Transcript India Welding Market Sales - BA4196

Growth in Sales in the Indian Welding
Market (@7.5% / year)
$667,734,570
$621,148,438
$500,000,000
2006
$537,500,000
2007
$577,812,500
2008
2009
2010
India Welding Market Sales
$60
2006 Sales (in Millions US$)
$50
$40
$30
$20
$10
$-
ESAB India
$55.00
Ador
$50.00
EWAC Alloys
$30.00
Anand Arc
$4.00
D&H Welding
$3.50
India Welding Market Share
12%
2006 Market Share
10%
8%
6%
4%
2%
0%
ESAB India
11%
Ador
10%
EWAC Alloys
6%
Anand Arc
1%
D&H Welding
1%
Indian Market Considerations
• India Market is not a “Zero Sum Game”
– LE’s global presence will allow for aggressive entry
– Market is highly fragmented with small firms
– Market growth will present major opportunity
– Most of LE’s future growth will come from
India/China
• HR policies in India similar to US
– LE can use its Competitive HR practices
– Few adjustments need to be made
Indian Market Considerations
• The Indian Welding market is growing faster
than GDP
– Due to massive infrastructure spending
– Thousands of miles of new pipeline are also being
planned
– Construction demand will continue to increase via
urbanization
– Heavy manufacturing increases will also require
welding equipment and consumables
Implementation Strategy
• Implementation will utilize a two prong entry
• Strategic Alliance with Ador Welding
– Will allow immediate production of consumables
– LE will have 30% ownership in major player
• Construction of Greenfield Plant in Silvassa
– Access to India & Western China
– R&D to resolve India specific equipment issues
– Alliance will build demand that plant will supply
Strategic Alliance Details
Ador Welding Details
# of Publicly Traded Shares
% of shareholding
Total Number of Shares
5,995,933
44.09%
13,599,304
Earnings Per Share (in Rupees)
CAGR for Net EPS (2007 projected)
Projected FY07 Net EPS (in Rupees)
29.45
23%
36.2235
Ador's public share valuation (P/E)*
*-Based on Ador's FY07 projected
Earnings
Ador's Price per Share (Rupees)
10.7
387.59145
Strategic Alliance Details
Acquisition Options and Costs
Total # of
Shares
Total Acquisition
13,599,304
%
80% - Commercial Funding
Ownership Price Per Acquisition Total Acquisition @8.5%
Required Share Premium Cost in US Dollars 20% -LE Financing via cash
100%
387.59
10%
$127,557,567
$102,046,054
$25,511,513.38
Majority
ownership
6,935,645
51%
387.59
10%
$33,177,723
$26,542,178.52
$6,635,544.63
Joint Venture
6,799,652
50%
387.59
10%
$31,889,392
$25,511,513.38
$6,377,878.35
Public Takeover
(Purchase all
Public Shares)
5,995,933
Strategic Alliance
4,079,791
44%
387.59
10%
$56,252,887
$45,002,309.60
$11,250,577.40
30%
387.59
10%
$38,267,270
$30,613,816
$7,653,454
Strategic Alliance Details
Strategic Alliance Payments v. Revenues
$25,000,000
$20,000,000
$15,000,000
$10,000,000
Payments
$5,000,000
Revenues
$0
0
($5,000,000)
($10,000,000)
($15,000,000)
1
2
3
4
Strategic Alliance Details
Strategic Alliance Cashflows
20,000,000
Annual Cash Flow
15,000,000
10,000,000
5,000,000
0
0
1
2
(5,000,000)
(10,000,000)
Year
3
4
Strategic Alliance Details
Year
0
Payments
($12,296,549)
2
($4,643,095)
3
4
($4,643,095) ($4,643,095) ($4,643,095)
Investment
($7,653,454)
Principal
($2,040,921)
($2,040,921) ($2,040,921) ($2,040,921) ($2,040,921)
Interest
($2,602,174)
($2,602,174) ($2,602,174) ($2,602,174) ($2,602,174)
Revenues
Consumables Production
$6,391,537
$5,000,000
Increase in Share Value*
Dividend Revenues*
Cash Flow
1
$1,391,537
($5,905,012)
$0
$14,712,929
$0
$0
$0
$15,946,903 $16,694,690 $19,074,469
$5,000,000
$4,000,000
$8,001,338
$9,841,646 $12,105,225 $14,889,426
$1,711,591
$2,105,256
$10,069,834
$2,000,000
$2,589,465
$1,000,000
$3,185,043
$11,303,808 $12,051,595 $14,431,374
Strategic Alliance Details
Appreciation of Lincoln Electric’s Ador Welding Ownership
Year:
Number of Shares
Owned
Dividend Yield
Stock Price
Dividend
Capital
Appreciation
0
1
2
3
4
4,079,791
4,079,791
4,079,791
4,079,791
4,079,791
4%
4%
4%
4%
4%
$8.53
$10.49
$12.90
$15.87
$19.52
$1,391,537
$1,711,591
$2,105,256
$2,589,465
$3,185,043
$8,001,338
$9,841,646 $12,105,225 $14,889,426
Greenfield Plant Details
Location:
Silvassa, India
Plant Size:
100,000 sq. ft.
56,250 sq. ft. Consumables Production
18,700 sq. ft. Equipment Production
20,000 sq. ft. Research & Development
5,000 sq. ft. Administrative
Completion Time: 15 Months
Greenfield Plant Details
Cost Structure:
$10,580,000 Total Cost of Facility
$1,000,000 Land Costs
Technology transfer costs for
equipment/consumables
$1,500,000 from parent company
$1,832,000 12 Months of operational costs/utilities
Cost of structure, R&D Equipment, Production
$6,248,000 Equipment
Capital Structure:
$10,580,000 Total Capital Investment
$2,116,000 20% Cash investment by Lincoln Electric India
$8,464,000 80% financed via commercial loans
15 year term @8.5%
($719,440)Annual Interest Expense
Greenfield Plant Details
Cash Flow Projections
Year
Investments
Structural
0
1
2
($8,282,107)
($4,407,307)
($1,741,707)
($6,998,400)
($1,749,600)
Operational
3
4
($1,283,707) ($1,283,707)
($1,374,000)
($458,000)
($1,283,707)
($1,283,707)
($1,283,707)
($1,283,707) ($1,283,707)
Revenues
$0
$12,500,000
$20,000,000
$31,000,000 $43,400,000
Cash Flow
($8,282,107)
$8,092,693
$18,258,293
$29,716,293 $42,116,293
Finance Costs
Implementation Strategy Details
Internal Rate of Return:
Net Present Value:
168%
$75,583,238.40
(Based on 14% Discount Rate)
Due to the positive nature of these values,
considering high discount modeling, this project
should be accepted.
Projected Results of Implementation
Lincoln Electric Sales Volume in Market
$70,000,000.00
$60,000,000.00
$50,000,000.00
$40,000,000.00
$30,000,000.00
$20,000,000.00
$10,000,000.00
$0.00
1
2
3
4
5
Projected Results of Implementation
Lincoln Electric Share of Market
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
1
2
3
4
5
Implementation Strategy Details
Year
0
Payments
1
3
4
($20,578,656) ($9,050,402) ($6,384,802) ($5,926,802)
Investment ($14,651,854) ($3,123,600)
Long-Term Financing
Revenues
$0
$0
($5,926,802) ($5,926,802) ($5,926,802)
($5,926,802)
($5,926,802)
$27,212,929 $35,946,903 $47,694,690
$7,500,000
Silvassa Plant Sales
$62,474,469
$5,000,000
$4,000,000
$2,000,000
$1,000,000
$8,001,338
$9,841,646
$12,105,225
$14,889,426
$1,711,591
$2,105,256
$2,589,465
$3,185,043
$0 $12,500,000 $20,000,000
$31,000,000
$43,400,000
Increase in Share Value*
Dividend Revenues*
($5,926,802)
($458,000)
$6,391,537
Ador Production
Cash Flow
2
$1,391,537
($14,187,119) $18,162,527 $29,562,101 $41,767,888
$56,547,667