Detailed research report on Ador Welding Ltd

Ador Welding Limited has established long standing relationships with all suppliers and customers, which includes few big players and has established strong network of distributors. Diversified end-user industry base and strong industrial dynamics should act as principal growth enablers.

Company overview:

Ador Welding Limited, which was incorporated in 1951, has been categorised as one of India’s leading player in area of Welding Products, Technologies and Services. Welding equipment consists of Welding Transformers, MIG Equipment, TIG Equipment, SAW Equipment, Air Plasma Cutting Equipment, etc. It has played a critical role during post-independence industrialization in India and takes immense pride in its heritage.

The company provides trusted partnership to vast global clientele with strong sales and services. They get assured, dependable support from its extensive, customer-focused network of sales and servicing teams.

Business model of Ador Welding Limited

Ador Welding Limited provides a range of industrial welding equipment and makes sure that the company is ready for any project. It carries highest quality welding machines and accessories. The company helps in choosing welding machine which meets requirements. Apart from this, the company has been in Flares & Process Equipment Division for over 30 years.

With presence throughout 40+ countries in Middle East, Africa, and Southeast Asia, the company focuses on maintaining strong sales and distribution network across globe. It provides solutions to wide spectrum of industries such as defense, shipbuilding, oil and gas, railways, infrastructure, etc.

Track record of management

Mr. Aditya T. Malkani: He is Managing Director of Ador Welding Limited. He pursued B.A. (Economics) from Oberlin College (Ohio, USA) and MBA from Indian School of Business, Hyderabad. He has previous experience in Marketing & Finance functions of leading multi-national companies in FMCG industry. He is involved across different functions which range from corporate marketing & exports to strategic planning & new business initiatives throughout Ador Group of Companies.

Mrs. Ninotchka Malkani Nagpal: She is Executive Chairman of Ador Welding Limited. She has done B.Sc. in Business & Economics from Lehigh University, PA, USA and has pursued MBA, with specialization in Finance from Imperial College, UK. Before working with Ador Welding Limited, was associated with Alliance Capital Asset Management in New York. She has more than 25 years of experience in Financial Management of Ador Welding Limited and Ador Group of Companies. She is former Chairman of Ador Fontech Ltd. and J. B. Advani & Co. Private Limited (which is a parent company of Ador Group).

Mr. (Dr.) Deep A. Lalvani: He is Non - Executive Director of the company and has ~19 years of hands-on experience throughout reputed and renowned National and International firms. He is involved throughout various functions within Ador Group, which includes strategising at Ador Welding Academy and new business ideas at group level. Currently, he is Chairman of group’s holding company, JB Advani & Co Pvt. Ltd.

Financial performance of Ador Welding Limited

In FY23, overall revenue from operations of the company touched INR77,676 lakhs in comparison to INR66,148 lakhs in FY22. This translates to ~17.4% rise from previous year of FY22. Revenue from consumables business came in at INR61,449 lakhs against INR53,540 lakhs in FY22. Revenue from equipment & automation business was INR11,504 lakhs in comparison to INR9,854 lakhs in FY22. Revenue from Flares & Process Equipment (erstwhile Project Engineering Business (PEB)) came in at INR4,723 lakhs versus INR2,754 lakhs in FY22. Other income was INR667 lakhs, and this head mainly consisted of forex gains, interest income, rental income, etc.

During FY23, the company’s overall working capital days were controlled at ~85 days in comparison to ~68 days in prior year. This was seen even after strong increase in business and undertaking of large-scale project with higher lead time. Bank limit utilisation of the company remained low at ~8% for previous 12 months ended Jan-23. Cash accruals should be more than INR62 crores - INR63 crores in FY24 and FY25 which are sufficient against minimal annual term debt obligation of INR0.08 crore in medium term. Apart from this, it should act as a cushion to liquidity of the company. Cash and bank balance of ~INR11 crore remained healthy as on September 30, 2022. Further, it has liquid investment of ~ INR17 crore as on September 30, 2022 and overall liquidity, which includes unutilised bank lines, came at INR181 crore as on 31^st January 2023.

Industry analysis

Welding industry continues to form backbone of manufacturing sector, which is expected at ~17% of GDP. Welding is important for several manufacturing processes and quality of welding appears to have a direct impact on quality of final product. Strong growth in manufacturing industries continues to support market’s outlook. In line with this, higher demand for welding consumables in energy sector aiding market expansion. Several other factors, including strong growth in automotive industry and numerous technological advancements, like usage of dissimilar metal welding through fibre lasers in production of electric cars, should help support market further in India. Apart from this, Indian welding equipment and consumables market should benefit from growth of railways and mining industry in India.

Ador Welding Limited has a significant market share in both, consumable and equipment markets, and the company has been categorised as market pioneers in numerous goods & geographies. Plans are there to cater to all customer needs, with its solutions and products under 1 roof, through its Welding & Cutting Automation (WCA) division. Experts believe that Indian Welding Equipment & Consumables market should be able to compound at over ~7% between 2023 - 2028.

Outlook of Ador Welding Limited

India is a country with significant population, and this has led to a rise in demand for housing, healthcare and transportation. As a result of this, there has been higher demand for welding equipment and consumables in numerous industries. With higher competition in market, end-users continue to focus on quality of welding equipment and consumables. This resulted in higher demand for high-quality welding equipment and consumables which can meet strict quality standards.

Moreover, with higher number of welding equipment and consumables utilised in several industries, demand for repair and maintenance services should increase too. This has led to higher demand for welding equipment and consumables which are easy to repair. Opportunities exist in various product categories where the company’s new product launches can help in increasing market share and improvements in productivity and costs. Even if private capex gets impacted because of combination of inflation and higher interest rates, the company expects that Indian Government should continue to spending in improving economy. Focus on infrastructure development supported major markets of welding industries, including oil & gas, power, heavy engineering, shipbuilding, railways, automotive etc. with continued strong growth.

Risks

FY23 was impacted by developments due to conflict in Europe. Disruption in supply chain have become a key operational challenge apart from further inflationary impacts on commodity prices. Weaker rupee, a rise in interest rates and significant challenges of inflation are main risks for ongoing financial year.

Impact of global developments might impact demand and profitability during remainder half of year. Sustained period of global turbulence and liquidity squeeze are considered as immediate threats to Ador Welding Limited.

Shareholding pattern of Ador Welding Limited

Promoters of Ador Welding Limited held ~56.90% in the company by June 2023 end and this percentage holding has remained consistent over past few quarters. This means that, despite short-term fluctuations and uncertainties, management of the company remained optimistic about growth opportunities presented by the company.

This means that the company’s management believes that Ador Welding Limited will be able to surpass short-term challenges. By end of June 2023, public shareholders made up ~40.08% and DIIs constituted ~2.79% of total shareholding pattern.

Valuation and investment rationale

Stock of Ador Welding Limited continues to trade at ~25.2x of FY23 EPS, which is at a deep discount to sectoral average of ~36.34x. This hints that investors should consider going long on this stock. Significant upside in the company’s stock price is expected as a result of long-standing presence and healthy market position, strong and diversified end-user industry base and distribution network, and strong financial profile.

The company serves diversified pool of industries including automobiles, railways, cement, building & construction, etc. Apart from this, it has strong distribution network, with over 220 distributors domestically and across various countries. Diversified end-user industry and PAN India presence base enables the company to mitigate risk of obsolescence if any sort of new technology comes up in market. The company has capacity to overcome risk of slowdown in one particular industry which should help it in achieving higher growth.

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