The Hindu Business Line : Esab India: Buy

ESAB India appears an attractive investment option, as robust demand and enhanced profitability levels are likely to buoy earnings growth. Buy this small-cap stock with a one-to-two year perspective.

Esab India manufactures welding and cutting tools that find application in several industries. As its products are extensively used in the engineering, construction and automotive sectors that are likely to exhibit healthy growth, Esab India will be a prominent beneficiary.

In the engineering, construction and infrastructure space, the burgeoning order book levels across several sectors point to growth opportunities for Esab India.

Investments planned in the oil and gas sector are also likely to provide avenues for growth. Access to contemporary products that have been developed over the past two years by its global parent could lead to a wider product range.

In 2004, Esab India had completed its restructuring and had also taken one-time charges that strengthened its balance sheet. Enhanced operating efficiencies enabled Esab to lower its input costs, despite a sharp rise in the prices of steel and non-ferrous metals. A decline in metal prices from the peak levels this year is likely to aid profitability.

Esab's equipment business has also registered a turnaround. We take a positive view of the company's conservative approach in skipping dividend last year, when it could have comfortably paid a hefty dividend. As Esab could also move to a debt-free status this year, it is likely to return to dividend list.

S. Vaidya Nathan

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