With the positioning of India as a strong manufacturing alternative to China and initiatives taken by the government to boost capex cycle in the country, a smallcap company on Dalal Street looks well-placed to cash in on the rising demand for welding consumables and equipment.
This is Ador Welding. The stock has attracted a couple of ‘Buy’ calls from a handful brokerages. Ashish Kacholia, a well-known value investor, has been upping his stake in the company of late.
He held over 4 per cent stake in the company as of September 30 compared with 1.13 per cent in the June 2021.
Shares of the company have outpaced the benchmarks by climbing 14 per cent to Rs 806.55 on December 28 from Rs 707.90 on December 31 last year. This stock infact has delivered over a 2,000 per cent return to investors in the past two decades.
At present, the company derives around 80 per cent of its revenue from the welding consumables segment offering electrodes, fluxes and flux cored wires. These products are used by industries such as oil & gas, heavy engineering, shipbuilding, power, sugar, construction, railways and automotive, among others.
Brokerage Ashika Stock Broking in a report last month said, “We believe Ador Welding 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.” The brokerage has set a target price of Rs 1,100 for Ador Welding.
Nuvama Wealth and Investment (formerly known as Edelweiss Broking) also believes that Ador Welding will be one of the major beneficiaries of the current capex upcycle and an internal change positions it for strong growth going ahead.
For the year ended March 31, the company reported a consolidated profit of Rs 45.16 crore against a loss of Rs 10.38 crore in the previous year. On the other hand, gross sales of the company improved 48 per cent YoY to Rs 661.48 crore. Overall, top line and bottom lines of the company have grown at a CAGR of 7 per cent and 8 per cent, respectively, over the past 10 years.
“Real-time checks suggest that the company’s products command a strong brand recall value among the customers, while its products are 6-10 per cent more cost-effective than ESAB. Demand is expected to stay healthy owing to the solid impetus of the government on revving up the investment cycle. A healthy scale-up in exports will be an additional trigger for revenue growth,” Ashika Stock Broking said.
Nuvama on December 27 initiated coverage on Ador Welding with a target price of Rs 1,050, indicating an upside of 30 per cent from the current market price.
“Multiple data suggest towards accelerating capex upcycle which will sustain industrial consumables demand. Cumulative order book/sales (TTM) of capital goods companies in Q2FY23 are nearing or surpassing the pre-pandemic peak. Steel demand projection for India (unlike other regions) remains robust and welding consumable is directly correlated to steel usage. Ador Welding is generating operating cash and able to fund capex without resorting to long-term leverage,” Nuvama added.
Ador Welding (AWL) is in the process of merging with Ador Fontech (a group company) and the share ratio is fixed at five AWL shares for 46 AFL shares.
AFL is engaged in the repair and refurbishment market which is around 10 per cent of the overall welding market and the integrated entity will be able to target a project-based larger market through direct sales. Post-merger, promoter shareholding will be 53 per cent in the merged entity. The merger process is expected to be completed by March 31, 2023.
Also Read: Mamaearth parent Honasa Consumer files draft IPO papers; Shilpa Shetty, Kunal Bahl to sell stake
Also Read: KFin Technologies likely to make tepid market debut today, suggests grey market trend