>ADOR WELDING LIMITED (VENTURA)

Ador Welding Limited, one of the leading players in the welding consumables & equipment space is all set to benefit from a pick up in the investment cycle in the core infrastructure space resulting in strong demand outlay for its welding products. AWL is expected to exhibit a revenue & PAT CAGR of 24% & 26% for the period FY10-12 respectively on the back of strong volume growth of 25% and capex in continuous welding equipment which is margin accretive. We value
AWL at 10x its FY12e earnings and initiate a BUY at CMP with a price target of Rs 298, representing a potential upside of 42% over a 15-18 months horizon.

■ Volume expansion: key growth driver
In FY10 AWL clocked a volume growth of ~42% from 18,655 TPA in FY09 to ~24,000 TPA in FY10. Considering a further uptick in the demand for electrodes, we expect a volume growth of 25% (on conservative basis) over the next two years. With the volume growth set to kick in, the revenues in the welding consumables segment are expected to exhibit a CAGR of 26% from Rs 196 crore in FY10 to Rs 310 crore in FY12.

■ Capex in continuous welding segment to fuel further growth
With the demand for continuous electrodes outpacing manual electrodes, AWL has initiated a Rs 15 crore capacity expansion programme which would add 10,000 TPA of capacity space in the form of adding special wires. The main purpose behind this expansion is to enable AWL to enter into high growth & niche areas of welding application which includes nuclear power, super critical
boilers & some special steel applications. This would not only help in widening its product profile but would enable the company to improvise on its margins backed by low competition in these niche segments.

■ Uptick in infrastructure spending spells good opportunity for welding players
We are currently witnessing a strong pick up in the capex cycle across its user segments viz Steel industry, petrochemicals, fertilizer, hydro electric and thermal power, nuclear power, ship building and heavy machinery, etc. This would present increasing opportunities for the Welding players. AWL which has a market share of ~23% is expected to be one of the biggest beneficiaries.

■ Clean balance sheet, Zero Debt Company with attractive return ratios
AWL has one of the cleanest Balance Sheets apart from being a debt free company. Further it has a track record of paying dividend since more than 12 years with the current dividend yield placed at 2.8%. The ROE & ROCE which stands at 18% & 26% respectively in is expected to further increase to 22% & 32% respectively in FY12e on the back of improved financial performance.

To read the full report: ADOR WELDING