MNCL (Monarch Networth Capital Limited.)Research’s “Buy” rating and target price of ₹6,880 for ESAB India rest on a well-supported foundation of strong financial projections, consistent performance, and industry positioning, despite recent margin revisions. Here’s a detailed discussion in the larger context of their investment thesis:
🔍 1. Investment Thesis Summary:
MNCL Research maintains a positive long-term outlook for ESAB India, driven by:
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Strong fundamentals (consistent high RoE/RoCE, low capex needs).
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Supportive industry dynamics (rebound in capex cycle, rising steel consumption).
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Superior business model with high asset turnover and strong operating leverage.
These elements justify a premium valuation and continued investor interest, even amid short-term margin moderation. ESAB India embodies excellence through its strategic positioning and operational efficiency.
📈 2. Rating Context – “Buy”
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Definition: MNCL assigns a “Buy” when the expected upside is over 15%.
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Rationale: With a target price of ₹6,880 vs CMP of ₹5,250, the implied upside is ~31% — well within the “Buy” territory.
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Quality bias: The rating is influenced by qualitative strengths like robust parentage (ESAB group), global scale, and product leadership.
🧮 3. Valuation Methodology:
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Valuation Basis: Target price derived by averaging:
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45.0x P/E on FY27E EPS of ₹157.7
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30.0x EV/EBITDA on FY27E EBITDA of ₹3,391 mn
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These multiples remain unchanged, showing MNCL’s continued confidence in ESAB’s premium valuation profile.
🔹 Note: Even though the target price was revised down from ₹6,950 to ₹6,880, the underlying valuation multiples were preserved — signaling that the business’s core strengths remain intact.
🧾 4. Key Financial Projections (FY25–FY27E):
| Metric | FY25E | FY26E | FY27E | CAGR (FY25–27E) |
|---|---|---|---|---|
| Revenue | ~13,737 mn | 15,795 mn | 18,164 mn | 15% |
| EBITDA | ~2,445 mn | 2,870 mn | 3,391 mn | 18% |
| PAT | ~1,754 mn | 2,056 mn | 2,428 mn | 18% |
| EPS (₹) | ~113.9 | 133.6 | 157.7 | — |
| EBITDA Margin | ~17.8% | 18.2% | 18.7% | Improving |
| PAT Margin | ~12.8% | 13.0% | 13.4% | Improving |
| RoE | 52.6% | 53.9% | 56.9% | Strong Upside |
| RoCE | 67.9% | 70.3% | 74.3% | Best-in-Class |
📌 RoE and RoCE levels in the 50–70% range are rare and suggest exceptional capital efficiency.
🛠️ 5. Margin Revisions – A Conservative Reset:
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Gross Margin for FY27E cut from 42.7% → 41.5% (120 bps down).
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EBITDA Margin for FY27E cut from 19.8% → 18.7%.
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These changes reflect:
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Macro prudence (given softer capex recovery vs FY22/23).
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Market realism, not weakness — ESAB is still expected to improve YoY.
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📌 6. Strategic Assumptions Underlying the Projections:
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Dividend payout: A high ~80% average — reinforces cash-rich, shareholder-friendly stance.
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Capex-to-Revenue: Just 2.2% average — shows asset-light operations.
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Peer positioning: Outperformed competitors like Ador Welding in FY25 despite a muted cycle.
⚠️ 7. Risks Acknowledged:
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Economic downturn may delay capex recovery, lowering revenue visibility.
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Intensifying competition may squeeze pricing power, especially in commoditized segments.
✅ 8. Bottom Line – Why the “Buy” Call Sticks:
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Even after margin trims, core growth remains strong (15–18% CAGR).
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Return ratios are stellar, justifying high valuation multiples.
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ESAB India is a compounder in a cyclical industry — asset-light, high-cash conversion, strong pricing power.
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Premium multiples (45x P/E, 30x EV/EBITDA) are not only justified but sustainable in the current macro.
📊 Summary Table:
| Component | Details |
|---|---|
| Rating | Buy |
| Target Price | ₹6,880 |
| Implied Upside | ~31% from ₹5,250 CMP |
| Valuation Method | 45x P/E & 30x EV/EBITDA on FY27E estimates |
| Key Strengths | Strong RoE/RoCE, robust parentage, premium mix |
| Risk Factors | Slower capex pickup, margin compression |