1
Mar 06, 2018
Ador Welding Ltd
Recommendation (Rs.)
CMP (as on Mar 06, 2018) 412
Target Price 450
Previous Target Price 356
Upside (%) 9
Stock Information
Mkt Cap (Rs.mn/US$ mn) 5600 / 86
52-wk High/Low (Rs.) 659 / 284
3M Avg. daily volume (no.) 67759
Beta (x) 1.1
Sensex/Nifty 33317 / 10249
O/S Shares(mn) 13.6
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 56.7
FIIs 0.0
DIIs 16.6
Others 26.7
Stock Performance (%)
1M 3M 6M 12M
Absolute (0) (16) 3 39
Relative to Sensex 2 (18) (2) 21
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Arvind Vinjamoori
040 - 3321 6270
arvind.vinjamoori@karvy.com
Steady Growth, Improving Margins but Rich Valuations
Mixed results, margins under pressure: We assess Q3FY18 results as
disappointing due to its meager YoY growth and margin contraction. YoY revenue
growth of 1.1% is negated by higher nance costs & an EBITDA contraction of 86
bps to 6.5% and the EPS de-grew by 10.6%. While AWLs focus on cost reduction,
product innovation, improving productivity and improving business process 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 8.5%-9.0% along with a net prot margin of 5.0%-
5.5% by FY20E. In view of the mixed future outlook we retain our “HOLD” rating
with a target price of Rs. 450 with an upside potential of 9%.
Altering product mix favoring project engineering and a healthy order
book: AWLs focus on expanding the project engineering segment has pared well
so far 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 in recent budget
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 along with improved margins going ahead. However, the rich
valuations coupled with higher nance costs & weak wind energy outlook is expected
to be a barrier. While revising the FY18E & FY19E, we have introduced FY20E
nancials. While lowering the FY19E EPS by 15.4%, we assign a “HOLD” rating for
AWL and value the stock at 21.5x which is a 5 year average forward PE to its FY20E
EPS of Rs. 20.9 and recommend a target price of Rs. 450 with an upside potential of
9%. Delay in economic recovery and increase in competition in domestic market may
pose threat to the call.
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 also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters
Exhibit 1: Valuation Summary (Rs. Mn)
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 4083 4415 4658 5077 5483
EBITDA 409 310 299 408 492
EBITDA Margin (%) 10.0 7.0 6.4 8.0 9.0
Adj. Net Prot 243 184 158 216 285
EPS (Rs.) 17.9 13.6 11.7 15.9 20.9
RoE (%) 11.2 7.8 6.5 8.4 10.3
PE (x) 16.0 22.8 35.3 25.9 19.7
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Company Update
India Research - Stock Broking
HOLD
Industrials-Metalworking Machinery
Ador Welding Ltd
Bloomberg Code: AWL IN
80
115
150
185
220
Mar -17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct
-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar -18
Ador W elding Ltd
Sensex
Earnings Revision (%)
YE Mar FY18E FY19E
Sales (%) (2.8) (2.8)
EBITDA (%) (21.9) (11.7)
PAT (%) (21.3) (15.4)
Source: Karvy Research
L
L
L
L
L
L
2
Mar 06, 2018
Ador Welding Ltd
Exhibit 2: Q3FY18
YE Mar (Rs. Mn) Q3FY18 Q2FY18 QoQ % Q3FY17 YoY % 9M FY18 9M FY17 YoY %
Turnover 1037 1217 (14.7) 1026 1.1 3125 2818 10.9
Expenditure 970 1115 (13.0) 951 2.0 2953 2617 12.8
EBITDA 67 101 (33.5) 76 (10.7) 173 201 (14.2)
Depreciation 26 26 (0.8) 28 (8.6) 77 85 (8.7)
Interest 14 12 13.1 3 392.9 35 6 532.7
Other Income 27 19 41.1 20 38.3 76 51 49.8
PBT 55 83 (33.2) 64 (14.3) 137 162 (15.6)
Ta x 18 28 (34.3) 23 (20.9) 46 55 (17.5)
PAT 37 55 (32.6) 41 (10.6) 91 107 (14.5)
EBITDA Margin (%) 6.5 8.3 (183) bps 7.4 (86) bps 5.5 7.1 (162) bps
EBIT Margin (%) 4.0 6.2 (217) bps 4.6 (60) bps 3.1 4.1 (109) bps
Net Prot Margin (%) 3.6 4.5 (95) bps 4.0 (47) bps 2.9 3.8 (087) bps
Source: Company, Karvy Research
Exhibit 4: Segmental Financials
YE Mar (Rs. Mn) Q3FY18 Q2FY18 QoQ % Q3FY17 YoY % 9MFY18 9MFY17 YoY %
Segment-wise revenues
Consumables 760 793 (4.2) 746 1.8 2107 2195 (4.0)
Equipments & Project Engg 278 424 (34.5) 375 (26.1) 1088 902 20.6
Segment-wise EBIT
Consumables 111 110 1.2 80 38.6 263 238 10.2
Equipments & Project Engg (26) 3 NA 16 NA (41) 5 NA
Segment-wise EBIT Margin (%)
Consumables 14.6 13.8 77 bps 10.7 387 bps 12.5 10.9 160 bps
Equipments & Project Engg (9.3) 0.6 (994) bps 4.3 (1359) bps (3.8) 0.5 (430) bps
Source: Company, Karvy Research
Exhibit 3: Margin Analysis
YE Mar (Rs. Mn) Q3FY18 Q2FY18 QoQ (bps) Q3FY18 YoY (bps) 9MFY18 9MFY17 YoY (bps)
Material Expenses as % of Net Sales 63.5 68.0 (459) 63.8 (37 ) 69.4 64.7 470
Employee Expenses as % of Net Sales 9.4 8.0 137 9.6 (16) 9.3 10.1 (77)
Other Expenses as % of Net Sales 13.4 10.4 305 14.9 (150 ) 12.9 15.7 (281)
EBITDA Margin (%) 6.5 8.3 (183) 7.4 (86) 5.5 7.1 (162)
Tax Rate (%) 33.0 33.5 (56) 35.7 (274) 33.3 34.1 (80)
Net Prot Margin (%) 3.6 4.5 (95) 4.0 (47) 2.9 3.8 (87)
Source: Company, Karvy Research
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Mar 06, 2018
Ador Welding Ltd
Exhibit 5: Quarterly Revenue Growth
Source: Company, Karvy Research
Exhibit 6: Revenue Segmentation Q3FY18
Source: Company, Karvy Research
Exhibit 7: Quarterly EBITDA
Source: Company, Karvy Research
Exhibit 8: Quarterly PAT
Source: Company, Karvy Research
-70%
-40%
-10%
20%
50%
80%
0
500
1000
1500
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
Revenue (Rs. Mn)
YoY Growth (%)
Consumables
73.2%
Equipments
& Project
Engg
26.8%
0%
5%
10%
15%
0
50
100
150
200
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
EBITDA (Rs. Mn)
EBITDA Margin (%)
-5%
0%
5%
10%
15%
20%
25%
-50
0
50
100
150
200
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
PAT (Rs. Mn)
PAT Margin (%)
Exhibit 10: 10yr forward PE Band
Source: BSE, Karvy Research
Exhibit 11: 5yr PE Band
Source: Bloomberg, Karvy Research
0
10
20
30
40
50
60
May-08
Feb-09
Nov-09
Aug-10
May-11
Feb-12
Nov-12
Aug-13
May-14
Feb-15
Nov-15
Aug-16
May-17
Feb-18
1yr forward PE
Average PE
1 SD
2 SD
Exhibit 9: Change in Earnings Estimates
YE Mar - Standalone (Rs. Mn)
FY18E FY19E FY20E
Old New % Change Old New % Change Introducing
Net Sales 4790 4658 (2.8) 5221 5077 (2.8) 5483
EBITDA 383 299 (21.9) 462 408 (11.7) 492
EBITDA Margin (%) 8.0 6.4 (157) bps 8.9 8.0 (82) bps 9.0
Adj . PAT 201 158 (21.3) 255 216 (15.4) 285
EPS (Rs.) 14.8 11.7 (21.3) 18.8 15.9 (15.4) 20.9
Source: Karvy Research
0
200
400
600
800
1000
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug
-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov
-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
Price
35.9x
26.6x
17.3x
8x
4
Mar 06, 2018
Ador Welding Ltd
Financials
Exhibit 12: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Revenue 4083 4415 4658 5077 5483
Growth (%) (4.3) 8.1 5.5 9.0 8.0
Operating Expenses 3674 4105 4359 4669 4992
EBITDA 409 310 299 408 492
Growth (%) 50.9 (24.3) (3.5) 36.6 20.4
Depreciation & Amortization 118 114 112 119 125
EBIT 291 196 187 290 367
Other Income 53 93 93 66 82
Interest 9 10 50 47 42
PBT 335 279 230 308 407
Tax 119 94 71 93 122
Adjusted PAT 243 184 158 216 285
Growth (%) 559.6 (24.2) (14.1) 36.3 31.9
Source: Company, Karvy Research
Exhibit 13: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Cash & Equivalents 141 215 265 304 294
Sundry Debtors 1199 771 1164 1295 1426
Inventory 430 475 543 595 643
Loans & Advances 141 778 265 306 375
Investments 102 104 104 104 104
Gross Block 2375 2525 2675 2825 2975
Net Block 1001 1023 1060 1092 1117
CWIP 14 38 38 38 38
Miscellaneous 325 374 380 385 398
Total Assets 3352 3780 3822 4120 4397
Current Liabilities & Provisions 1093 1329 1295 1459 1533
Debt 2 2 2 2 2
Other Liabilities 89 97 97 97 97
Total Liabilities 1184 1428 1394 1558 1632
Shareholders Equity 136 136 136 136 136
Reserves & Surplus 2031 2216 2292 2426 2629
Total Networth 2167 2352 2428 2562 2765
Total Networth & Liabilities 3352 3780 3822 4120 4397
Source: Company, Karvy Research
5
Mar 06, 2018
Ador Welding Ltd
Exhibit 14: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
PBT 335 279 230 308 407
Depreciation 118 114 112 119 125
Tax Paid (114) (94) (71) (93) (122)
Inc/dec in Net WC (112) (78) 11 (65) (187)
Other Income (7) (93) (93) (66) (82)
Other non cash items (3) 0 0 0 0
Cash ow from operating activities 218 128 189 204 140
Inc/dec in capital expenditure (148) (81) (150) (150) (150)
Inc/dec in investments (50) 16 0 0 0
Others 160 93 93 66 82
Cash ow from investing activities (38) 28 (57) (84) (68)
Dividend paid (82) (82) (82) (82) (82)
Others (3) 0 0 0 0
Cash ow from nancing activities (85) (82) (82) (82) (82)
Net change in cash 95 74 50 38 (9)
Source: Company, Karvy Research
Exhibit 15: Key Ratios
YE Mar FY16 FY17 FY18E FY19E FY20E
EBITDA Margin (%) 10.0 7.0 6.4 8.0 9.0
EBIT Margin (%) 7.1 4.4 4.0 5.7 6.7
Net Prot Margin (%) 6.0 4.2 3.4 4.3 5.2
Dividend Payout Ratio (%) 33.6 44.4 51.6 37.9 28.7
Net Debt/Equity (x) (0.1) 0.0 0.0 (0.0) (0.0)
RoE (%) 11.2 7.8 6.5 8.4 10.3
RoCE (%) 13.4 7.4 6.9 10.2 12.0
Source: Company, Karvy Research
Exhibit 16: Valuation Parameters
YE Mar FY16 FY17 FY18E FY19E FY20E
EPS (Rs.) 17.9 13.6 11.7 15.9 20.9
DPS (Rs.) 5.0 5.0 5.0 5.0 5.0
BVPS (Rs.) 159.4 172.9 178.6 188.4 203.4
PE (x) 16.0 22.8 35.3 25.9 19.7
P/BV (x) 1.8 1.8 2.3 2.2 2.0
EV/EBITDA (x) 9.2 13.8 18.8 13.7 11.4
EV/Sales (x) 0.9 1.0 1.2 1.1 1.0
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
6
Mar 06, 2018
Ador Welding Ltd
Stock Ratings
Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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