Ador Welding Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Record Q2 sales, margin rebound: Sales hit ₹229 crores, up 23% YoY, while consumable PBIT margins reached ~16.5%, among the highest in four to five years, recovering from a disappointing Q1.
• Volume growth is demand-led, not price-led: 80–90% of volume growth came from demand across domestic infra, railways, and shipbuilding, with equipment sales volumes up over 50% in H1 on minimal per-unit price appreciation.
• ONGC order enters the billing window: The project moves into hot billing from December/January through June/July, with management pushing to book ₹70–80 crores in FY24 and targeting 10–11% segment margins after absorbing past-quarter losses.
• BIS compounding order of ₹25 crores is contested: Management calls the order "very, very unfair," has obtained a stay from the high court, and is pursuing resolution through technical committees rather than confrontation.
• What to watch next quarter: Whether the ONGC billing ramp actually delivers ₹70–80 crores, whether the 12.8% overall margin proves sustainable as guided, and any progress on the NCLT merger timeline now expected earliest in Q4.

ONGC Project & Project Segment

• Execution timeline: The order is now entering the hot billing phase; 90% of execution is concentrated from January through June/July, with December/January as the inflection point.
• Billing target: Management is pushing very hard to achieve ₹70–80 crores of billing in FY24 within the project segment.
• Margin recovery path: Losses incurred in the past two quarters on this order will get adjusted in subsequent quarters; the segment is being targeted at a 10–11% margin.
• Execution risk: There has been a slight delay due to site, design, and other factors; management expects to catch up during the execution period.

Margin Structure & Sustainability

• Consumable margins at multi-year highs: Q2 consumable PBIT margins of around 16.5% are among the highest in the past four to five years, driven by smart product mix, sourcing advantages from scale, and value selling.
• Equipment margin path: Equipment has room for scale margins to come in but needs to scale up more; product mix improvement is starting to happen, and the automation part of the business is critical but not yet at high enough scale.
• Automation as the margin driver: Automation equipment carries gross margins around 25%, but the business is too small at current scale and therefore hurts overall margins; scaling automation is "definitely the big driver for margins."
• Steel price pass-through: Steel price risk exists but can be passed through within a one-month lag; rate contracts with larger customers are fairly raw-material linked.
• Overall margin commitment: Management's endeavour is to ensure the current 12.8% margin level remains and to keep building on it incrementally.

Malkani: "I think the answer to the double-digit margin lies in our ability to ramp up our automation very fast, very well, and make that a significant contributor, which it can. But it will not happen on a monthly basis. It will not happen on a quarterly basis; this is the only growth. You have to just give us a little time. You will see that coming."

Demand & Volume Drivers

• Domestic demand broad-based: General infra, railways, auto (described as "okay"), shipbuilding, power plants, and cement infrastructure are all contributing to volume growth in the Indian market.
• Equipment volume surge: Equipment sales grew more than 50% in the six-month period, primarily due to volumes and slight product mix, with no major price appreciation on a per-unit basis.
• Export momentum: H1 exports reached about ₹60 crores, already touching almost the full previous-year level.
• Middle East strength: A long presence provides a brand platform, driven by oil and gas capex in Saudi Arabia and UAE with 10-plus years of investment planned; the team is aggressive on projects, approvals, and distribution.
• Americas gestation: In the Americas and Brazil, the Ador brand is not known, requiring a longer gestation cycle of six to eight months for approvals and testing; management sees the potential ahead as "absolutely tremendous, even better than the national market."
• Import competition structural: Competition from imports at the lower end will not change or reduce; the response is to provide good product with a price margin built in over cheap imported alternatives.

Malkani: "If you're going into the Americas, you're going into a Brazil market, the Ador brand isn't known. The Middle East Ador brand is known. So you're going to those markets to get our value that we want. It's a longer period because you have a long gestation cycle because you have to do approvals, testing, you have to do all of those things."

Product & Capacity Developments

• Battery-powered welder: India's first battery-powered welder was launched; the product was ready by September and showcased at the world's largest welding exhibition in Germany; official product launch and readiness is expected around January-February, with strong demand anticipated.
• Flux core wire capacity: The product line is running at 90–95% of capacity; significant capacity is being added in the coming months.
• Overall capacity addition: Adding a couple of units of 6,000–7,000 tons, about 8,000 to 10,000 tons over the next six months.
• Fontech strategy: Not pushing excess top-line growth; focus is on margin improvement through better product mix, taking out commodity range overlap with Ador Welding, and pushing higher-margin products and services.
• High-value consumables: Management states there is "no choice but to be a seriously good player" in high-value consumable items and is trying to grow that segment.

BIS Litigation

• Origin: About two years ago, the company ran afoul of a BIS notification requiring approval for imports; it stopped imports at that time but made the error of agreeing to sell product that had already been imported, which it should not have done.
• Compounding order: BIS issued a compounding order of approximately ₹25 crores, which management believes is "very, very unfair."
• Current status: The company has challenged the order in the high court and obtained a stay; it is working with BIS on technical committees and is not taking a confrontational approach; management is confident "better sense will prevail."

Malkani: "We believe that unfortunately, the BIS was quite unfair in its compounding order to us and give us a compounding order in the region of 25 crores, which we believe is very, very unfair."

Merger & Working Capital

• Merger progress: The merger is still going through the NCLT process; the vote has happened in both companies and went in favour of the amalgamation; the earliest timeline is Q4, but it remains in NCLT hands.
• Working capital improvement: Management is fairly confident that in the next quarter or two quarters, there should be a significant improvement in working capital, though it declined to provide detailing on where exactly the scope lies.
• Synergy quantification declined: When asked for exact G&A or fixed cost benefits from the merger, management declined to give an exact number.

Guidance & Commitments

Key Metrics