One of the strongest movers in the specified list the whole of the last week and at present is Esab India; a new addition to that category of shares. The company's results for 1996-97 showed once again why the company's stock has traded at a high multiple and always at a premium to the market.

It currently trades at 21 times against a market average of 17 times. The Esab stock has outperformed other similar ones like that of Advani Oerlikon (AOL), in the last one year.

It is in a similar business to that of AOL; manufacturing welding electrodes and consumables, but reported a much better financial performance last year. 1996-97, which was bad for most manufacturing companies, Esab managed to improve its operating margins, while AOL's OPM actually dropped.

It dominates the premium welding market in India and has a major client base within the steel industry; in fact it is the largest supplier of welding consumables to that sector.

Overall it has a 34 per cent market share against Advani Oerlikon's market share of 44 per cent.The similarity between Esab and AOL begins and ends with their distribution strategy; they both use a vast dealer network to distribute their products. But otherwise Esab's focus has been the higher end of the market. They have been continuosly introducing high margin products, which their access to the latest technology from the parent company, Esab AB, Sweden allows them to do.

The buoyancy in this stock is essentially a play on the Indian industry, because it is understood that recovery here soon translates into more business for welding companies. This explains the immediate interest in the stock given the positive market outlook towards industrial recovery, and the fact that it has been hitting new highs every day.

Paint sector continues to perform

First, it was cement stocks. Next came steel. And now it is the turn of paints stocks to attract buying interest. The share prices of the three major paint manufacturers have gone up sharply in the recent past. Goodlass Nerolac moved from Rs 219 to Rs 279, an increase of 27 per cent in the last four weeks' period.

Asian Paints moved up from Rs 295 to Rs 350 during the same period. Another player in the industry, Berger Paints, jumped from Rs 70 Rs 88, showing an increase of 26 per cent.

While the rally in Asian Paints was triggered partly on account of rumours of a bonus issue, some observer feel that a possibility of activity in the construction and automobiles sectors bouncing back, has played a major role in attracting punters towards the stocks of paints companies.

According to them, if the steel sector-where growth is linked with the construction industry, and automobile sector do well on account of lowering interest rates, the demand for paints should also grow at faster pace.

On the other hand, since these three companies have an advantage of low equity bases and strong book value, punters can expect these stocks to perform, at least, in line with the markets.

As compared to Asian Paints' book value of Rs 50.90, the book value of Berger Paints and Goodlass Nerolac stands at Rs 52.9 and Rs 71.8 respectively. Goodlass Nerolac is the best suited amongst the paint companies to take advantage of the huge automobile capacities coming up (1.2 million cars by end 1998), being the largest suppliers of paint for most of the Maruti models. The other manufacturers of automotive paints cater to the secondary market (replacement).

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.