Buy Ador Welding With Upside Potential Up to 26%: ICICI Direct

Brokerage firm ICICI Securities has recommended investors to buy Ador Welding's stocks with a potential upside of 26%, with a target period of 12-18 months.

Ador Welding Ltd., founded in 1951, is a Small Cap business in the Industrial Equipment sector with a market capitalization of Rs 959.10 crore.

Ador Welding (AWL) is a worldwide leader in welding consumables, welding equipment, automation, and projects. Welding consumables accounted for 78 percent of revenue in FY21.

Ador Welding: Q2FY22 Results

AWL announced positive performance during the second quarter of fiscal year 22.

• Revenues totaled Rs 159.5 crore, growing 66.2 percent year over year and surpassing pre-Covid levels.
• EBITDA increased to Rs 13 crore (from Rs 4.8 crore in Q2FY21), owing to lower losses in the flares and process equipment sector.
• As a result, adjusted PAT came in at Rs 9.6 crore.

Target Price and Valuation

"Going forward, better consumables volumes, rebound in equipment sales and projects business turnaround to drive growth, profitability. Considering strong growth outlook, margin revival, we maintain BUY rating Target Price and Valuation: We value AWL at Rs 945 i.e. 23x P/E on FY23E EPS," the brokerage has said.

Key triggers for future price performance

• To regain growth and increase profitability, AWL intends to focus on core welding business, decrease legacy expenses, and streamline project operations.
• Domestic welding and automation companies will focus on cost rationalization, enhancing advanced product portfolio, improving strike ratio of order wins, and optimizing product mix to improve margins and realisations.
• Overall, we anticipate a 20.8 percent sales CAGR in FY21-23E, with margins returning to 12 percent.

Alternate Stock Idea

Apart from AWL, Esab India is a stock that the brokerage believes in.
New technologically advanced new product launches, as well as services and exports, will drive long-term growth in the future. It suggested a BUY with a target price of Rs 2850.

Outlook

Overall, an improved long-term demand prognosis for consumables and equipment, owing to predicted solid infrastructure spending and a focus on increasing local manufacturing. In the long run, margin gains can be achieved by focusing on the best product mix, value added items, technology advancements, and increased operating leverage.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.