Ador Welding Ltd

I interacted with a few dealers/traders in the welding consumables space, operating in Gurgaon & Faridabad area. Their main customers are from construction and auto parts industries. Below are the inputs I got from them.

Note: This might not be new info for seniors on this thread. However I’m still posting as it might help some others (who are at the same stage as me) to get a tad bit more understanding of the industry.

Local/unorganised players

• In this market the ratio of local vs branded players in consumables by volume is 50:50.
• Local players use lower grade materials for manufacturing & coating (if needed) consumables.
• This obviously impacts the weld quality and appearance (like bead, ripple formation etc.) however it is still good enough for many parts supplied to various OEMs, especially for which they use Tier 2/3 suppliers.
• Harmful fumes is also another side effect of low cost materials used, but there are no strict Govt. regulations on that yet.
• Local players do various other things to be more cost efficient like: directly dealing with factories/customers (saving channel partner margins), re-using packing materials like spool for MIG wires (new spool costs ~Rs.65, they buy it back from factories for ~Rs.30) and so on.
• Not using channel partners has a negative though, of them not being able to pass on the credit risk, which led to many local players going out of business during peak Covid years when they couldn’t recover receivables.
• Now with increasing demand, some local players are again trying to enter into the business.
• As an approximation a local player can produce 0.8mm MIG wire at around Rs. 85/kg. and sell at around Rs. 100-105/kg. This leaves them with an approx. 7-10% net profit after covering other costs.
• These days there is a 10-12% delta in prices of local vs branded for high volume consumables.
• Apart from electrodes (sticks, wires, powder etc.), consumables also include parts of welding torch like tip, nozzle diffuser etc.

Large/Branded players

• Since the retail market is so competitive, there is hardly a 2-3% delta in prices among top branded players for high volume items.
• Since product differentiation is low, channel partners/on-ground sales force play a key role in pushing sales.
• Big players have a disadvantage in transportation costs, to tackle that they at times get into contractual agreements with local players to get some of the consumables manufactured from them (recently ESAB has tied up with a local player in this area for MIG wire production).
• Of late increasing demand has led to more branded players wanting to enter the market. Recently representatives of Gedik (a Turkish company) were scouting in this market for distributors saying that they now want to enter India and set up plant for consumables.
• The dealers felt that in general, mid-large B2B accounts are a more amenable segment to focus on for these larger consumable players since in that segment quality norms are quite stringent and regular audits happen.

Basis the above information, the hypothesis that I formed is as follows:-
(I might be totally wrong and this might change with more information)

(a) It is very hard to have a product or technology advantage in the welding consumables space.
From whatever I have gathered previously, in welding equipment it might still be possible for a company to have an edge on tech side (laser, automation, robotics etc.) – but right now Ador is not that company.

(b) Having a strong channel (B2C/B2B) and local presence can be a good tactical advantage.

(c) Does a company like Ador have any sustainable advantage? If so, what? My limited understanding could only point to scale as a possible answer worth exploring more i.e. being quite a big player large player and that too of Indian origin. Though I have my doubts as to how much bigger this scale can get (i.e. market share growth) given intensively competitive nature of the market.