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Ador Fontech to amalgamate with Ador Welding…

About the stock: Ador Welding (AWL) is a leading player in the welding consumables (~19% market share), welding equipment, automation and projects business. Welding consumables contributed ~81% of revenue in FY22.

* AWL is expected to continue strong RoCE, positive free cash flow trajectory in consumables in comings years despite a challenging environment

* Aims to reduce legacy costs in projects business to improve return ratios

Q4FY22 Results: AWL reported decent Q4FY22 results

* Revenues came in at | 199.8 crore, up 23.6% YoY, 14.6% QoQ

* EBITDA came in at | 17.7 crore up 13.3% YoY, aided by reduced losses in flares & process equipment business

* Consequently, adjusted PAT was at | 12 crore, up 20.8% YoY

What should investors do? 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 | 890 i.e. 18x P/E on FY24E EPS.

Key triggers for future price performance:

* AWL aims to focus on core welding business, reduce legacy costs while streamlining projects business to regain growth and improve profitability

* Domestic welding & automation business to focus on improving margins and realisations with cost rationalisation, enhance advanced product portfolio, improving strike ratio of order wins and optimised product mix

* Overall, we expect revenue CAGR of 13.5% in FY22-24E with margins rebounding to 11% levels

Alternate Stock Idea: Besides AWL, we also like AIA Engineering in our coverage

* AIA to gain incremental volume growth in coming years despite likely base volume impact due to anti-dumping in Canada, South Africa

* BUY with a target price of | 2570

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