Ador Welding Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Consumables margins structurally reset: Management called the step-up in consumables margins consistent and not a one-off, driven by operating leverage and better pricing discipline around steel.
• Flares turnaround is now visible: The renamed division posted a 14% margin in Q3, up from 0% in Q2, and the large ONGC Uran order begins contributing revenue in Q4.
• Exports are a small base, high-growth story: Exports are on track to grow ~60% this year, with management targeting another 40–50% next year, led by welding consumables.
• Capex cycle confidence is cautious: Management sees a strong capex cycle right now but refuses to call visibility beyond 5–6 months, citing global liquidity and supply chain risks.
• What to watch next quarter: Whether the ONGC flares order begins converting to revenue as guided, whether consumables volume growth holds at the 7–8% ballpark, and any NCLT progress on the Ador Fontech merger.

Consumables: The Margin Story

• Margin reset, not a spike: Management stated the higher consumables margins are not a one-off and expects them to be consistent going forward, attributing the improvement to operating leverage and a better understanding of pricing around steel price movements.
• Volume recovery path: Q1 volumes dipped due to steel price volatility, recovered in Q2, and Q3 delivered 7–8% volume growth. The nine-month figure is flattish only because Q1 dragged it down.
• Data lens shifted: Management now studies data from August to January to get a relevant sense of the trend, ignoring the April–July volatile period.
• Growth ambition: The company wants to outperform the market growth rate on consumables, driven by distribution expansion and product approvals.
• Industry view for FY24: Consumables industry growth is expected to be fairly in line with Q3 levels, maybe a little bit up and down.

Malkani: "The margins in consumables is not a one off it is what I consistently expect at a level that we should see going forward that is what we have been trying."

Flares & Process Equipment: The Turnaround

• Division cleaned up and refocused: The earlier project engineering phase (2012–2019) took on non-flare, execution-heavy contract jobs that bloated working capital and had thin margins. Since September 2020, the division was refocused on engineering-led flares and process equipment work, and the cleanup of prior issues is now done.
• Margin trajectory: Q1 margin was 13%, Q2 dropped to 0%, and Q3 recovered to 14%. Management called the 14% level a good base reference to build on, with a gross margin indication of 20%.
• ONGC order anchor: The ~₹120–130 Cr ONGC Uran order, won in June–July 2022 after six to eight months of bidding, provides a base load. Execution runs over 18–24 months from July 2022, with ~7–8% of order value recognized in Q4 FY23 and 75–80% over the next financial year.
• Pipeline and sweet spot: A few more orders are expected to click quite soon, typically in the ₹10–30 Cr range with 4–6 months execution cycles. Larger orders take longer.
• Steady-state philosophy: Management has no desire to chase forex exposure or massive upward cycles in this division, preferring steady, step-by-step growth using the ONGC order as a base.
• International caution: A market exists abroad in the Middle East, but the company is staying away for now and may look at it as the Indian market position strengthens.

Malkani: "We have no desire to go forex in this division, we have no desire to suddenly have massive upward cycles and stuff like that, we want to just do it on it a very steady state level."

Equipment & Capex Cycle

• Supply chain easing, not yet normal: Supply chain challenges are easing but not fully resolved. The order book is decent and the market is good, with Ador's international market picking up a little for equipment.
• Make in India tailwind: Some favorability is being seen for Indian players including Ador, provided technical and commercial requirements are met. Management wants to be a manufacturer with strong technology, not just a trader.
• Import dependence: Equipment imports are roughly 80% of the segment, per a ballpark estimate.
• Capex cycle visibility is short: Since July–August, a fairly good and positive step-by-step movement upwards has been observed. The cycle seems strong at the moment, but management is cautious about looking beyond 5–6 months given the volatility of the last 15 months, citing global liquidity and supply chain as factors that could intervene.
• Cement and steel drivers: Cement expansion is expected to play a good role in the next financial year, and steel expansion announcements should also play a role going ahead.

Malkani: "Capex cycle seems to be strong at the moment, it is very hard to look beyond 5-6 months simply because of what the last 15 months were so it is very hard to keep saying that oh it is going to keep running robust like that, there are many factors that could play a role in there, global liquidity, all of those sort of things, global supply chain, anything else that could come in."

Exports

• Small base, high growth: Exports are expected to grow ~60% this year versus last year, and management believes 40–50% growth is still achievable next year because the base is small.
• Consumables dominate: Welding consumables make up roughly 85% of the ~₹18 Cr quarterly export mix.
• International focus: Ador's international business is a key focus area and is starting to see results, with the team delivering robustly, especially in select key markets.

Competitive Position & Market Structure

• Scale as a moat: Smaller players compete primarily on pricing, but scale in distribution, manufacturing capability, a full product basket, and brand value matter a lot in this market.
• Outperform ambition: The company is explicitly geared to outperform the market growth rate, with everything it does oriented toward that goal. Consumables have an opportunity to outperform a little bit, supported by distribution and product approval efforts.
• New products and certifications: Some new products have been launched, with a focus on the Make in India range, and certifications have been obtained.

Malkani: "Yes we do want to outperform the market that is very much exactly what we are geared towards and what we are working towards so everything we do is about how do we outperform in terms of what the market growth rate is."

Merger with Ador Fontech

• Process status: The application for the merger between Ador Fontech and Ador Welding has been filed with the NCLT and is following due process.
• Timeline hope: Management is very hopeful of closing everything in this calendar year, per an indicative timeline they have received, though no formal guesstimate on the NCLT timeline is being offered.
• Strategic logic: The merger is expected to help leverage opportunities in the equipment segment and service opportunity leverage. Ador Fontech's outlook is fairly robust, with definite opportunity for growth, though not as large as the conventional fabrication business.

Malkani: "We have got an indicative timeline that we would like to see it. I am very, very hopeful we will close everything in this calendar year so that is basically where we are."

Guidance & Commitments

Key Metrics