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1
Jun 05, 2018
Ador Welding Ltd
India Research - Stock Broking
HOLD
Recommendation (Rs.)
CMP (as on Jun 04, 2018) 327
Target Price 350
Previous Target Price 450
Upside (%) 7
Stock Information
Mkt Cap (Rs.mn/US$ mn) 4447 / 66
52-wk High/Low (Rs.) 659 / 316
3M Avg. daily value (Rs. mn)
15
Beta (x) 1.3
Sensex/Nifty 35012 / 10629
O/S Shares(mn) 13.6
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 56.7
FIIs 0.0
DIIs 15.7
Others 27.6
Stock Performance (%)
1M 3M 6M 12M
Absolute (15) (24) (33) 2
Relative to Sensex (16) (26) (37) (9)
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 4083 4424 4583 4927 5223
EBITDA 409 301 340 383 416
EBITDA Margin (%) 10.0 6.8 7.4 7.8 8.0
Net Prot 216 179 184 224 247
EPS (Rs.) 15.9 13.1 13.5 16.5 18.2
RoE (%) 10.0 7.6 7.5 8.7 9.0
PE (x) 18.0 23.5 30.4 19.8 18.0
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
Earnings Revision (%)
YE Mar FY19E FY20E
Sales (%) (3.0) (4.8)
EBITDA (%) (6.2) (15.3)
PAT (%) 3.9 (13.1)
Source: Karvy Research
L
L
L
L
L
L
Company Update
Industrials-Metalworking Machinery
Ador Welding Ltd
Bloomberg Code: AWL IN
80
120
160
200
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar -18
Apr-18
May-18
Ador W elding Ltd
Sensex
Analyst Contact
Arvind Vinjamoori
040 - 3321 6270
arvind.vinjamoori@karvy.com
Tepid Growth & Sluggish Margin Expansion
Mixed results, margins under pressure: FY18 full year earnings grew by a
meager 3% backed by a 3.6% revenue growth coupled with an EBITDA margin
expansion of 60 bps. EBITDA margin has been recorded at 7.4% along with a
net prot margin of 4.0% for FY18. However, Q4FY18 YoY performance has been
positive with an earnings growth of 26.7% backed by EBITDA margin expansion of
523 bps despite revenue de-growth of 9%.
While AWLs focus on cost reduction, product innovation and improving productivity
gives a positive outlook, higher valuations along with increased nance costs &
bleak wind energy outlook remains a challenge. While the management is condent
of maintaining the EBITDA margins at 11-12%, we are skeptical and expect the
EBITDA margin hovering around 8.0%-8.5% along with a net prot margin of
4.5%- 5.0% by FY20E. In view of the mixed future outlook, we retain our “HOLD”
rating with a target price of Rs. 350 and an upside potential of 7%.
Changing product mix favoring project engineering: AWLs focus on
expanding the project engineering segment has done well for the company. In view
of the growing optimism in manufacturing segment particularly in segments like
defence, power and automotive sectors and the current outstanding order book, we
are anticipating a decent growth in near future. We expect the protability margins to
improve mainly on account of improved revenue from project engineering segment
which is a high margin business and an increased contribution from exports.
Government’s increased spending targets in elds like defence, infrastructure,
transportation & power sectors is expected to do well for AWL revenue. AWL has
exposure to wind energy and has introduced new products to cater to it; however,
we are not very positive about the segment’s near future outlook.
Valuation and Risks
Over the years, AWL has been serving diversied segments and we believe the
earnings to expand at 7% CAGR during FY18-20E along with slightly improved
margins. However, the higher valuations coupled with higher nance costs & weak
wind industry outlook is expected to be a barrier. We assign a “HOLD” rating for
AWL and value the stock at 19.0x which is a 5 year average of 1 year forward PE
to its FY20E EPS of Rs. 18.2 and recommend a target price of Rs. 350 with an
upside potential of 7%. Delay in economic recovery and increase in competition in
domestic market may pose threat to the call.
2
Jun 05, 2018
Ador Welding Ltd
Margins are under
pressure owing to higher
material costs.
YoY earnings have
improved despite a
revenue de-growth.
However, margins continue
to be under pressure.
Project engineering
segment is showing signs
of revival.
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 1452 1037 40.0 1596 (9.0)
Expenditure 1286 970 32.5 1497 (14.1)
EBITDA 167 67 147.0 100 67.3
Depreciation 24 26 (7.5) 28 (14.5)
Interest 18 14 31.9 5 271.4
Other Income 21 27 (22.5) 43 (51.2)
PBT 146 55 163.9 110 32.5
Ta x 51 18 181.9 36 44.5
PAT 94 37 155.1 75 26.7
Adjusted PAT 94 37 155.1 75 26.7
EBITDA Margin (%) 11.5 6.5 497 bps 6.2 523 bps
EBIT Margin (%) 9.8 4.0 580 bps 4.5 534 bps
Net Prot Margin (%) 6.5 3.6 293 bps 4.7 183 bps
Source: Company, Karvy Research
Exhibit 4: Segmental Financials
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Segment-wise revenues
Consumables 1006 760 32.4 949 6.0
Equipments & Project Engg 446 278 60.8 763 (41.5)
Segment-wise EBIT
Consumables 151 111 35.9 125 20.9
Equipments & Project Engg 35 (26) NM 25 43.7
Segment-wise EBIT Margin (%)
Consumables 15.0 14.6 40 bps 13.2 185 bps
Equipments & Project Engg 7.9 (9.3) 1722 bps 3.2 467 bps
Source: Company, Karvy Research
Exhibit 3: Margin Analysis
YE Mar Q4FY18 Q3FY18 QoQ (bps) Q4FY17 YoY (bps)
Material Expenses As % Of Net Sales 72.1 63.5 869 77.5 (533)
Employee Expenses As % Of Net Sales 6.3 9.4 (312) 6.7 (43)
Other Expenses As % Of Net Sales 12.5 13.4 (96) 10.4 211
EBITDA Margin (%) 11.5 6.5 497 6.2 523
Tax Rate (%) 35.2 33.0 224 32.3 294
Net Prot Margin (%) 6.5 3.6 293 4.7 183
Source: Company, Karvy Research
3
Jun 05, 2018
Ador Welding Ltd
Exhibit 5: Revenue Segmentation
Source: Company, Karvy Research
Exhibit 7: Quarterly EBITDA Trend
Source: Company, Karvy Research
Exhibit 6: Quarterly Revenue Trend
Source: Company, Karvy Research
Exhibit 8: Quarterly PAT Trend
Source: Company, Karvy Research
Exhibit 9: Change in Earnings Estimates
YE Mar - Consolidated (Rs. Mn)
FY19E FY20E
Old New % Change Old New % Change
Net Sales 5077 4927 (3.0) 5483 5223 (4.8)
EBITDA 408 383 (6.2) 492 416 (15.3)
EBITDA Margin (%) 8.0 7.8 (27) bps 9.0 8.0 (100) bps
Adj. PAT 216 224 3.9 285 247 (13.1)
EPS (Rs.) 15.9 16.5 3.9 20.9 18.2 (13.1)
Source: Karvy Research
Consumables
69.3%
Equipments
& Project
Engg
30.7%
-70%
-
40%
-10%
20%
50%
80%
0
500
1000
1500
Q2FY16
Q4FY16
Q2FY17
Q4 FY17
Q3 FY18
Revenue (Rs. Mn)
QoQ Growth (%)
YoY Growth (%)
0%
2%
4%
6%
8%
10%
12%
14%
0
50
100
150
200
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
Q4 FY18
EBITDA (Rs. Mn)
EBITDA Margin (%)
-2%
0%
2%
4%
6%
8%
-20
0
20
40
60
80
100
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
Q4 FY18
PAT (Rs. Mn)
PAT Margin (%)
4
Jun 05, 2018
Ador Welding Ltd
AWL has been trading at
19x to its one year forward
PE for the past 10 years.
Exhibit 10: 10 yr PE Band- Ador Welding
Source: Bloomberg, Karvy Research
Exhibit 11: S&P BSE Industrial Index
Source: Bloomberg, Karvy Research
0
200
400
600
800
1000
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Price (Rs.)
36.7x
27.3x
17.9x
8.5x
1200
2500
3800
5100
6400
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Price (Rs.)
43.9x
38.7x
33.5x
28.3x
23.1x
5
Jun 05, 2018
Ador Welding Ltd
Financials
Exhibit 12: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenues 4083 4424 4583 4927 5223
Growth (%) (4.3) 8.3 3.6 7.5 6.0
Operating Expenses 3674 4123 4243 4544 4807
EBITDA 409 301 340 383 416
Growth (%) 50.9 (26.4) 13.0 12.6 8.7
Depreciation & Amortization 118 114 102 108 114
EBIT 291 188 238 275 302
Other income 53 92 96 99 104
Interest Expenses 9 11 53 53 53
PBT 316 269 281 320 354
Tax 119 90 97 96 106
Adjusted PAT 216 179 184 224 247
Growth (%) 486.4 (17.5) 3.1 21.8 10.3
Source: Company, Karvy Research
Exhibit 13: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & Equivalents 141 215 175 240 353
Sundry Debtors 1199 765 920 1035 1097
Inventory 430 478 538 563 592
Loans & Advances 141 284 322 303 322
Investments 102 107 24 24 24
Gross Block 2375 2309 2466 2616 2766
Net Block 1001 936 949 976 996
CWIP 14 38 8 8 8
Miscellaneous 325 954 1345 1345 1346
Total Assets 3352 3779 4281 4494 4737
Current Liabilities & Provisions 1091 975 911 981 1059
Debt 2 356 813 813 813
Other Liabilities 89 99 107 107 107
Total Liabilities 1184 1430 1831 1901 1979
Shareholders Equity 136 136 136 136 136
Reserves & Surplus 2031 2213 2314 2457 2622
Total Networth 2167 2349 2450 2593 2758
Total Networth & Liabilities 3352 3779 4281 4494 4737
Source: Company, Karvy Research
,
We expect the revenue
to grow at 7% CAGR.
However, margins to be
under pressure during
FY18-20.
We expect the working
capital to remain at the
current levels.
6
Jun 05, 2018
Ador Welding Ltd
Exhibit 14: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
PBT 335 269 281 320 354
Depreciation 118 114 102 108 114
Tax Paid (114) (90) (97) (96) (106)
Inc/dec in Net WC (112) (23) (224) (50) (33)
Other Income (7) (92) (96) (99) (104)
Other non cash items (3) 0 0 0 0
Cash ow from operating activities 218 177 (34) 184 224
Inc/dec in capital expenditure (148) 66 (158) (150) (150)
Inc/dec in investments (50) (177) 137 15 16
Others 160 92 96 99 104
Cash ow from investing activities (38) (19) 75 (36) (30)
Dividend paid (82) (82) (82) (82) (82)
Change in borrowings (0) (2) 0 0 0
Others (3) 0 0 0 0
Cash ow from nancing activities (85) (84) (82) (82) (82)
Net change in cash 95 74 (41) 66 112
Source: Company, Karvy Research
Exhibit 15: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 10.0 6.8 7.4 7.8 8.0
EBIT Margin (%) 7.1 4.2 5.2 5.6 5.8
Net Prot Margin (%) 5.3 4.0 4.0 4.6 4.7
Dividend Payout Ratio (%) 37.8 45.8 44.4 36.5 33.1
Net Debt/Equity (x) (0.1) 0.1 0.3 0.2 0.2
RoE (%) 10.0 7.6 7.5 8.7 9.0
RoCE (%) 13.4 6.9 7.3 8.1 8.5
Source: Company, Karvy Research
Exhibit 16: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 15.9 13.1 13.5 16.5 18.2
DPS (Rs.) 5.0 5.0 5.0 5.0 5.0
BVPS (Rs.) 159.4 172.7 180.2 190.7 202.8
PE (x) 18.0 23.5 30.4 19.8 18.0
P/BV (x) 1.8 1.8 2.3 1.7 1.6
EV/EBITDA (x) 9.2 14.5 18.4 13.1 11.8
EV/Sales (x) 0.9 1.0 1.4 1.0 0.9
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
We expect the protability
margins to be under
pressure along with
subdued return ratios.
7
Jun 05, 2018
Ador Welding Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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