Esab's performance in the second half was marked by poor margins and negative growth and clearly reflect the industrial climate that prevailed. The welding consumables and the other products that the company manufactures like fluxes, welding rods and gas cylinder valves are consumed by that part of the steel industry which manufacture premium products supplied to the automobiles, bearings, capital goods, white goods, construction and turbine manufacturing sectors amongst others. Most of these companies have been cutting down on production. Besides there has beena cutback in production on part of the steel companies which cumulatively hit the offtake of welding consumables. Steel companies have been increasing exports, which meant that the local consumption of steel has decreased, which further reduced the consumption of welding consumables and equipment. The trend for the annual results was foreseen during the first half itself where the growth in revenues was 10 per cent, while the margins were down to 11 per cent from 13.5 per cent during the corresponding period in the previous year. The Esab stock has already taken into account the poor performance in the second half, and the stock at Rs 80 is available at half the price it traded at a couple of months ago.

The Esab stock is also closely linked to the fortunes of the steel industry, that is there should be an improvement in volumes and in domestic steel offtake, for a positive impact on Esab. The stock has also suffered in part due to the sell-off from the FIIs.

Where Esab India has scored is that it hasmanaged to continue to grow its revenues despite the poor second half and further, despite the lower margins it managed to show a better profit after tax (it has diverted its attention to the export market quite successfully). Interest costs have halved from Rs 3.4 crore to Rs 1.8 crore. The reduction in interest is in continuation with the trend in retiring debt taken to fund its expansion. The debt equity ratio (not including short-term debt and current liabilities) has been brought down to 0.1:1 and interest cost is just one per cent of sales down from 2.14 per cent last year. While a lower taxation at Rs 4.8 crore from Rs 5.73 crore has resulted in a growth in profits by 15 per cent to Rs 9.53 crore.

In contrast, Advani Oerlikon, another major player in the welding consumables business, which focuses on the non-premium segment has continued to report operating margins which were better than Esab's, even though these have suffered during the year. The non-premium welding consumables segment is a lowmargin business. Yet Ador managed to report margins of 15.5 per cent against 16.6 per cent in the previous year. Ador's profit after tax has slipped by 18 per cent to Rs 9.77 crore despite a halving of tax provision to Rs 3.25 crore and an improvement in its export efforts which have yielded some good results. Additionally, despite the reduction in dividend for the year from Rs 4 per share to Rs 2.5 per share, Ador still offers a good equity yield at ten per cent.

BoB may spring a surprise

One of the last large bank's due to release its results, the Bank of Baroda (BoB) results might surprise the market, like SBI did. The consensus estimates for BoB have ranged from Rs 340 crore to Rs 390 crore, as net income. The consensus expectation is reportedly in the region of Rs 360 crore. In addition the bank has reportedly decided to mark its portfolio entirely to market, which given the lower cut off yields for valuing its investment portfolio will prove profitable for the bank. In effect there areindications that in direct contrast to these expectations BoB will report a net profit of Rs 450 crore, higher than the market expectations.