ESAB India - Encouraging quarter; growth in focus | Company Update
We retain Buy on ESAB India with TP revised upwards to Rs 6,850 (vs Rs 6,554 earlier) on valuation rollover. The company delivered a strong quarter, with overall growth hinting at signs of recovery supported by margin gains. ESAB continues to outperform, underscoring its superior execution, premium product mix, and leadership in high-end equipment. With a net cash balance sheet, strong return ratios, and supportive industry fundamentals, the company looks poised for a sustained recovery. We have made no changes to our estimates; factoring in revenue/EBITDA/PAT CAGR at 13%/14%/14% over FY25-FY28E.
Strong performance in a cyclically weak quarter:
Q2FY26 revenue up 12.7% YoY and 8.4% QoQ to Rs 3,816 mn, marking a solid recovery after a few subdued quarters. EBITDA rose 17.5% YoY and 22.1% QoQ to Rs 722mn, with margins improving to 18.9% (vs 18.2% LY and 16.8% LQ), possibly driven by improved operating leverage and better cost control. PAT surged 83.5% YoY / 93.5% QoQ to Rs 792mn, aided by a one-time gain of Rs 309mn from the land sale in West Bengal. The company remains net cash positive with a stable cash cycle of 43 days and strong return ratios (ROE at 54.4% vs 51.6% LY).
Growth stronger to its peer:
ESAB’s revenue growth was stronger at 12.7% YoY versus Ador Welding’s modest 4.4%, though Ador reported sharp PAT growth on the back of improved operating profits. We believe Ador’s significant margin expansion (12% vs. 7% YoY) was due to a combination of steel price correction, favorable product mix, and cost control. However, ESAB’s superior 18.9% EBITDA margin reflects its premium product mix, operational discipline, and leadership in high-end equipment and automation. Overall, ESAB continues to exhibit stronger topline momentum, higher operating leverage, and margin resilience, making it our preferred pick in the welding space.
Supporting fundamentals:
Rising per capita steel consumption and a potential pick-up in private capex should bode well for ESAB. The company’s resilient Q2 performance, after a few muted quarters, suggests improving demand and volume traction. Supported by its strong execution and exceptional return ratios (ROE/ROCE of 54%/70%), ESAB remains well-positioned to sustain steady growth and margin leadership.
Valuation and view:
We retain our Buy rating and raise Target Price to Rs 6,850 due to valuation rollover. Our target price is arrived at by applying an unchanged 45.0x P/E and 30.0.0x EV/EBITDA to September 2027E EPS and EBITDA. Key risks: (i) economic downturn derailing growth, and (ii) increase in competition affecting product prices and margins.
Company website: https://esab.com/
| Rating | BUY |
|---|---|
| CMP | INR 5,248 |
| Target Price | INR 6,850 |
| Upside | 31% |
Click to download the full ESAB India Ltd. Company Update
Analyst:
- Mohit Surana - Senior Research Analyst, Institutional Equities (NISM-202300189881)
- Mohd Haris - Research Associate, Institutional Equities (NISM-202400161268)
Frequently Asked Questions (FAQ)
1. What is the current rating and target price for ESAB India?
ESAB India has a BUY rating with a revised target price of Rs 6,850, reflecting a potential upside of 31% from the current market price of Rs 5,248.
2. Why was the target price revised upward?
The target price was revised upward primarily due to valuation rollover, while the company’s growth estimates remain unchanged.
3. How did ESAB India perform in Q2FY26?
In Q2FY26, ESAB India reported revenue growth of 12.7% YoY and 8.4% QoQ to Rs 3,816 mn. EBITDA increased 17.5% YoY to Rs 722 mn, with margins improving to 18.9%.
4. What factors supported margin improvement during the quarter?
Margin improvement was supported by better operating leverage, improved cost control, and a premium product mix.
5. Why did PAT increase sharply in Q2FY26?
PAT rose significantly due to a combination of improved operating performance and a one-time gain of Rs 309 mn from the sale of land in West Bengal.
6. What is ESAB India’s balance sheet position?
The company remains net cash positive, with a stable cash cycle of 43 days and strong return ratios.
7. How does ESAB India compare with peers?
ESAB India delivered stronger revenue growth compared to Ador Welding and maintained a higher EBITDA margin, reflecting its premium product mix and leadership in high-end equipment.
8. What industry factors support ESAB India’s outlook?
Rising per capita steel consumption and a potential pick-up in private capital expenditure are expected to support demand for welding equipment and solutions.
9. What growth assumptions are used in the valuation?
The valuation factors in a revenue, EBITDA, and PAT CAGR of 13%, 14%, and 14% respectively over FY25–FY28E.
10. How is the target price valuation derived?
The target price is derived by applying valuation multiples of 45.0x P/E and 30.0x EV/EBITDA to September 2027E earnings and EBITDA.
11. What are the key risks highlighted for ESAB India?
Key risks include a potential economic downturn affecting demand and increased competition that could pressure product pricing and margins.
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