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Stock_____

TALES

November 26, 2019

ICIC

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November 26, 2019

CMP: | 312 Target: | 370 (18%) Target Period: 12-18 months

Ador Welding (ADOWEL)

BUY

Leading player in welding consumable market...

Ador Welding (Ador) is a leading player in the Indian welding consumables

and equipment industry with a market share of over 19% in structural

welding. It mainly operates in three segments viz. welding consumables,

welding equipment, project engineering business (PEB) and welding

automation products & systems (WAPS). Ador has consistently been

commanding a leadership position in consumable segment with superior

profitability. For FY19, overall consumables contributed 75.4% to revenue

followed by welding equipment (16.5%), PEB (8.1%). On the back of robust

investment in infrastructure, railways, heavy engineering, oil & gas, etc, we

expect Ador to clock revenues, EBITDA CAGR of 7.5%, 13.8%, respectively.

Consumable segment to sustain high returns…

Consumable segment contributes ~75% to Ador’s total revenue as on FY19.

We expect it to grow at 7.5% CAGR in FY19-21E aided by better volumes

(7.0% CAGR in FY19-21E) on the back of demand in high performance

products like stick electrodes, wires and fluxes. It is expected to sustain EBIT

margins at ~15-16% over the next two years. The consumable segment

RoCE has been between 30% and 40% in the past two years. We expect it

to sustain in the range of 35% to 40% aided by a mix of operating

efficiencies, product mix & innovation and growing investments in the

infrastructure and manufacturing sectors.

Green shoots in PEB business; to aid PAT, RoCE

The project engineering business (PEB) is likely to turn around and is

expected to grow at 17.6% CAGR in FY19-21E to | 57 crore led by Ador’s

focus on project execution, cost efficiencies and healthy order book at | 60

crore as on Q2FY20. It also expects to clock order inflows of ~| 90-100 crore

in the next six to nine months in the oil & gas sector. We expect the welding

equipment segment to grow at a CAGR of 5.3% in FY19-21E backed by new

product developments and revival in key industrial sectors. Overall, PAT is

expected to grow at a CAGR of 20.7% to | 35.8 crore in FY19-21E with RoCE

expanding ~250 bps to 15.8% by FY21E.

Valuation & Outlook

Ador’s consistent superior financial performance in welding consumables

segment, expected revival of PEB business and further up-tick in investment

activities in key manufacturing sectors are expected to further enhance

welding equipment business. Overall, it will further strengthen its leadership

position in domestic welding consumable & equipment market. Further,

Ador is currently trading at 11.5 x P/E on FY21E making it attractive with

valuation perspective (vs. forward median P/E band of 16x, up cycle and

down cycle average P/E of 22x and 8.5x, respectively). We value Ador at |

370/share, implying target multiple of 14x on FY21E EPS with BUY rating.

Key Financial Summary

s

(| Crore) FY17 FY18 FY19 FY20E FY21E CAGR FY19-21E

Revenue (| crore) 442.4 458.3 513.3 546.8 593.4 7.5%

EBITDA (| crore) 30.1 34.0 43.9 47.7 56.8 13.8%

EBITDA margin (%) 6.8 7.4 8.6 8.7 9.6

Net Profit (| crore) 17.9 18.4 24.5 28.2 35.8 20.7%

EPS (|) 13.1 13.5 18.0 20.8 26.3

P/E (x) 23.8 23.0 17.3 15.0 11.9

Price / Book (x) 1.8 1.7 1.6 1.5 1.4

EV/EBITDA (x) 14.6 14.4 10.5 9.6 7.9

RoCE (%) 10.1 10.0 13.3 13.7 15.8

RoE (%) 7.6 7.5 9.4 10.1 11.7

Source: Company, ICICI Direct Research

Particulars

Particular Amount

Market Capitalization | 424 Crore

Total Debt (FY19) | 65 Crore

Cash and Inv (FY19) | 27 Crore

EV (FY19) | 462 Crore

52 week H/L (|) 425 / 272

Equity capital (FY18) | 13.6 Crore

Face value (|) 10.0

Price Performance

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Nifty (L.H.S.) ADOR (R.H.S.)

Key Highlights

Consumables segment to command

15-16% margins and 30-40% RoCE

over FY19-21E

PEB business expected to revive in

FY19-21E with expected revenue

CAGR of 17.6% owing to strong

execution

Assign BUY rating on stock with

target price of | 370

Research Analyst

Chirag Shah

[email protected]

Amit Anwani

[email protected]

ICICI Securities | Retail Research 2

ICICI Direct Research

Stock Tales | Ador Welding

Industry Background

Indian welding industry

Welding is a joining process that is extensively used across industries like

automotive, aerospace, medical, consumer electronics, construction, oil &

gas, railways, heavy engineering, etc. It is a precise, reliable, cost effective

and high tech method for joining materials in manufacturing industries.

Welding is applied to a wide variety of materials and products, using

advanced technology like lasers and plasma arcs while the future is

promising for joining dissimilar and non-metallic materials.

In India, the market is currently primarily dominated by low technology and

very rare technological innovation. However, in recent years, the demand

for automatic and semi-automatic welding production systems are rising.

Exhibit 1: Segment/product wise details of Indian welding industry

Source: Company, ICICI Direct Research, CII

The Indian welding industry is estimated to be a | 4300-crore market with

71% share of consumables (~| 3000 crore consumable industry). Within the

consumable industry, around | 650 crore is reclamation welding while

| 2350 crore is a structural welding market. It is a very fragmented industry

with ~50% being controlled by unorganised players. The organised market

is controlled by ESAB India, Ador Welding, D&H Welding Electrodes, EWAC

Alloys, etc. Ador Welding has 19% market share in structural welding.

Considering the robust outlook on infrastructure and industrial sectors, the

consumable market is expected to grow at a CAGR of 10-11% in the next

five years driven by continuous electrodes compared to manual electrodes.

The welding equipment has a share of ~29% (| 1300 crore welding industry)

with unorganised market share of 55-60% while the organised market is

addressed by players like ESAB, Ador Welding, Lincoln Electric Co. India,

Kemppi India, Miraj Electrical & Mechanical Co Pvt Ltd and ITW India. Within

welding equipment, ~ | 700 crore is equipment market while | 600 crore is

cutting tools market. Imports constitute a significant portion of the organised

market. The welding equipment market is expected to grow at a CAGR of 6-

7% in the next five years.




Exhibit 2: Overview of Indian welding industry


Exhibit 3: Domestic vs. imports supply in India

67%

80%

33%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Welding Equipment Consumables

Domestic Imports


Exhibit 4: Domestic Consumables Market

12% 8%

18% 22%

40% 43%

30% 27%

0%

20%

40%

60%

80%

100%

FY16 FY20E

Product-wise market share

SAW Wires & Flux Flux Cored Wire Solid Wire MMAW


Exhibit 5: Welding technology wise equipment market share (%)





Company Background

Ador Welding (ADOR) was founded in 1951 as a joint venture between

Advani, Malkani families and Oerlikon-Buhrle Ltd of Switzerland to

manufacture welding electrodes. In 2003, the Advani–Oerlikon association

came to an end and the company changed to Ador Welding Ltd promoted

by Advani & Malkani family. It has over 19% market share in structural

welding market and is considered one of the major players in the Indian

welding industry. Promoter holding as on September 2019 is at 56.7%. Ador

Fontech, which provides metal reclamation welding and surfacing solutions

for industrial components, is also promoted by the Advani & Malkani family.

Ador has three manufacturing plants at Silvassa, Raipur and Pune.

Exhibit 6: About Ador Group


The company operates mainly in three segments viz. welding consumables,

welding equipment, project engineering business (PEB) and welding

automation products & systems (WAPS). For FY19, overall consumables

contributed 75.4% to revenue followed by welding equipment (16.5%), PEB

(8.1%). Geography wise, the domestic business contributed 84%,

international business contributed 7.5% while PEB contributed 8%.

The welding consumable segment consists of products like stick electrodes,

solid wires, flux-cored wires, SAW wires and fluxes, etc while welding

equipment segment consists of products like SMAW, GMAW, FCAW,

MMAW, etc. The PEB segment provides EPC work across sectors through

its state-of-the-art fabrication facility in Pune. The product range includes

flare systems & components, process equipment, LSTK turnkey projects,

etc. WAPS provides plasma Mig technology for high-end solutions to

industries like nuclear, wind-turbine, boiler, shipbuilding, etc.

Exhibit 7: Ador’s segment wise product details





Investment Rationale

Consumable segment likely to sustain high returns…

Investment in the Indian manufacturing sector is on the rise. Gross fixed

capital formation has grown at 8.5% CAGR over FY15-19. However,

initiatives like ‘Make in India’, sector incentives to various manufacturing

companies and benefit of demographic dividend to further enhance

manufacturing growth in India in coming years. Ador being one of the

market leader in welding consumables with asset light balance sheet is

poised to benefit from manufacturing up rise in coming years.

Ador currently derives 70% of its revenue from industries like oil & gas,

heavy engineering, shipbuilding, infrastructure, railways and automobile.

Ador is well placed to gain from overall infrastructure and manufacturing

demand in India which is positive for the welding consumables industry in

the long run. Ador being the No. 2 player in the industry has gained domestic

market share from 17% in FY15 to ~19% in FY19 and is expected to gain

market share to 20% by FY21E owing to increased penetration in

unorganised market, new product development, technology innovation and

strong dealers/distribution network of 165+ to further aid volume growth.

The consumable segment, which contributes ~75% to Ador’s total revenue

has grown at a CAGR of 12% over FY16-19 while we expect it to grow at a

CAGR of 7.5% in FY19-21E aided by better volumes (7.0% CAGR in FY19-

21E) on the back of demand in high performance products like stick

electrodes, wires and fluxes etc. It is likely to sustain EBIT margins in the

range of ~15-16% over the next two years owing to various initiatives taken

to contain manufacturing and other operating cost. It continues to focus on

improving gross margins through a mix of cost control, product pricing and

innovation. The consumable segment RoCE has been between 30% and

40% over longer a period. We expect it to sustain in the range of 35-40%

aided by operational efficiencies and improved capacity utilisation. The

capacity utilisation has improved from ~60% in FY15 to ~63-65% in FY19.

Exhibit 8: Ador revenue growth vs. GVA manufacturing growth [one-year lag] (%)

-20%

-10%

0%

10%

20%

30%

40%

50%

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Ador_overall Revenue Growth GVA-Manufacturing (%) Growth [with 1-year Lag]

Source: Company, ICICI Direct Research, RBI, Bloomberg

We have plotted Ador’s overall revenue growth against GVA-manufacturing

growth with one year lag. The trend suggests that the welding consumables

industry leads the manufacturing growth. India’s ambitious focus to become

global manufacturing hub is likely to bolster the prospects of welding

consumable & equipment industry in future. Ador welding being one of the

market leader in the industry to gain on volumes front in the long run.




Exhibit 9: Consumable – Ador’s domestic market share

17% 17%16% 16%

19%20%

0%

5%

10%

15%

20%

25%

FY15 FY16 FY17 FY18 FY19 FY21E


Exhibit 10: Geography wise revenue contribution (%)

64% 61% 59% 61%68% 69% 68%

0%

50%

100%

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Int. Equipments Int. Consumables

Project Engineering Business (PEB) Dom. Equipments

Dom. Consumables


Exhibit 11: Consumable segment revenue trend

273.5 274.7

314.4 312.3

386.0

412.7

441.8

0.4%

14.4%

-0.6%

23.6%

6.9%

7.1%

-5%

0%

5%

10%

15%

20%

25%

0

100

200

300

400

500


Consumable Segment (| crore) Consumable Rev. Growth (%) [RHS]


Exhibit 12: Consumable segment EBIT margin (%)

9.0

12.7

11.6

13.2

16.4

15.3 15.3

0

2

4

6

8

10

12

14

16

18



Exhibit 13: Consumable segment RoCE (%) trend

20.7

29.230.0 29.6

38.3 38.337.3

0

5

10

15

20

25

30

35

40

45



Exhibit 14: Consumable segment volume trend

32,110

35,000 35,000 35,400

38,000

41,040

43,502

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000






Green shoots in PEB business; to aid PAT, RoCE

The project engineering and equipment (PEB) business consists of the

welding equipment and project engineering segments, which together

contribute ~24.5% to FY19 revenues (out of which, 16.5% is from welding

equipment segment and 8% from project engineering).

Under the welding and cutting equipment, Ador has a plant at Pune with a

capacity of ~24000 machines per year. This segment has grown at a CAGR

of 6.6% in FY16-19. We expect it to grow at a CAGR of 5.3% in FY19-21E

backed by new product developments and capex in manufacturing,

railways, auto and other infrastructure & heavy engineering sectors. Ador

manufactures a wide range of metal arc welding (MSAW), equipment, gas

shielded arc welding (GSAW), submerged arc welding (SAW), etc. It is

focusing on R&D to develop new advanced technology products. The

welding equipment segment is expected to commands 10-11% margins.

Exhibit 15: Domestic market - Welding equipment business

13% 13%

12% 12%

13% 13%

11%

12%

12%

12%

12%

12%

13%

13%

13%

13%

FY15 FY16 FY17 FY18 FY19 FY21E


Exhibit 16: Welding equipment machine volume trend (units)

84119000 9000

12000

15000 1507515527

0

2000

4000

6000

8000

10000

12000

14000

16000

18000



Under the project engineering segment, the company provides engineering,

process design, mechanical, electrical and instrumentation of process

packages, process equipment, flare system and components, LSTK turnkey

projects and EPC contracts to Indian and international customers through its

Pune facility, which is equipped with heavy fabrication shop and has been

approved by key oil & gas customers like Engineers India, Toyo, IBR, KOC,

ADNOC, HPCL, BPCL, IOCL, etc. It is currently executing an EPC work of

LPG mounted bullets on an LSTK basis for one of the largest oil PSUs in

India. Currently, it has an unexecuted order book of | 60 crore as on Q2FY20.

It expects to clock order inflows worth | 90-100 crore over the next six to

nine months owing to the favourable position in two to three big orders in

oil & gas sector worth | 20-25 crore each with better gross margins.

Project engineering de-grew at 13.2% CAGR between FY16-19 impacted by

stages of execution, project mix and accounting standard (Ind-AS 116).

However, it is expected to revive over FY19-21E. We expect it to grow at

17.6% CAGR over FY19-21E to | 57 crore led by the Ador’s focus on project

execution, cost efficiencies, focus on good margin EPC projects and

sufficient order book and break even operationally by FY21E.




Exhibit 17: Project engineering revenue trend

44%37%

-13%

-45%

15%20%

44

63

8776

4148

57

-60%

-40%

-20%

0%

20%

40%

60%

0

20

40

60

80

100


Project Engineering Business (PEB) Segment (| crore)

Project Engineering Business (PEB) segment rev. growth (%) [R.H.S.]


Exhibit 18: Welding equipment segment revenue trend

70.3 70.2

62.0

71.0

85.086.2

94.2

-0.1%

-11.7%

14.5%

19.7%

1.5%

9.2%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0.0

20.0

40.0

60.0

80.0

100.0


Welding Equipments (| crore)

Welding Equipment segment rev. growth (%)


Exhibit 19: Equipment & PEB segment RoCE (%)

11.0

16.6

3.0

-0.5

-7.7

-6.2

1.5

-10

-5

0

5

10

15

20



Exhibit 20: Equipment & PEB segment EBIT margin (%)

5.6

9.5

1.6

-0.4

-7.3

-5.0

1.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0



Advanced technology, automation to ramp up gradually

Ador operates welding automation products and services (WAPS), which is

at a very nascent stage and provides plasma MiG technology for high end

solutions to industries like nuclear, wind-turbine, boiler, shipbuilding, etc. It

is focusing on new products like dual head saw welding gantry, column &

boom, positioners, which have a wide range of applications in industries like

railway, pressure vessel industry, industrial valve welding etc.

Further, new welding technologies, patents and product development in

tandem with industrial automation are likely to drive growth for the company

over the next two years. Focus on technology advancement and R&D

investment would create growth opportunities. Orbital TIG welding, stud

welding, robotic welding and laser welding are some of the latest

technologies that have been introduced to meet precision welding

requirement. Robotics and automation are increasingly being deployed by

industries to achieve welding quality and improve productivity. WAPS

business currently contributes ~1% of Ador’s total revenue but is likely to

inch up aided by new product launches in this segment.




Infrastructure, industrial sector revival to aid growth

The Indian welding consumable market is slated to be mainly driven by

expansion in building & construction industry, railway, heavy engineering,

energy, oil & gas sector along with revival in automobile sector. Industrial

reforms, policies like Make in India would aid further growth in these sectors.

Ador currently derives 70% of its revenue from industries like oil & gas,

heavy engineering, shipbuilding, infrastructure, railways, automobile. Ador

is well placed to gain from overall infrastructure demand in India coupled

with augmentation of its distribution/dealer’s network and direct customers.

Currently, around 80% of revenue comes from distribution/dealers network

and rest from direct customers. Ador’s distribution reach as on FY19 is at

165+ distribution/dealers network across India.

Railways infrastructure investment is expected to increase from US$59

billion (bn) in 2013-17RE to US$124.1 bn in 2018-22E. Oil & gas industry is

growing robustly and is expected to attract US$25 bn investment in

exploration & production by 2022E while Indian infrastructure sector is likely

to get investment of around | 50 lakh crore by 2022. Also, steel consumption

in India is expected to grow at 9.5% CAGR to 140 MT by FY22E.

Exhibit 21: Sector wise revenue break-up trend of Ador Welding

12% 13% 13% 12% 13%

12% 13% 12% 13% 13%

6%6% 5% 6% 5%

6% 5% 6% 6% 6%

12% 12% 12% 11% 12%

8% 7% 7% 9% 8%

11% 12% 13%14% 13%

9% 10% 10%10% 12%

7% 7% 8%8% 7%6% 6% 6%7% 6%

8% 7% 6%2% 3%

0%

20%

40%

60%

80%

100%

FY15 FY16 FY17 FY18 FY19

Oil & Gas Heavy Engineering Chemical & fertilizer Power

Shipbuilding Automobile Infrastructure Railways

Defense Steel Cement Others


Exhibit 22: Total crude steel production (MT) in India

58.465.8

70.7 74.378.4 81.7

89.0 89.898.0

103.1106.6

128.6

0

20

40

60

80

100

120

140

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19P FY21E

Source: Company, ICICI Direct Research, ibef.org, economic survey

Exhibit 23: Real consumption of steel (MT) in India

52.1 52.459.3

66.470.9 73.5 74.1 77.0

81.5 84.090.7

97.5

140.0

0

20

40

60

80

100

120

140

160

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19PFY23E

Source: Company, ICICI Direct Research, ibef.org, economic survey

Exhibit 24: Indian capital goods turnover (US$ bn)

70

115

0

20

40

60

80

100

120

140

2017 2025E

Source: Company, ICICI Direct Research, ibef.org

Exhibit 25: Electrical equipment production (US$ bn)

0

20

40

60

80

100

120

FY18 FY22E

Source: Company, ICICI Direct Research, ibef.org




Financials

Revenues expected to grow at 7.5% CAGR to | 593 crore in FY19-21E

Ador’s revenues in FY16-19 have grown at a reasonable rate of 7.9% driven

by consumables business, which registered a CAGR of 12% and welding

equipment business that grew at a CAGR of 6.6% over FY16-19. While PEB

business has been a drag over this period.

Going ahead, on an overall basis, we expect revenues to grow at 7.5% CAGR

to | 593.4 crore in FY19-21E owing to decent volumes growth and expected

revival of PEB business in FY21E. Overall revenues (ex-PEB) are expected to

witness a 6.7% CAGR over FY19-21E.

Exhibit 26: Revenues expected to grow at CAGR of 8.6% over FY19-21E

274 275314 312

386 413 442

70.3 70.262.0 71.0

85.086.2

94.2

43.9 63.4

87.0 76.0

41.547.8

57.4

3.8

5.3

8.3

3.6

12.0

5.5

8.6

0

5

10

15

0

200

400

600

800


Project Engineering Business (PEB) (| crore) Welding Equipments (| crore)

Consumable Segment (| crore) YoY (%) Growth [R.H.S.]


EBITDA to witness 13.8% CAGR over FY19-21E

The EBITDA margin profile of Ador is largely favourable owing to sustainable

EBIT margins of 15% to 16% in the consumables segment, which is more

than 75% of the business and 10-11% margins in the equipment segment.

Going ahead, the execution mix of the project engineering business (PEB)

business along with selective focus on high margin orders in this segment

are expected to aid overall margins. We expect overall EBITDA CAGR of over

13.8% over FY19-21 to | 56.8 crore.

Exhibit 27: EBITDA expected to grow at 13.8% CAGR over FY19-21E

27 41 30 34 44 48 57

7.0

10.0

6.87.4

8.6 8.7

9.6

0

2

4

6

8

10

12

0

10

20

30

40

50

60


EBITDA (| crore) Overal l EBITDA Margin (%) [RHS]


PAT expected to grow at CAGR of 20.7% to | 35.8 crore in FY19-21E

On an adjusted basis, given reasonable growth in topline and EBITDA,

earnings have grown at a CAGR of 17.3% over FY17-19. Going ahead, with

robust growth traction in revenues and EBITDA, we expect PAT to grow at

a CAGR of 20.7% over FY19-21E to | 35.8 crore, partially aided by benefit of

shifting to new tax regime.




Exhibit 28: PAT expected to grow at 20.7% over FY19-21E

3.7

24.3

17.9 18.4

24.5

28.2

35.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0



Return ratios to remain strong, led by consumables segment

Return ratios have improved in recent years owing to better realisations and

cost efficiencies in consumables segment, which commands RoCE in the

range of 30%-40%, clearly reflecting a healthy business return metric.

With rising revenues, profitability and turnaround of PEB business, the

return ratios are expected to expand further. We expect RoE and RoCE to

expand to 11.7% and 15.8%, respectively, by FY21E. PEB’s share in overall

capital employed has reduced from 48.6% in FY18 to 46.2% in FY19 and is

expected to reduce further to 40% by FY20E. The breakeven in EBIT in PEB

business would aid overall RoCE to expand by ~250 bps to 15.8% by FY21E.

Exhibit 29: Return ratios to improve

9.5

14.6

10.1 10.0

13.3 13.7

15.8

1.8

10.8

7.6 7.5

9.410.1

11.7

0

2

4

6

8

10

12

14

16

18


RoCE (%) RoNW (%)


Strong cash flows likely to strengthen balance sheet further…

With strong earnings growth and stable working capital, cash flows are

expected to remain strong. The management expects to turn Ador net debt

free by the end of FY21E. Debt is expected to reduce further over FY19-21E

by | 15-20 crore each in FY20E and FY21E.

Exhibit 30: Net debt to equity ratio (x) trend

0.1

0.3

0.1

0.1

0.1

0.0

0.1

0.1

0.2

0.2

0.3

0.3

FY17 FY18 FY19 FY20E FY21E





Valuations

Ador’s consistently superior financial performance in the welding

consumables segment, expected revival of the PEB business and further up-

tick in investment activities in key manufacturing sectors are expected to

further enhance the welding equipment business. Overall, it will further

strengthen its leadership position in domestic welding consumable &

equipment market. Further, Ador is currently trading at 11.5x P/E on FY21E

making it attractive with valuation perspective (vs. forward median P/E band

of 16x, up cycle and down cycle average P/E of 22x and 8.5x, respectively).

We value the stock at | 370/ share, implying a target multiple of 14x on

FY21E EPS with BUY rating.

Exhibit 31: Peer comparison

Companies CMP M Cap

(|) (| crore)FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E

Ador Welding 312 424.0 22.5 16.9 14.8 11.7 14.1 10.3 9.5 7.9 10.0 13.3 13.6 15.8 7.5 9.4 10.1 11.7

ESAB 1233 1898.0 52.0 24.4 28.5 24.1 16.2 14.2 17.0 14.6 10.8 18.3 NA NA 10.3 17.9 22.3 22.9

RoE (%)P/E (x) EV/EBITDA (x) RoCE (%)


One year forward P/E band

Exhibit 32: One year forward rolling P/E Band

0

100

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Key risk & concerns

International competition to threaten Indian welding consumable players

Global welding consumables manufacturers from North America and

European countries are targeting setting up of new units in South East Asia

to enhance their market share by supplying welding consumables. South

East Asia is expected to witness high demand in coming years owing to the

availability of cheaper manufacturing facilities of welding consumables,

creating more competition in the region. Delivering welding consumables at

lower prices and launching new welding consumable products to cater to

the growing demands of customers is a major concern among suppliers of

Indian welding consumables.

Shortage of skilled labour poses challenges

Ador operates a welding academy to enhance the skill sets and job

performance to meet industry requirements for best manufacturing

practices and inspire & instil highest standards of welding skills & practices.

However, due to lack of knowledge of its application and cost economies,

higher productivity welding consumables like CO2 continuous welding

wires and flux cored wires fail to find higher demand. In view of this, existing

leading manufacturers of consumables and equipment need to start

vigorous marketing efforts to educate users.

Limited R&D, testing facilities pose hurdle to industry growth

With almost 45-50% of manufacturers in the unorganised segment, the R&D

inclination towards material, technology and techniques is very minimal and

limited. Public/third party facilities in this direction can prove to be a good

value add for largest welding community.

Increasing steel prices may impact prices of welding consumables

An increase in raw material cost could have a direct impact on

manufacturing. Hence, for the larger unorganised community, the

competitiveness in marketplace reduces, thereby affecting overall revenues.




Financial Summary

Exhibit 33: Profit & loss statement (| crore)

(| Crore) FY17 FY18 FY19 FY20E FY21E

Net Sales 458.3 513.3 541.8 588.4

Other Operating Income - - 5.0 5.0

Total Operating Income 458.3 513.3 546.8 593.4

% Growth 3.6 12.0 6.5 8.5

Other Income 9.6 10.4 10.9 13.6

Total Revenue 467.9 523.6 557.7 607.0

Cost of materials consumed 321.6 350.8 371.6 400.1

Purchase of stock-in-trade 6.9 9.7 10.9 11.9

Other Expenses 58.7 65.5 70.5 76.0

Total expenditure 424.3 469.4 499.0 536.6

EBITDA 34.0 43.9 47.7 56.8

% Growth 13.0 29.1 8.7 19.0

Interest 5.3 9.1 9.8 10.6

Depreciation 10.2 9.7 11.2 12.1

PBT 28.1 35.5 37.7 47.8

Tax 9.7 11.0 9.5 12.0

PAT 18.4 24.5 28.2 35.8

% Growth 3.1 33.3 15.1 26.7

EPS 13.5 18.0 20.8 26.3


Exhibit 34: Cash flow statement (| crore)

(| Crore) FY18 FY19 FY20E FY21E

Profit after Tax 18.4 24.5 28.2 35.8

Depreciation 10.2 9.7 11.2 12.1

Interest 5.3 9.1 9.8 10.6

Other income - - - -

Prov for Taxation 9.7 11.0 9.5 12.0

Cash Flow before WC changes 43.6 54.3 58.7 70.5

Change in Working Capital (70.2) 24.7 (14.5) (14.4)

Taxes Paid (9.1) (10.2) (9.5) (12.0)

Cashflow from Operating Activities(35.7) 68.8 34.7 44.0

(Purchase)/Sale of Fixed Assets (8.3) (22.6) (9.9) (16.0)

(Purchase)/Sale of Investments 8.5 (1.1) - -

Other Income - - - -

Cashflow from Investing Activities0.2 (23.7) (9.9) (16.0)

Issue/(Repayment of Debt) 45.7 (16.4) (5.0) (5.0)

Changes in Minority Interest - - - -

Changes in Networth (8.2) (8.2) (10.6) (9.8)

Interest (5.3) (9.1) (9.8) (10.6)

Others (0.8) (1.0) 1.0 1.0

Cashflow from Financing Activities31.4 (34.6) (24.4) (24.4)

Changes in Cash (4.1) 10.6 (0.6) 2.6

Opening Cash/Cash Equivalent 20.4 16.3 26.8 26.2

Closing Cash/ Cash Equivalent 16.3 26.8 26.2 28.8


Exhibit 35: Balance Sheet (| crore) es

(| Crore) FY18 FY19 FY20E FY21E

Share Capital 13.6 13.6 13.6 13.6

Reserves & Surplus 231.4 247.8 265.4 291.3

Networth 245.0 261.4 279.0 304.9

Total Debt 81.4 65.0 60.0 55.0

Deferred tax liability (net) 8.1 8.9 8.9 8.9

Total L iabilities 337.1 338.3 348.1 369.0

Gross Block 242.4 263.4 272.3 287.3

Acc: Depreciation 148.1 157.1 168.2 180.3

Net Block 94.3 106.3 104.1 107.0

Capital WIP 0.8 1.0 2.0 3.0

Investments 12.1 13.2 13.2 13.2

Inventory 53.8 51.6 56.4 61.3

Sundry debtors 92.0 84.6 92.1 97.1

Cash and bank balances 16.3 26.8 26.2 28.8

Loans and advances 4.1 1.6 1.7 1.8

Other Current Assets 10.2 28.9 23.3 25.9

Total current Assets 289.9 275.4 285.3 307.8

CL& Prov. 77.0 70.5 86.7 92.3

Net Current Assets 198.8 184.7 184.3 196.7

Total Assets 337.05 338.3 348.06 369.0


Exhibit 36: Key ratios

(Year-end March)FY17 FY18 FY19 FY20E FY21E

EPS 13.5 18.0 20.8 26.3

Cash EPS 21.0 25.2 29.0 35.2

BV 180.2 192.2 205.1 224.2

DPS 5.0 5.0 6.5 6.0

Cash Per Share 108.9 115.5 123.7 132.6

EBITDA Margin 7.4 8.6 8.7 9.6

PBT / Net Sales 5.2 6.7 6.7 7.5

PAT Margin 4.0 4.8 5.2 6.0

Inventory days 42.9 36.7 37.7 37.7

Debtor days 73.3 60.2 61.5 59.7

Creditor days 59.7 47.6 55.5 54.5

RoE 7.5 9.4 10.1 11.7

RoCE 10.0 13.3 13.7 15.8

RoIC 12.6 15.9 17.9 20.9

P/E 23.0 17.3 15.0 11.9

EV / EBITDA 14.4 10.5 9.6 7.9

EV / Net Sales 1.1 0.9 0.8 0.8

Market Cap / Sales 0.9 0.8 0.8 0.7

Price to Book Value 1.7 1.6 1.5 1.4

Debt/EBITDA 2.4 1.5 1.3 1.0

Net Debt / Equity 0.3 0.1 0.1 0.1

Current Ratio 2.1 2.4 2.0 2.0

Quick Ratio 1.4 1.6 1.3 1.4





RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,

Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined

as the analysts' valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]




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