Ador Welding Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Flat volumes, margin recovery begins: Domestic volumes were flat for the year while international grew 25%, but operating margin bounced back in Q4 after a trough near 7% in the September quarter.
• Services drag nears its end: The ONGC Uran project, a deliberate bet that went wrong, has been the persistent loss-maker; management expects it to be completely behind by H1 FY26 with breakeven thereafter.
• New team, new brutality on price: Strategic hires across the C-suite are already reshaping commercial discipline, with a stated intent to pass through steel price moves "a lot more brutal about passing things on a lot faster."
• Internal mandate to double revenue in 4 years: Management is targeting 10-15% topline growth, a bare-minimum 10% operating margin, and a doubling of revenue over four years, all resting on execution of a freshly articulated strategy.
• What to watch next quarter: Whether the services business actually hits breakeven post-H1, the pace of margin expansion toward that 10% floor, and any evidence that the new import-substitution and high-spec product lines are converting to revenue.

The ONGC Uran Overhang & Services Reset

• A conscious bet that soured: Management took on the large ONGC Uran order to upgrade technological capabilities for larger jobs, but cost overruns have eroded margins and the project has not delivered the expected kick. No similar large job has been taken since.
• Losses still running: The services segment (flares and process equipment) remains EBIT-negative, though margins improved from -24% to -19% this quarter. The ONGC project is now running roughly 1:1 with no big margin uplift expected in the next six months.
• The exit path: Management expects the Uran project to be fully cleared within 5-6 months, closing out at breakeven level with no significantly large losses left. Post that, the segment needs ₹50-₹60 crores of non-large-scale project business to breakeven and show profitability.
• New project discipline: Future order book will be capped at ₹15-₹20 crore per project, with strict limits on design and scope complexity. The focus shifts to mid-size flares, process equipment, and heat exchangers with better margins.
• Credibility question: An analyst noted management has been saying "next 6 months" for 1.5 years; management acknowledged the frustration but clarified this timeline is about closing a specific project, not a promise of instant profitability.

Malkani: "I very consciously took a decision to take on a fairly large order of ONGC Uran at that time, which was my responsibility to take it on to see if we could upgrade our technological skills with larger and larger jobs to see how it would move. That job is still going on. I have not taken another job after that."

M&R Business: The Margin Reset

• Revenue dropped ~20%: M&R revenue fell from approximately ₹200 cr to ₹160 cr, driven by three forces: roughly 15% from key products moving into the products business, softer demand from core customers (cement, steel) over the last 6-8 months, and a generally difficult economic environment.
• Margins troughed, now recovering: Gross margins in M&R dropped sharply in Q2 and Q3, causing concern, but certain activities are now getting back in line. Management expects to work back toward historical gross margin levels with no structural difference.
• Export push beginning: The company has started exporting M&R products, particularly targeting the Middle East market. Still too small to move overall revenue, but expected to help margins over the next year or two.
• Diesel engine products a bright spot: 75% of these products go international where a recent Indian standard change had no impact; the upgraded product line is doing very well abroad, and order potential for the coming year is expected to be more aggressive than last year.

Welding Business & Product Evolution

• Flux cored wire and stainless steel investments: A new flux cored wire line stabilized last year, and stainless steel products are showing potential. Management expects to make further investments in both spaces.
• EV welders gain traction: The first go-to-market EV welder product has found traction in India and international markets. A solar-powered next version is unofficially in the works for certain critical markets, and a few breakthrough orders are expected this year.
• Import substitution line now operational: New product lines targeting categories India previously depended on imports for have been scaled up and started moving stable from Q4 onwards. Revenue and margin benefits are expected over the next 6 to 18 months.
• High-spec product launches: The company has started launching more technologically advanced welding equipment; some results are already visible, with more benefit expected to accrue over the next 6 to 18 months.
• Automation still lagging: The automation product portfolio remains behind, and management acknowledges this will not change overnight. New talent is focused on the space, and the company is actively looking for ways to accelerate, including potential inorganic opportunities.
• 3D technologies abandoned: Management has concluded the business is not feasible for long-term investment, citing changed dynamics. No further elaboration was offered.

Malkani: "As Ador, we view ourselves simply as India's tier 1 welding player and probably the only one that is not an MNC. So which means you do not have the external support that an MNC would on certain technologies or products..."

International Business: The Growth Engine

• 25% growth in FY25: International business was the standout performer while domestic volumes stayed flat. Core Middle East markets (Saudi, UAE, Oman) are well-placed for continued growth.
• US and Australia entry underway: Investments began about a year ago to enter these markets with Ador's own brand. The US play is a longer build: enter with slightly lower-margin products, then step up as pillars are established. Results are starting to show but remain tiny as an overall percentage.
• Export growth moderating: After 20-25% growth last year, management expects a more muted pace going forward, though still positive. Margins in export markets are broadly in line with India, contingent on the dollar not weakening significantly.
• Diesel engine products leading the charge: With 75% of output going international and no regulatory headwind abroad, this category is expected to drive aggressive order growth in the coming year.

Strategy, People & the New Operating Model

• C-suite rebuild: Mr. Lajpat Yadav joined as CEO of the Indian Welding Business, and Mr. Suryanarayan joined as Head of Corporate Strategy. Over the last 18 months, management has systematically identified and hired strong talent, with benefits already visible and more expected over the next 1-2 years.
• Merger integration nearly done: The merger completed in September/October last year is approximately 98% integrated. Value-creation benefits are expected to play out continuously over the next 6 to 18 months.
• New strategic framework: The company has articulated a fresh vision (create the best welding experience), mission (be India's number one welding company), and a newly defined goal to operate as a mid-cap company from a valuation and process standpoint. Strategy rests on four pillars: growth, operational excellence, customer focus, and people focus.
• Performance culture taking root: A more performance-driven culture is being embedded, and results are starting to show in recent months. Two to three very clear cost-inefficiency markers have been identified for action this year.
• Volume growth now a priority: Management initially structured plans around value growth but is now shifting to treat volume growth as a big driver, partly in response to the flat domestic volume performance.
• Key customer program: A larger framework of key customers is being built out, with the team working on it and benefits expected this year.

Malkani: "I think we are just going to be a lot more brutal about passing things on a lot faster and having the strength to do that and I think that is exactly where the management changes are coming and I am seeing that that they are doing it effectively."

Demand Environment & Market Realities

• Domestic demand subdued: The economy and IIP figures over the last 6-9 months have not been as encouraging as plans assumed. Domestic welding equipment saw a CAPEX dip for 2-3 quarters, though it started picking up from March onwards.
• Steel price volatility a headwind, not a tailwind: Declining steel prices squeezed revenue growth comparisons and, combined with a demand squeeze and inventory squeeze, prevented lower input costs from flowing through to margins. The sharpness of the drop limited any benefit.
• Market share flat, not lost: Management does not believe market share was lost; volumes were flat for the year, and the Indian market itself has been very tough. Month-on-month steel price variations last year were sharp enough to make year-on-year comparisons noisy.
• Optimism tempered: Sectors like railways, thermal, defence, general infrastructure, and heavy engineering are expected to stay on a fairly robust growth path, but management does not expect irrational growth, describing the outlook as tempered post-COVID growth. Visibility extends 3-4 months with high confidence.

Guidance & Commitments

Key Metrics