In This Article:
ESAB India Limited (NSE:ESABINDIA), a ₹13.10b small-cap, is a machinery manufacturing company operating in an industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 16.2% in the upcoming year , and a whopping growth of 49.7% over the next couple of years. the growth rate of the Indian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether ESAB India is a laggard or leader relative to its capital goods peers.
Check out our latest analysis for ESAB India
What’s the catalyst for ESAB India’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains more efficiently. In the previous year, the industry saw growth in the twenties, beating the Indian market growth of 21.8%. ESAB India leads the pack with its impressive earnings growth of 68.2% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 2.6% compared to the wider machinery sector growth hovering in the teens next year. As a future industry laggard in growth, ESAB India may be a cheaper stock relative to its peers.
Is ESAB India and the sector relatively cheap?
Machinery companies are typically trading at a PE of 20.83x, in-line with the Indian stock market PE of 19.33x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 11.9% compared to the market’s 9.3%, potentially illustrative of past tailwinds. On the stock-level, ESAB India is trading at a higher PE ratio of 30.03x, making it more expensive than the average machinery stock. In terms of returns, ESAB India generated 11.5% in the past year, in-line with its industry average.
Next Steps:
ESAB India is machinery industry laggard in terms of its future growth outlook. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis.If ESAB India has been on your watchlist for a while, now may not be the best time to enter into the stock. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the capital goods sector. However, before you make a decision on the stock, I suggest you look at ESAB India’s fundamentals in order to build a holistic investment thesis.