.6% over 2014.

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.

Future looks Prosperous for Indian Steel Sectoryy India 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 country’s 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.

yy As 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.

China50.0%

EU10.0%Japan

7.0%

India6.0%

US5.0%

Russia4.0%

S. Korea4.0%

Brazil2.0%

Ukraine1.0% RoW

11.0%

Automotive & Transport

20.4%

Construction19.2%

Energy23.4%

Heavy Machinery

10.7%

Ship building8.5%

Process & Others14.9%

Aerospace & Defense

2.9%


4


yy The 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.

yy The 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 Government’s 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: India’s Steel Production Vs Consumption (Mn Tonnes)

Source: MoS, Karvy Research

71 74 78 8289

676671 73 74 77

59

0

30

60

90

FY11 FY12 FY13 FY14 FY15 FY16 (Apr-Dec)Crude steel production Consumption

Exhibit 7: FDI Inflows into India

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

Exhibit 8: Sector-wise FDI Inflows

Sector FDI Share (%)

Services 18Construction & development 8Computer software & hardware 7Telecommunications 6Automobile industry 5Drugs & pharmaceuticals 5Chemicals 4Trading 4Power 4Source: DIPP, Karvy Research

Government initiatives & recent developments likely to boost demand environmentyy The 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. yy The Government of India has unveiled plans to invest US$137 Bn in its rail network over the next five years. yy The 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. yy International 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. yy The 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. yy Government-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.

yy The 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.

yy The 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.

-0.5

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0.5

1.0

1.5

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FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

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FY10

FY11

FY12

FY13

FY14

FY15

FY16

FDI (US$ Bn) Growth (%) (RHS)


5


Exhibit 9: Increasing infrastructure finance needs (US$ Bn)


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


218

514

1025

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10th plan 11th plan 12th plan

Increasing infrastructure finance needs (US$ Bn)

3220

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PV CV Two & ThreeFY15 FY21E

Improved market dynamics coupled with adequate capacity headroom to strengthen margins

Exhibit 11: Improving Margins

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

Recent turnaround in industrial activity witnessed by RBI’s survey, along with government’s 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 ESAB’s 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.

12.1% 11.9%9.2% 10.2%

11.3% 12.4%

7.5% 7.6%

4.3%6.3%

7.5% 8.3%

10.8% 10.9%

8.7% 9.9%10.7%

11.9%

0%

5%

10%

15%

CY12 CY13 FY15* FY16 FY17E FY18EEBITDA Margin (%) PAT Margin (%)EBIT Margin (%)

Healthy financial position and focus on services segment may augur wellESAB 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. ESAB’s 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


yy India 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 MoU’s 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.

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1.2

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1.2 1.11.1

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1.1

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1.3

1.4

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1.6

CY12 CY13 FY15* FY16 FY17E FY18E

Asset turnover ratio

26.4%36.4% 34.4%

48.5%

53.4%58.0%

-0.2-0.1 -0.1

-0.2

-0.2-0.3

-0.5

-0.4

-0.3

-0.2

-0.1

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0%

20%

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80%

CY12 CY13 FY15* FY16 FY17E FY18E

Net Working Capital as a % of SalesNet Debt/Total equity (x) (RHS)


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Exhibit 14: Business Assumptions

(Rs. Mn) FY15* FY16P FY17E FY18E Comments

Revenue 5519 4510 4740 5064 Revenue is expected to register a CAGR growth of 5.9% for FY16-FY18E on the back of improving demand environment.

Revenue Growth (%) 26.7 (18.3) 5.1 6.8

EBITDA 505 462 534 627 Moderate increase in employee expenses together with stabilizing other expenses to aid EBITDA margin at 12.4% by FY18E.

EBITDA Margins (%) 9.2 10.2 11.3 12.4

PAT (normalized) 236 283 355 421 Stable depreciation expense, zero finance cost & stable taxes help PAT to increase to Rs. 421 Mn by FY18E.

EPS (Rs.) 15.4 18.4 23.1 27.3 Adjusted EPS is expected to grow at a CAGR of 22.4% for FY16-FY18E mainly on account of higher revenue & zero finance cost.

EPS Growth (%) (28.6) 19.9 25.4 18.4

Capex (ex. Acquisition) - cash capex (55) (86) (85) (100)With optimum capacities already installed, only maintenance capex is expected.

Net CFO 164 160 373 371 On the back of healthy growth in revenue & margins, CFO remains positive.

Net Debt (349) (507) (781) (1034)Free Cash Flow 108 74 288 271 Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015


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Exhibit 15: Revenue to Grow at 5.9% CAGR

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%


Exhibit 16: Healthy EBITDA Margins to Stay


Exhibit 18: Healthy Cash Flows


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.

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.

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.

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.

4356

5519

4510

4740

5064

-13.5%

26.7%

-18.3%5.1% 6.8%

-40%

-20%

0%

20%

40%

0

2000

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6000

CY1

3

FY15

*

FY16

FY17

E

FY18

ERevenue (Rs. Mn) Revenue Growth (%)

516

505

462

534

627

11.9%9.2%

10.2% 11.3% 12.4%

0%

5%

10%

15%

0

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800

CY1

3

FY15

*

FY16

FY17

E

FY18

E

EBITDA (Rs. Mn) EBITDA Margin (%)

331

236 28

3

355

421

7.6%

4.3%

6.3%7.5% 8.3%

0%

2%

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6%

8%

10%

0

200

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CY1

3

FY15

*

FY16

FY17

E

FY18

E

PAT (Rs. Mn) PAT Margin (%)

351

164

160

373 371

260

108

74

288

271

0

100

200

300

400

CY13 FY15* FY16 FY17E FY18ECFO (Rs. Mn) FCF (Rs. Mn)


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Exhibit 21: Company Snapshot (Ratings)

Low High

1 2 3 4 5

Quality of Earnings 3 Domestic Sales 3 Exports 3 Net Debt/Equity 3 Working Capital Requirement 3 Quality of Management 3 Depth of Management 3 Promoter 3 Corporate Governance 3 Source: Karvy Research

Exhibit 19: Improving Return Ratios


Exhibit 20: Increasing Shareholders Value


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.

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.

12.4%

8.2%9.0% 10.2% 10.8%

17.8% 16.7%

14.1% 14.5% 15.4%

5%

10%

15%

20%

CY13 FY15* FY16 FY17E FY18E

RoE (%) RoCE (%)

21.5

15.4 18.4

23.1 27.3

8.9 1.2 1.2 1.2 1.2

173.6 187.8

205.0 226.9

253.1

100

150

200

250

300

0

10

20

30

CY13 FY15* FY16 FY17E FY18EEPS (Rs.) DPS (Rs.)BVPS (Rs.) (RHS)


9


Valuation & OutlookWe 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.

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.

Key Risksyy Delay in economic recovery. yy Increase in competition in domestic market.

Exhibit 22: One Year Forward P/E

Source: NSE, Karvy Research

Exhibit 23: P/BV Band

Source: NSE, Karvy Research

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CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 FY15 FY16

1Year Forward P/E Average 1 SD

0

2

4

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CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 FY15 FY16

P/BV Average

Exhibit 24(a): Comparative Valuation SummaryCMP

(Rs.)

Mcap

(Rs. Mn)

EV/EBITDA (x) P/E (x) EPS (Rs.)

FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

ESAB* 561 8631 20.4 17.8 14.7 12.1 45.0 30.8 24.3 20.5 15.4 18.4 23.1 27.3Ador Welding 281 3781 9.3 9.0 7.7 6.6 9.2 17.4 14.6 12.0 23.4 16.5 19.2 23.3Source: Bloomberg, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 24(b): Comparative Operational Metrics SummaryCAGR % (FY16-18E) RoE (%) Price Perf (%) Net Sales (Rs. Mn)

Sales EBITDA EPS FY15 FY16 FY17E FY18E 3m 6m 12m FY15 FY16 FY17E FY18E

ESAB* 6.0 16.5 21.8 8.2 9.0 10.2 10.8 (14.3) (10.4) (13.6) 5519 4510 4740 5064 Ador Welding 9.6 5.5 19.0 17 10.7 NA NA 5.9 (21.1) 19.0 3860 4060 4360 4880 Source: Bloomberg, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015


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Financials

Exhibit 25: Income Statement(Rs. Mn) CY13 FY15* FY16 FY17E FY18E

Revenue 4356 5519 4510 4740 5064 Growth (%) (13.5) 26.7 (18.3) 5.1 6.8Operating Expenses 3839 5013 4048 4207 4437 EBITDA 516 505 462 534 627 Growth (%) (15.2) (2.2) (8.6) 15.6 17.5Depreciation & Amortization 112 138 95 102 102 Other Income 71 115 80 76 76 EBIT 475 482 446 508 601 PBT 475 482 446 508 601 Tax 144 70 128 152 180 Adjusted PAT 331 236 283 355 421 Growth (%) (12.3) (28.6) 19.9 25.4 18.4Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 26: Balance Sheet(Rs. Mn) CY13 FY15* FY16 FY17E FY18E

Cash & Equivalents 326 349 507 781 1034 Sundry Debtors 274 437 454 481 513 Inventory 614 540 585 615 663 Loans & Advances 27 30 32 32 32 Investments 1048 1219 1198 1270 1346 Gross Block 1906 1961 2054 2139 2239 Net Block 959 830 821 804 802 CWIP 31 12 12 12 12 Miscellaneous 225 270 248 257 262 Total Assets 3503 3687 3856 4251 4664 Current Liabilities & Provisions 763 759 658 716 726 Debt 0 0 0 0 0 Other Liabilities 67 38 42 42 42 Total Liabilities 830 796 700 758 768 Shareholders Equity 154 154 154 154 154 Reserves & Surplus 2519 2737 3002 3339 3742 Total Networth 2673 2891 3155 3493 3895 Total Networth & Liabilities 3503 3687 3856 4251 4664 Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015


11


Exhibit 27: Cash Flow Statement(Rs. Mn) CY13 FY15* FY16P FY17E FY18E

PBT (includes extra-ordinary items) 475 306 411 508 601 Depreciation 112 138 95 102 102 Interest 0 0 0 0 0 Tax Paid (184) (119) (128) (152) (180)Inc/dec in Net WC (5) (120) (139) (8) (76)Other Income (71) (94) (80) (76) (76)Other non cash items 24 52 0 0 0 Cash flow from operating activities 351 164 160 373 371 Inc/dec in capital expenditure (88) (55) (86) (85) (100)Inc/dec in investments (270) (158) 21 (72) (76)Others 89 94 80 76 76 Cash flow from investing activities (269) (120) 16 (81) (100)Dividend paid (137) (18) (18) (18) (18)Cash flow from financing activities (137) (18) (18) (18) (18)Net change in cash (55) 27 158 275 252 Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 28: Key RatiosCY13 FY15* FY16 FY17E FY18E

EBITDA Margin (%) 11.9 9.2 10.2 11.3 12.4EBIT Margin (%) 10.9 8.7 9.9 10.7 11.9Net Profit Margin (%) 7.6 4.3 6.3 7.5 8.3Dividend Payout Ratio (%) 41.2 7.6 6.4 5.1 4.3Net Debt/Equity (x) (0.12) (0.12) (0.16) (0.22) (0.27)RoE (%) 12.4 8.2 9.0 10.2 10.8RoCE (%) 17.8 16.7 14.1 14.5 15.4Source: Company, Karvy Research, *FY15: for 15 months from Jan 2014 to Mar 2015

Exhibit 29: Valuation ParametersCY13 FY15** FY16 FY17E FY18E

EPS (Rs.) 21.5 15.4 18.4 23.1 27.3 DPS (Rs.) 8.9 1.2 1.2 1.2 1.2 BVPS (Rs.) 173.6 187.8 205.0 226.9 253.1 PE (x)* 19.5 45.0 30.8 24.3 20.5 P/BV (x)* 2.4 3.7 2.8 2.5 2.2 EV/EBITDA (x)* 11.9 20.4 17.8 14.7 12.1 EV/Sales (x)* 1.4 1.9 1.8 1.7 1.5 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


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Stock Ratings Absolute ReturnsBuy : > 15%Hold : 5-15%Sell : <5%

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y Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing, profiling and related services or in any other capacity.

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