Subdued Performance, Expect a better H2
Summary
Ador Welding (AWL) reported subdued financial performance in Q2FY25 which was impacted by one-offs relating to the amalgamation of Ador Fontech. The products segment witnessed margin dip of 404 bps QoQ to 10.2% owing to slowdown of demand and weaker steel prices. Margins for the ONGC Flares project are also expected to be better in H2FY25 with better execution and and rigorous cost control. We expect Ador Welding to benefit from the multi-year domestic capex upcycle as it caters to diverse capex led industries such as heavy engineering, infrastructure, construction among others. The company is the second largest player in the welding industry in India with a strong market share of ~16% in welding consumables space and ~8% market share in welding equipment space. We maintain our BUY rating on Ador Welding with TP of Rs1,621.
Key Highlights and Investment Rationale
Strong Play on Capex Upcycle – Welding Consumables to Drive Growth: Currently, AWL derives ~80% of its revenue from welding consumables segment with products ranging from electrodes, fluxes, flux cored wires to industries like Oil & Gas, Heavy Engineering, Shipbuilding, Power, Sugar, Construction, Railways and Automotive etc. We believe AWL is well-placed to gain from overall infrastructure and manufacturing spending in India led by ‘Make in India’, ‘Aatmanirbhar Bharat’ and PLI schemes that will further boost the demand for welding consumables in the long-run.
Amalgamation of Ador Fontech complete: We incorporate the restated consolidated financials of the company which include the numbers of Ador Welding, Ador Fontech and its subsidiary 3D Future Technologies from FY24 onwards for a complete assessment of the business.
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