Fundamental Analysis Of Ador Welding: The welding industry plays a vital role in building and upkeeping infrastructure, machinery, and vehicles, which are important for their safety and structural soundness. The professionals and technology in this industry are crucial for advancing society and promoting development.
One such stock that plays a prominent role in the industry is Ador Welding, a stock held by the ace investor Ashish Kcholia. Since the start of Jan 2021, the stock has given a multi-bagger of 298% to its investors.
In this article, we will conduct a fundamental analysis of Ador Welding and see if the stock has future potential to increase in the future.
Table of Contents
Fundamental Analysis Of Ador Welding
We’ll begin our Fundamental Analysis of Ador Welding by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.
Company Description
Ador Welding Limited, founded in 1951 and headquartered in Mumbai, is a leading welding company in India.
The company manufactures a comprehensive range of welding equipment, consumables, and welding automation solutions. It also offers welding services to a variety of industries such as defense, shipbuilding, oil & gas, railways, infrastructure, nuclear energy, power, and automotive.
The company has a significant presence in India and is expanding internationally. It has a network of over 70 distributors and dealers across the Middle East, Africa, and Southeast Asia.
Segment Analysis
Let’s take a closer look at the different areas in which the company operates:
- Consumables segments: The company is actively involved in the production of electrodes, wires, and other consumables related to the agency items from its plants in Silvassa, Raipur, and Chennai. This segment is responsible for generating the majority of the company’s revenue, accounting for an impressive 79.01% of the total revenue as of FY23.
- Equipment and automation: This segment factored in for 14.81% of the company’s revenue as of FY23. Under this segment, the company manufactures products including equipment, spares, cutting products and agency items related to equipment, and cutting products.
- Flares & Process Equipment Division: This segment is a multi-disciplined SBU that provides services like design, manufacture, erection & commissioning, electrical, mechanical and instrumentation of process packages, process equipment, flare system & components and EPC contracts from the Chinchwad plant. This segment contributes. As of FY23, the company generated 6.08% of the company’s total revenue.
Industry Overview
The welding industry is the backbone of the manufacturing sector, which is estimated to account for 17% of GDP. Welding is essential in many production processes, and the quality of the welding has a direct impact on the quality of the end product.
In the last 2 years, the industry has faced hurdles of supply chain interruptions and higher costs on imports due to Covid. This impact was also felt by the industry during the initial part of FY23. This was also accompanied by a surge in Steel prices throughout the year. Despite these obstacles, the industry is expected to deliver significant growth in the coming time.
The increasing need for welding consumables in India’s energy sector, along with the automotive industry’s growth and technological advancements such as dissimilar metal welding with fibre lasers in electric car production, will drive market expansion. Moreover, the Indian welding equipment and consumables market is expected to benefit from the railway and mining industries’ growth.
In addition, the Indian Government has set a target to raise the contribution of manufacturing to the country’s GDP to 25% from its current 17%. This is a positive sign for the welding industry as it is predicted to experience a growth rate of approximately 8-9% over the stated period.
Ador Welding – Financials
We will now conduct a Fundamental Analysis of Ador Welding by using the reports given by the company
Revenue and Net Profit Growth
The financial statement of the company indicates that the total revenue of the company has consistently increased with an exception during Covid(FY21). This increase was from ₹514.02 Crores to ₹783.43 Crores from FY19 to FY23 respectively. This gives the company a 5-year CAGR of 11.11% on its total revenue.
Along with the revenues, the net profits of the company have also increased from ₹12.82 Crores to ₹59.29 Crores. This gives the company an exceptional CAGR of 46.65% on its net profit during the last five financial years.
| Year | Total Revenue (Rs in Crores) | Profit after tax (Rs in Crores) |
|---|---|---|
| 2019 | 514.02 | 12.82 |
| 2020 | 534.64 | 25.62 |
| 2021 | 454.59 | -11.99 |
| 2022 | 666.96 | 45.02 |
| 2023 | 783.43 | 59.29 |
| 5 Year CAGR Growth | 11.11% | 46.65% |
Let us now analyze the margins of the company and find out if the margins of the company have increased similarly as its revenues and profits.
Margin Analysis
Along with the profits and revenues, the company has also managed to increase its margins in the last five financial years. While the operating profit margins of the company have increased from 8.69% to 11.41%, the net profit margins have increased from 2.55% to 7.63%.
Though the company has its margins, it is still comparatively low as it has high operating expenses.
| Year | Operating Profit Margin | Net Profit Margin |
|---|---|---|
| 2019 | 8.69% | 2.55% |
| 2020 | 7.93% | 4.87% |
| 2021 | 4.83% | -2.68% |
| 2022 | 9.13% | 6.81% |
| 2023 | 11.41% | 7.63% |
Return Ratios: RoCE and RoE
The company’s performance appears to be positive based on its return ratios. Despite a decline during the COVID-19 pandemic, these ratios have significantly improved, suggesting a strong performance by the company.
The company delivered a RoE and a RoCE of 19.59% and 24.82%, respectively, during FY23. These figures demonstrate that the company has been providing valuable returns to its shareholders and making effective use of its resources.
| Year | ROE (%) | RoCE (%) |
|---|---|---|
| 2019 | 9.33% | 10.48% |
| 2020 | 10.00% | 14.96% |
| 2021 | -4.93% | 6.64% |
| 2022 | 17.34% | 18.34% |
| 2023 | 19.59% | 24.82% |
Debt & Interest Coverage Ratio
After examining the company’s leverage status, it appears that they have lowered their debt-to-ratio to 0.05 in FY23. This indicates that it has less financial pressure since it relies less on borrowed capital to finance its operations and growth.
Additionally, this enables the company to keep more of its revenue since they have fewer obligations to pay off its debt and interest.
In terms of interest, the company has increased its interest coverage ratio to 40 during FY23. This means the company has generated enough gross profits to cover its interest expenses 40 times over.
This also suggests that the company has the capacity to borrow additional capital for expansion and growth
| Year | Debt to Equity (x) | Interest Coverage Ratios (X) |
|---|---|---|
| 2019 | 0.26 | 4 |
| 2020 | 0.33 | 6 |
| 2021 | 0.12 | 4 |
| 2022 | 0 | 17 |
| 2023 | 0.05 | 40 |
Future Plans of Ador Welding
The Company incurred CAPEX of Rs.19.83 crores during FY23. The Capital work-in-progress as of 31st March 2023 was Rs. 1.92 crores. The company has planned a CAPEX of Rs.44.30 crores for FY24, which will be mainly for the following:
- Automation/modernization at Consumables and Equipment Plants.
- Expansion of Plant and machinery of certain products, and also for improvement of “productivity & in-process quality”.
- Replacement of Old Machineries.
- Upgradation of R&D Infrastructure.
- Upgradation, digitalization and compliance of Information Technology (IT).
- Replacement of Vehicles
Additionally, the company has filled in the application for the amalgamation of Ador Fontech Limited. This would benefit the company in the following ways:
- Achieving a wider market position
- Optimal use of distribution network, sales force, manufacturing units, human resources, supply chain, research and training facilities.
Key Metrics
We are almost at the end of our Fundamental Analysis Of Ador Welding. Let’s take a quick glance at the stock’s important metrics.
| Particulars | Figures | Particulars | Figures |
|---|---|---|---|
| CMP | ₹ 1102 | Market Cap (Cr.) | ₹ 1,478.22 |
| EPS | 44.22 | Stock P/E | 24.58 |
| RoCE (%) | 24.82% | RoE(%) | 19.59% |
| Promoters Holding | 56.90% | Price to Book Value | 4.42 |
| Net Profit Margin(%) | 7.63% | Operating Profit Margin(%) | 11.41% |
In Closing
We have reached the end out the fundamental analysis of Ador Welding. If the company completes its amalgamation with Ador Fontech Limited, it will increase market size and overall efficiency, leading to favourable growth.
However, it is our responsibility as investors to monitor the company’s earnings to see if it is improving or maintaining its margins, as well as whether the company’s performance is better than that of its industry peers.
Written By Aaron Vas
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment decisions.
Start Your Stock Market Journey Today!
Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!
Thanks a lot sir
S good knowledge of the company given by you.
Very beneficial to us.
Very good analysis.Thank you.
It’s good analysis and thank you.