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Ador Welding Limited Investor Meet Summary
Company Performance Overview • Total Revenue: INR 884 crores • Consumables: INR 678 crores • Equipment and Automation: INR 172 crores • Flares: INR 35 crores • Profitability Challenges: • Improved margins in consumables. • Declining margins in equipment due to automation issues. • Delays in flares project execution affecting profitability.
Future Plans and Focus Areas • Emphasis on high-end welding equipment and plasma cutting. • Expansion into new geographies. • Awaiting merger with Ador Fontech, with dividends announced to facilitate the process.
Segment Performance Insights • Revenue Growth Expectations: 2.5x to 3x current year revenue, with slightly lower margins due to cost overruns. • Consumables Segment: Muted growth attributed to fluctuating steel prices. • Equipment Segment: Revenue growth but declining margins due to product mix and automation losses; optimism for recovery. • Flares Segment: Focus on executing current projects before long-term strategy reassessment.
Export and Domestic Market Dynamics • Export Revenue: 70% from consumables; exports have doubled. • Domestic Growth: Lagging behind expectations; sector-specific performance varies. • Key Sectors: Strong performance in heavy engineering; weaker in automotive.
Automation and Equipment Growth • Current automation contributes 12-13% of equipment revenue; expected to increase to 25-30%. • Focus on integrating automation processes and enhancing serviceability.
Financial Projections and Challenges • Capex Needs: Continued investments for 18 months due to ongoing projects. • Margins: Expected improvements in equipment margins; flares margins may adjust to mid-single digits. • Growth Potential: Double-digit growth possible; challenges from economic factors acknowledged.
Strategic Considerations • Merger Synergies: Identified in back-end services and production scaling. • EBITDA Margins: Current margin at 10.2%, with a goal to improve to around 14%. • Sector-wise Revenue Breakdown: Construction (20%), Railways (9%), Cement (7-8%).
Conclusion • Ador Welding Limited is focused on addressing current challenges while positioning for future growth through strategic initiatives, product development, and market expansion.
Meeting Overview • Date: November 9, 2023 • Announcement Date: November 20, 2023 • Managing Director: Aditya Malkani
Financial Performance • Record Q2 sales: INR 229 crores (23% increase YoY) • PBT margin: 9.8% • ROCE: 25% • Capacity utilization: 75-80%
Growth Initiatives • Focus on domestic and international growth • Launch of India's first battery-powered welder • Participation in a major trade show in Germany • Ongoing merger process progressing positively
Order and Bid Pipeline • Confirmed order pipeline: INR 30-35 crores • Bid pipeline: INR 100 crores • Strong demand for desalination and FGD orders
Segment Insights • Cautious growth expectations for consumables segment • 22% volume growth attributed to strong demand and market share gains • Need for improved margins in the equipment segment
International Expansion • Aggressive approach in markets like Saudi Arabia and South America • Focus on brand recognition and partnerships
Export Strategy • Structured strategy in the Middle East • Competing on value and service rather than price against Chinese products
Equipment Sales and Revenue Mix • Growth in equipment sales primarily from volume increases • Current revenue mix: 85% standard products, 15% high-value items • Approximately 180 distributors for Ador Welding
Future Outlook • Plans to execute ONGC contract starting December • Targeting billing of INR 70-80 crores in FY '24 • Projected growth for Fontech: 10-13% • Confidence in sustaining current margins and growth rates
Legal and Compliance Issues • Ongoing legal proceedings related to BIS compliance and past import issues • Merger timeline dependent on NCLT, expected completion by Q4
Conclusion • Malkani expressed optimism about future performance and growth opportunities in the IIB sector, while acknowledging competitive challenges in the domestic market.
Company Performance • Record Sales: Q4 sales reached INR 285 crores. • Profit Margin: PBT margin increased to 12.4% from 10.2% year-over-year. • Growth Initiatives: Focus on capacity enhancement, product mix optimization, and digitization.
Future Outlook • ROCE and Borrowing: Anticipated flat ROCE and slight increase in borrowing for upcoming projects. • Consumables Growth: 4-5% volume growth in Q4; expected 10% growth for the upcoming year. • Equipment Margins: Under pressure due to supply chain issues, with expectations for improvement.
Strategic Discussions • "Make in India" Initiative: Commitment to local manufacturing may lead to lower margins compared to global sourcing. • Merger Rationale: Merging Ador Welding and Ador Fontech for cost consolidation while maintaining separate sales channels.
Analyst Inquiries • Margin Expectations: Estimated gross margins of 18%-20% for a 24-month project. • Receivables and Inventory: Higher inventory levels acknowledged; receivables deemed manageable. • Cost Increases: Small increases due to business development investments; confidence in maintaining margins.
Growth Sectors and Capital Expenditure • Key Growth Areas: Railway sector, heavy engineering, and cement identified as growth sectors for FY '24. • Capex Plans: Target of INR 30 crores for new product lines, with a 20%-25% ROI expectation.
Market Dynamics • Capacity Utilization: Currently at 75-80%, with potential for margin improvement. • Export Growth: FY '23 exports around INR 58-61 crores; 20% growth expected in FY '24.
Transition in Welding Processes • Shift to Automation: Transition from hand-held to automated welding methods; significant improvements noted in India. • Future Capex: Planned INR 40-45 crores over two years focused on the welding business.
Ador Fontech Insights • Value Addition: Focus on solution-oriented selling to enhance industrial lifespan. • Technological Advancements: Potential for growth through improved product mix and addressing existing gaps.
Conclusion • Market Expansion: Optimism about Middle East and North Africa markets for export growth. • Follow-Up: Acknowledgment of the need for ongoing discussions and updates in the next quarter.
Company Performance and Outlook • Key Management Presentations: Managing Director Aditya T. Malkani and CFO Suryakant Sethia discussed performance and future strategies. • Demand and Margins: Highlighted robust demand and margin expansion, particularly in consumables. • Inventory Management: Improvements noted, with a positive outlook for international business.
Merger and Growth Strategies • Merger with Ador Fontech: Process underway with applications filed with NCLT. • Growth Metrics: • Volume growth of ~7% in Q3 year-on-year. • Expected revenue contributions from ONGC (7-8% of order value).
Equipment Segment Insights • Import Dependency: 80% of welding equipment is imported; focus on strengthening domestic manufacturing. • Key Growth Drivers: Infrastructure, heavy engineering, railways, and cement expansion. • Market Share Strategy: Confidence in increasing market share through mergers and local product preferences.
Q&A Highlights • Growth Aspirations: Aim to outperform market growth rates through enhanced distribution and product approvals. • Export Growth: Projected 60% growth for the year, with 40-50% potential growth next year. • Flares Division: Strategic shift back to core competencies; significant execution time for recent orders (4-24 months).
Financial Projections and Market Position • Margins Reference: Q3 margins as a reference point; gross margins around 20% suggested. • Competitive Landscape: Positioned alongside larger players; competitive product offerings with minimal gaps. • Local Sourcing Trend: Favorable trend towards local sourcing in government projects.
Strategic Focus Areas • Flare Segment Opportunities: Strong domestic market for flares and pollution control systems; steady growth approach emphasized. • Capex Cycle Strength: Current strength noted, but uncertainty about long-term projections due to global factors. • Bidding and Capital Outlays: Positive outlook for the flares division and potential improvements across product lines.
Conclusion • Optimism for Merger Completion: Malkani expressed hope for the merger with Ador Fontech to be completed within the calendar year. • Strategic Positioning: Emphasis on growth potential across various segments and maintaining competitive advantages.