Ador Welding Ltd

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I had attended the AGM of Ador Welding Ltd held on August 9, 2023. Was able to take running notes of the AGM which are presented below:

• Merger between Ador Welding Ltd & Ador Fontech Ltd – looking at December 2023 for completion. Advantages of merger? It basically enable consolidation of welding business, synergies between businesses, marketing & R&D strengths, production, supply chain and brand strengthening. All of these, will help in maximizing shareholder value. Access different market segments. Infrastructure and organizational capabilities will come in. Better financial leverage for combined entities. Leadership benefits too. Strengths – 800 – 850 people post merger. Cost savings achievable. Remove duplication. Amalgamation will lead to reduction in legal compliance & regulatory costs.
• RM prices to be passed on and how do we deal with volatility? Steel related prices. Time lag of 6 weeks.
• Don’t have debt at the moment. Not much issues.
• Geopolitical tension? Affects us like it affects others. Not seeing much slow down. Indian companies benefitting and benefitting us as well.
• Growth in next few years? Don’t provide guidance. Look at core sectors, steel sector and IIP nos. Projecting beyond 6 – 12 months is still possible but not beyond that. Outperform the industry and grow is what we are targeting.
• Guidance on Margins? Last year margins are base level of margins we want to maintain. Improve from there step by step.
• Q1 margins impacted due to performance of flare division. How should we look at its margins over near to medium ? When it comes to flare division, better to look at it on annual basis. Look at it on course of the year. Improve over the year compared to last year is what we are targeting.
• Challenges for the company? Liquidity in the markets, infrastructure etc – positive for next 6 – 12 months. Challenges always there – pricing, supply chain, raw material etc. Don’t see any major disruption to that.
• Think our market share is growing. Its growing in right path. Continue to pushing that factor.
• Outstanding work in flares for ONGC? It will continue for this year and get executed.
• BIS issue which led to levy of penalty? Product was imported by industry in large way along with us. Spill over material was there BIS issues objection for that. Unfortunately, hefty penalty. All remedial measures implemented now. Penalties applied earlier were lower. Optimistic we will see fair resolution to these.
• Capacity increase will keep going on. Expect 15% additional capacity to be added over the next 12 months.
• Inorganic opportunity – keep evaluating not defined strategy
• Treasury – keep evaluating it.
• Outlook for Ador International? Good outlook. Added new markets and new people too. They will outperform rest of our divisions.
• Top 2 – 3 segments and products we have? Consumables – depends on carbon steel related. Equipment front? Volume demand decides that. Flares? ONGC orders – different type of flares there.
• Execution timeline for flares ranges from 6 – 20 months. Margins of flare segment will keep seeing improvement for entire financial year.
• Don’t have asset monetisation strategy. Have asset relocation strategy. Identified Chennai as land for sales. Silvasa – adding capacity
• Some property get sold depending on our usage of the location.
• Plant wise capacity utilisation. Utilisation is 60 – 90% depending on the product line.
• RM – steel is critical RM. Lag for price increase as we are intermediary
• EBITDA guidance? EBITDA for last year is the base which we look to build
• Automotive industry? Expected to grow. Our role in fabrication etc will keep going up.
• Electric car? Still remains a small %age of industry. We will play a role in it as well.
• Working capital? As flare division revenue keeps increasing, some working capital will increase. Consumable WC under control. Ador International gets LCs from its customers.
• No write offs in trade receivable.
• JB Advani sells some gas cutting equipment for us and hence some related party transaction between us and group company.
• Going through very large and interesting capex cycle. Need to come out number 1 or 2 welding company in the medium term.

(Disclosure: Invested)

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Q2FY24 Concall Notes

General Notes:
• Q2 rev. at 229cr, highest second quarter sales. There was some margin expansion. Pushed a lot due to bad Q1, coming to normal where Ador wants to be and will improve from here.
• Launched India’s first battery powered welder. Spending 5% of profits for make, research and create in India initiative. There is a strong demand for it. Official launch should be in Jan-Feb ‘24.
• Merger going through NCLT process, and voting has gone in the offer of amalgamation. Timeline of merger is early Q4FY24.
• Volume growth on the consumables in the quarter was 22% and in the equipment was 35%. Q2 is more reflective of future path and expect volume to continually pick up and allow to keep going. Should be in a position to sustain Q2 performance.
• Revenue split is 85% standard range of products and 15% higher value products. Plan to get to 80-20 ratio. Gross margins would differ by 3-4%.
• ONGC order: Involves large execution of a flare job. Will start in Dec/Jan and June/July will be where most of the execution will happen.
• Current capacity utilization in consumables is 75-80% and looking to add another 9000-10000 tons over next six months.
• For flux core wire product line, running at a capacity of 90-95% and will be adding a lot of capacity in coming months.
• Bidding on other flare orders similar to ONGC, but haven’t won any order yet
• Current order pipeline is app 35-40cr for next year and the bid pipelone will be 100cr beyond that.
• Demand is not a problem but management is selectively picking the right order which meet the criteria of good cash flows, ROC.
• Equipment has a little bit of more room for scale margins to come in. Benefits of merger will allow that.
• Product mix improvement is happening but it will take some time. Automation is another reason for margin expansion but that needs to be scaled.
• There are 180 distributors and a sales team of appx. 90 people. Ador Fontech have 80-90 distributors and sales team of 60-70 people. There are around 5000 SKUs
• Can’t give any growth guidance, but hope to completely outperform IIB.
• Getting to 14-15% kind of margins in the equipment side depends upon ability to ramp up automation very quick and make that a significant contributor. But it won’t happen on a monthly basis. It will take some time, but it will happen.

BIS Impact:
• Earlier had a with BIS due to import of products that were not BIS certified (BIS suddenly had this certification needed and Ador stopped importing, but didn’t stop selling. So, BIS sued them and charged way more than Ador anticipated.
• Stand to gain a lot due to BIS being more and more proactive. Have good relation with BIS, work with BIS on a regular basis, and everything else on that account.

Exports:
• Seeing a lot of opportunities in Saudi Arabia and South America. Middle east is 80% of export sales.
• Brand is known in Saudi and there is a lot of oil and gas capex happening over there including UAE especially Abu Dhabi.
• Europe is a not a focus area right now. US is a little bit area of focus, but mostly focus is on South America
• Have to enter new markets smartly and correctly and ensure there are right partners to do that.
• It’s longer period due to long gestation cycles because of approvals, testing, and validation
• Have to prove the value addition in the products offered and it takes a 6-8 months to break.

Company’s right to win over competitors:
• In a market where Ador was already present (like Middle east, Saudi), they are getting a lot more structured in their customer approach, choosing right distribution partners, building and getting appreciation to the brand and learning how to better service the customers
• This approach led them to compete against other players in the world and helped them become tier1/2 player.
• There is entry barrier for new players to fit into the existing supply chain and once you become an important part, you get regular orders. Getting opportunities as china +1 suppliers as well
• Don’t have to compete with cheaper competitors. In India, there are 5 competitors who have cheaper products, but Ador doesn’t fight with them as it may not be sustainable.

What’s driving growth and its sustainability:

• Volume growth has been solid and higher revenue is not because of better realization but because of solid volume growth
• In Indian market, general Infra and railway sectors are driving growth. Auto, power plants, cement is also helping.
• This momentum continues in next quarter as well and looking to build on it.

Disc: Invested

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a1f77fae-f92c-482d-9478-a91cef93cb15.pdf (7.4 MB)

Ador Welding EPS has fallen for two consecutive quarters.

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More than that, yearly sales growth is only 4.76%. No management guidance on this. Any reason provided by management for flat results?

Disc: invested, planning to exit if no proper reasoning provided by company.

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Tomorrow at 3 pm, i think, they will answer q.

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@Sandipn are they doing concall at 3PM? Where can we hear?

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3bbe6d78-5df3-4c91-b04d-94c10a13f7d5 (1).pdf (644.4 KB)

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@Sandipn did you attend investor presentation? Any new updates you received from company’s results?

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I presumed you will attend.
Disclaimer, i sold 50 pc of my tracking position today

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Arbitrage between Ador Fontech and Ador Welding stands at zero. Unless one expects there to be revision of the swap ratio or failure of merger, it is ideal to switch to Ador Welding.

Ador Merger
Ador Merger870×381 48.1 KB

Ador Merger Slide
Ador Merger Slide993×560 163 KB

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Does anyone know what is happening to ador and its valuation.
Is it because q4 was better.