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- 1 - Monday, 12th JulThis document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

Ador Welding Ltd. CMP Rs 210 P/E 7.0x FY2012E BU

PRICE TARGET Rs 298/- (18 Months)Index DetailsSensex 17,833Nifty 5,352Small Cap 9,270Industry Industrial GoodsScrip DetailsMkt Cap (Rs in crore) 285.6Book Value (Rs) 110.4

Eq Shares O/s (Cr) 1.4Avg Vol 37,83352 Week H/L 222 / 107Dividend Yield (%) 2.9Face Value (Rs) 10.0

BSE Code 517041NSE Code ADORWELD

Shareholding Pattern(31stMarch, 2010)Shareholders % holdingPromoters 56.3Indian Institutions 10.7FIIs 0.2Non Promoter Corporate 4.3Public 28.5

Total 100.0

Ador Welding vs. Sensex

Key Investment Highlights

Volume expansion: key growth driver

In FY10 AWL clocked a volume growth of ~42% from 18,655 TPA in FY~24,000 TPA in FY10. Considering a further uptick in the demand for electrowe expect a volume growth of 25% (on conservative basis) over the nexyears. With the volume growth set to kick in, the revenues in the we

consumables segment are expected to exhibit a CAGR of 26% from Rscrore in FY10 to Rs 310 crore in FY12.

Capex in continuous welding segment to fuel further growth

With the demand for continuous electrodes outpacing manual electrodes, has initiated a Rs 15 crore capacity expansion programme which would10,000 TPA of capacity space in the form of adding special wires. The purpose behind this expansion is to enable AWL to enter into high growniche areas of welding application which includes nuclear power, super cboilers & some special steel applications. This would not only help in wideniproduct profile but would enable the company to improvise on its mabacked by low competition in these niche segments.

Uptick in infrastructure spending spells good opportunity for we

playersWe are currently witnessing a strong pick up in the capex cycle across itssegments viz Steel industry, petrochemicals, fertilizer, hydro electric and thepower, nuclear power, ship building and heavy machinery, etc. This wpresent increasing opportunities for the Welding players. AWL which hmarket share of ~23% is expected to be one of the biggest beneficiaries.

Clean balance sheet, Zero Debt Company with attractive return ratios

AWL has one of the cleanest Balance Sheets apart from being a debtcompany. Further it has a track record of paying dividend since more thayears with the current dividend yield placed at 2.8%. The ROE & ROCE wstands at 18% & 26% respectively in is expected to further increase to 2232% respectively in FY12e on the back of improved financial performance.

Ador Welding Limited, one of the leading players in the welding consumables & equipment space is all set to befrom a pick up in the investment cycle in the core infrastructure space resulting in strong demand outlay for its wel

products. AWL is expected to exhibit a revenue & PAT CAGR of 24% & 26% for the period FY10-12 respectively onback of strong volume growth of 25% and capex in continuous welding equipment which is margin accretive. We vAWL at 10x its FY12e earnings and initiate a BUY at CMP with a price target of Rs 298, representing a potential upof 42% over a 15-18 months horizon.

Key FinancialsY/E Mar

(Rs Crore)Net

Revenues EBIDTA PAT EPSEPS Growth

(%)ROCE

(%)RONW

(%) P/E (x)EV/EBID

(x)

FY10 260.7 46.0 25.6 18.8 110.5 26.1 18.2 11.2

FY11E 320.0 58.0 31.0 22.8 21.1 29.0 19.5 9.2

FY12E 400.0 73.0 40.5 29.8 30.6 32.3 22.2 7.0

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Company Background

Ador Welding Ltd, incorporated in the year 1951, is one of Indias leading pla

in the field of Welding Products Technologies & Services. The company h23% market share in the organized segment of the Indian welding industry.

AWL has two Technology Development Centers (TDCs) at Silvassa in the UTerritory of Dadra & Nagar Haveli and at Chinchwad (Pune) in Maharashtconsumables and Equipment respectively, providing the company innovations, upgradations, improvements and cost reductions.

Business Profile

Ador Welding Limited is in the business of welding consumables (manucontinuous), welding and cutting related products and services. AWL ha

manufacturing plants across India, a comprehensive distribution network wisales offices, 8 field offices and 400 distributors.

The Company offers comprehensive welding solutions, which includes a variety (over 200 types) of electrodes, fluxes, flux-cored wires and spcustomized electrodes. It covers the need of a whole range of industries sucSteel, petro chemicals, fertilizer, hydro electric and thermal power, nupower, ship building and heavy machinery.

AWLs Revenue Streams

Welding Consumables:

This segment is into manufacturing of welding consumables which in

electrodes, fluxes, flux cored wires and special customized electrodes. years back, AWL was only into manufacturing of manual electrodes. Howwith the demand for continuous welding coming into fore, AWL had set facility for manufacturing of continuous electrodes with an investment of Rcrore.

Currently nearly 1/3rd of the revenues from this segment come fromcontinuous electrodes while the balance 2/3rd comes from the melectrodes. Currently the total capacity of electrodes (manual as wecontinuous) stands at 52,000 tons.

AWLs Revenue Mix(100%)

Welding Consumables(75%)

Welding Equipment &Project Group (25%)

Welding Equipment(80%)

Project Group(20%)

AWL holds a unique position in theorganized welding industry with amarket share of 23%

Currently nearly 1/3r

of the revenuescome from the continuous electrodeswhile the balance 2/3

rdcomes from the

manual electrodes

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Products under Welding Consumables segment:

Shielded Metal Arc Welding (SMAW): These are Stick Electrodes which cunder the Manual Welding segment. Types & Applications of SMAW electrare as under:

Types of SMAW Electrodes Typical Applications

Mild Steel Electrodes Steel structures & tanks, Truck frames & bodships, pipelines, automobile bodies, bridgboiler tubes, pressure vessels, railway wagoconstruction equipments, etc

Low Alloy High Tensile SteelElectrodes

Welding of steel used in refineries, power plachemical plants, pressure vessels, hexchangers, boilers, fertilizer plants, pipelin

bridges & heavy structures, earth movequipments, etc

Hard Facing Electrodes For reclamation (repairing) of Gears, Pinion tePulleys, Shafts, Sugarcane crushers, SpindConveyor parts, Axles, crane wheels, Mine raCement grinding rings, etc

Stainless Steel & HeatResisting Steel Electrodes

For Fabrication of equipments in RefinerChemical Industry, Power plants, Paper & PIndustry, Paint & Dye industries & ApparatuEquipment for household, soap, hospital, brewindustry, etc

Non Ferrous Electrodes For welding of Copper, bronze, aluminium alloNickel steel for applications in RefinerOffshore, Fertilizers, Foundries, Food processunits, Pump & Valves manufacturing unchemical plants, etc

Cast Iron Electrodes Welding & Repairing all cast iron components suited for gears, machinery parts, pump bodetc

Cellulosic Electrodes Welding of cross country pipelines

Gas-Shielded Tungsten Arc Welding (GTAW): These are TIG Welding Wwhich comes under the Continuous Welding segment. GTAW Wires are wires for TIG Welding of Carbon Steel, Low Alloy Steel & Stainless Steel.

Application Welding of pipes & tubes in Power Plants, RefinPetrochemicals & Fertilizer Plants.

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Gas-Shielded Metal Arc Welding (GMAW) / Flux Cored Arc We(FCAW): These are Wires which comes under the Continuous Welding segmTypes & Applications of GMAW / FCAW Wires are as under:

Types of GMAW /FCAW Wires Typical Applications

Solid Wires for MIG /MAG Welding

Wide applications in automotive industry, constructiomining equipment, railway wagons & coaches, etc. Asuitable for welding pipe, pressure vessels, Lcylinders, pre-engineered buildings and structural scomponents

Flux Cored Wires for MIG/ MAG Welding

Welding of mild steel & carbon steel for fabricationmachinery, structures, steel frames, ships, vehicbridges, towers, chemical plant machinery, rolling stocans, etc

Submerged Arc Welding (SAW): These are Wires & Fluxes which c

under the Continuous Welding segment. SAW Wires & Fluxes are usewelding of structures, pressure vessels & boilers, machine building, automolocomotives, earth moving equipment, LPG cylinders, etc.

Welding Equipment & Project Group

This segment includes Equipments, Spares, Cutting Products and agency related to Equipment and cutting products. Apart from the welding equipthis segment also has a Project Engineering Division (PED) which underEngineering, Procurement and commissioning of flares, incinerators, furnetc.

Welding Equipment

Products under Welding Equipment segment:

Products Scope & Applications

AC Arc Welders Extensively used as power sources for most of manual metal arc welding jobs with bare rods and coaelectrodes. Typically used for light, medium & hepurpose structural work, machine building and fabricawork

Welding MotorGenerator

Suitable for welding with Cellulosic electrode, particulfor cross country petroleum & natural gas pipelines thermal & nuclear power plants

Welding Rectifier Sets These sets are fully electronically regulated transforrectifier units suitable for manual arc welding process

MIG / MAG Welding

outfits

Suitable for wide range of metals like carbon st

stainless steel and aluminium & ideal for auto ancilunits for increased productivity & quality welding

TIG Welding outfits These outfits are available for AC/DC or DC applicatioThe heat required for effective welding is provided by electric arc inside the outfits

Diesel Engine Weldingsets

These unique welding generating sets are specificdesigned to meet the stringent demand of quality weldin assembly work, repair maintenance & pipe weldapplications

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Apart fro the welding equipment, the welding equipment segment manufactures cutting equipment, accessories & spares as under:

Products Scope & Applications

Cutting Equipment Extensively used for automotive repairs, genfabrication, bus & coach body building, railways & rtransport workshops, power stations, chempetrochemicals or fertilizer industries, sheet mfabrication, food processing equipment manufacturscarp cutting, ship breaking, etc

Cutting Accessories These accessories include gas cutting torches, welding blowpipe, machine mounted gas cutting togas cutting outfits, etc

Spares These include regulator cum flow meter, electrdrying oven, wire feeders, MIG/MAG Torches & Torches

Project Engineering Group

ADOR PROEN is the Project Engineering Division of AWL. With overdecades of proven expertise, this division is engaged in providing customsolutions for projects & contracts related to Refineries/ Oil & Petrochemicals/ Fertilizers/ Steel plants, etc.

Areas of Specialization:

1. Combustion Engineering: Products & Applications

Product Significance Applications

A. Flares Flares are used for safelyburning waste/ excessgases components

For burning hydrocargases, ammonia, coven gas, Bio gas or other combustible G

AWL is the largest suppof flares for the IndSteel Industry

B. Burners Basic heating applications For Industrial applicatio

2. Thermal Engineering: Products & Applications

Product Significance Applications

A. Industrial Furnaces These are high velocityburners with sophisticatescontrol & instrumentationand are energy efficient &eco friendly

For Stress relievhardening, anneatempering, re-heatdrying and Pre-heating

B. Cremation Furnaces It is a disposal system thatcan ethically &satisfactorily undertake acremation while makingprocess fast, hygienic,economical & eco-friendly

For cremating bodiesthe crematorium

C. Incinerators Incinerators are designedfor safe and economicaldisposal of human and/oranimal waste

For disposal of wagenerated by hospitclinics, nursing homes research/industrial labs

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3. Fabrication Engineering

Products under this segment include:

Pressure VesselsColumn & BoomRotators & PositionersManipulator for Assembled Bogie

AWLs Product Portfolio, Competitors & Market Share

Product Portfolio CompetitorsAWLs MarketShare

Welding ConsumablesESAB India, D&H Welding, GeneralElectrodes, Lincoln Electric

*23%

Welding Equipment

ESAB India, Memco Machinery

Mart, Imports 13%

FlaresAiroil Flaregas (India), CombustionTechnologies

55%

BurnersAiroil Flaregas (India), CallidusTechnologies Inc

NA

Furnaces L&T, BHEL, Thermax NA

Incinerators L&T, Petron Engineering, Punj Lloyd NA

Pressure VesselsAlstom Projects, BHEL, L&T, Godrej& Boyce, etc

NA

* Market share related to organized market

Investment Arguments

Capex in continuous welding segment to fuel further growth

AWLs welding consumables segment has an installed capacity of 52,000per annum (TPA), with 22,000 TPA for manual electrodes & 30,000 TPcontinuous electrodes. With the demand for continuous electrodes outpmanual electrodes, AWL has initiated a Rs 15 crore capacity expaprogramme which would add 10,000 TPA of capacity in the continuous elecspace in the form of adding special wires. This expansion is likely t

completed by FY11 which would take the total installed capacity to 62,000(22,000 TPA Manual Electrodes & 40,000 TPA Continuous electrodes).

The main purpose behind this expansion is to enable AWL to enter intogrowth & niche areas of welding applications which includes nuclear posuper critical boilers & some special steel applications. This would not onlyin widening its product profile but would enable the company to improvise omargins backed by low competition in these niche segments.

AWL has initiated a capacity expansion

programme which would add 10,000TPA of capacity in the continuouselectrode space at a cost of Rs 15 crore

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Volume expansion: key growth driver

The current capacity utilization in the welding consumables segment stan46%. With the pick up in the capex cycle across all its user industries viz S

petro chemicals, fertilizers, hydro electric and thermal power, nuclear poship building ,heavy machinery, steel, defense, automobiles, general fabricand engineering industries, we believe that AWL is all set to witness a devolume growth over the next two years.

It may be noted that in FY10, AWL clocked a volume growth of ~42% 18,655 TPA in FY09 to ~24,000 TPA in FY10. Considering a further uptick demand for electrodes, we expect a volume growth of 25% (on conservbasis) over the next two years. With the volume growth set to kick inrevenues in the welding consumables segment is expected to move up fro196 crore (30,000 TPA) in FY10 to Rs 310 crore (37,500 TPA) in FY12:

Welding Consumables: Volume & Revenue Growth

30,000

24,000

16,96618,655

37,500

0

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200

250

300

350

FY08 FY09 FY10 FY11e FY12e

NetRevenue

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Revenues Volume

Revenue Mix: Present & going forward

The welding consumables segment currently contributes 75% of the revenues where as rest is accounted for by the Equipment and Pengineering division. Further in the latter segment, 80% of the revenucontributed by the welding equipment while the balance comes from the PrEngineering Division (PED) (more than 80% is contributed by Flare Systethe PED). It may be noted that nearly 2/3 rd of the revenues in the weconsumables segment is accounted for by the manual electrodes whilebalance from the continuous electrodes.

Revenue Mix

169 165196

245310

9259

65

75

90

0

50

100

150

200

250

300

350

400

450


Welding Consumables Welding Equipment & Project Engg

261

224

261320

400

Considering a further uptick in thedemand for electrodes, we expect avolume growth of 25% (on conservativebasis) over the next two years

Going forward we expect the weldingconsumables to increase its share fromcurrent 75% to 77.5% in FY12e

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Going forward we expect the welding consumables to increase its share current 75% to 77.5% in FY12e while that of the Welding equipment & PGroup to reduce from the current 25% to 22.5% in FY12e.

Exports to witness marginal growth

Over the years AWLs exports have been mainly to the Oil producing countries. The slow-down in these oil-based economies had adversely affeits business over the last 15-18 months. Consecutively its exports had takhit, falling from Rs 35 crore in FY08 to Rs 24 crore in FY10.

AWL Exports

261

224

320

400

35 33 24 26 32

261

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0


NetRevenues

-

2.0

4.0

6.0

8.010.0

12.0

14.0

16.0

Net Reveneus Exports % to Revenues

In its quest to expand geographies, AWL in FY10 has made inroads in SuVietnam & Indonesia by exporting welding consumables & equipments. Fu

the company is currently putting in efforts to add newer markets which inSaudi Arabia & Africa in FY11.

With exports yet to pick up considering the sluggish market environprevalent in the Gulf countries, we expect AWLs exports to remain upressure with marginal growth from Rs 24 crore in FY10 (9.2% of theturnover) to Rs 32 crore (9.2% of the total turnover) in FY12.

AWL- AMET Alliance: Would enable AWL to enter into highautomation space

In February 2010, AWL entered into an alliance with US based AdvaManufacturing Engineering Technologies (AMET) for offering critical we

applications, particularly the high end automation segment for serving Indiawell as the Middle East markets.

Since 1989 AMET Inc. has been an innovator and integrator of advawelding systems to meet the most demanding applications. It has devecomplete set of welding fixtures in high end automation areas which innuclear, aircraft, aerospace, oil & gas, wind tower, heavy industry and gemanufacturing industries.

We expect AWLs exports to remainunder pressure with marginal growthfrom Rs 24 crore in FY10 (9.2% of thetotal turnover) to Rs 32 crore (9.2% ofthe total turnover) in FY12

This tie up would thus result in AWLcoming out with a slew of nicheproducts over the next few yearsthereby expanding its product segment& also adding niche markets

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This tie up would help AWL coming out with a slew of niche products ovenext few years thereby expanding its product segment & also adding markets / verticals to its existing offerings leading to enhanced sales volumbetter product differentiation as compared to its peers.

Clean balance sheet, Zero Debt Company with good return ra

AWL has one of the cleanest Balance Sheets apart from being a debtcompany. Further it has a track record of paying dividend for more than 12 ywith the current dividend yield placed at 2.8%. The ROE & ROCE which sat 18% & 26% respectively in FY10 look impressive as well and are expectincrease to 22% & 32% respectively in FY12e.

Impressive Financial Performance

AWLs net revenues for Q4FY10 jumped by 20% to Rs 83.4 crore from Rscrore registered in Q4FY09. The revenue growth was attributable to hvolume growth in both welding consumables as well as welding equipme

project group segments. PAT for the company was also up 7080% at Rscrore from Rs 0.2 crore on the back of expansion of EBIDTA margins by bps from 8.4% to 18.5% driven by better operational efficiencies.

For FY10, net revenues jumped 16.5% from Rs 223.8 crore to Rs 260.7 cThe operating margins expanded by 120 bps from 16.4% in FY09 to 17.6FY10. AWL posted PAT of Rs 25.6 crore for FY10 as compared to Rs 12.2 registered in FY09, a YoY growth of 110.5%. EPS for FY10 stood at Rs 18against Rs 8.9 in the corresponding period of the previous year.

Financial Outlook

Led by robust volume growth of 25% in the welding consumables segmen

total revenues of AWL are expected to grow at a CAGR of 24% from Rs 2crore in FY10 to Rs 400 crore in FY12e. The Welding Consumables segwould continue to drive the revenues with a lions share of 77.5% in F(FY10 share at 75.2%).

Actuals & Projections: Net Revenues & Margins

261 224 261 320 400

16.416.3

18.3

18.1

17.6

0

100

200

300

400

500


NetRevenues

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

O P M ( % )

Net Revenues OPM (%)

We expect the OPM to improve from the current levels of 17.6% to 18.3FY12 on the back of better capacity utilization & AWLs expected entry intoend automation segment in the welding consumables space. PAT is expectshow a CAGR growth of 26% from Rs 25.6 crore in FY10 to Rs 40.5 croFY12. EPS for FY11e & FY12e is pegged at Rs 22.8 & Rs 29.8 respectively

Led by decent volume growth of 25% inthe welding consumables segment, thetotal revenues of AWL is expected togrow at a CAGR of 24% from Rs 260.7crore in FY10 to Rs 400 crore in FY12e

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Peer Review

Parameters Full Year AWL Esab India D&H Weld

Year Ending March 2010 December 2009 March 2

Financial Snapshot Annual

Net Revenues 260.7 420.6 5

YoY Growth 16.5 (0.5)

EBIDTA 46.0 100.8

YoY Growth 25.3 11.3 (3

EBIDTA (%) 17.6 24.0

PAT 25.6 66.2

YoY Growth 110.5 8.2 (3

NPM (%) 9.8 21.4

Financial Snapshot Quarter ended March 2010

Net Revenues 83.4 114.6

YoY Growth 20.0 8.2

EBIDTA 15.4 23.7

YoY Growth 164.2 (11.8) (1

EBIDTA (%) 18.5 20.6

PAT 10.8 14.4

YoY Growth 7080.0 (11.9) (2NPM (%) 12.9 12.6

Valuation Ratios

EPS TTM 18.8 34.8

CMP 210.0 612.0 2

PE TTM 11.2 17.6

EV / EBIDTA 6.0 10.6

Dividend Yield (%) 2.9 3.3

Market Cap / Sales (x) 1.1 2.8

Price / Book Value 1.9 9.1

Debt / Equity (x) 0.0 0.0

As marked in the cells above, we believe that apart from being attractvalued, AWL has outperformed its peers in terms of its finaperformance (full year as well as March 2010 quarter). Further there isscope for AWL to improve on its margins as the capacity utilizatioexpected to improve with decent volume growth of 25% projected ovenext two years.

AWL has outperformed its peers interms of its financial performance (fullyear as well as March 2010 quarter).Further there is also scope for AWL toimprove on its margins

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Industry Outlook - Domestic Scenario

Welding Consumables Market

At present the size of the Indian welding consumables market is nearly Rbillion. The domestic Welding Consumables industry is highly fragmented50% being shared by hundreds of unorganized (small & regional) manufactwhile the balance is accounted by the organized players like AWL, ESAB, Welding etc. Currently AWLs share in the organized market stands at 23% ESAB has a market share close to 35%.

Organized

M arket, 50%

Unorganized

M arket, 50%

ESAB, 35%

AWL, 23%

D&H Welding, 6%

Others, 36%

In FY10, the Welding consumables industry grew at around 13-14% with maelectrodes growing at 9-10% while continuous electrodes outpaced the growmanual electrodes by clocking a growth of 19-20%. With the infrastruspending likely to grow at a brisk pace, we believe that this market should at a CAGR of 15-16% p.a. for a period of 2-3 years.

Welding Equipment Market

On the other hand, the size of the Indian welding equipment market is aroun

10 billion. Here too, the industry is faced with unorganised sector claimingof the market share. Of the organized market (valued at Rs 5 billion) Ashare stands at 13% while ESABs share is ~23%. Imports constitute a portion of the organized market, currently contributing around Rs 2 billion market share).

Others, 24%

Imports, 40%

AWL, 13%

ESAB, 23%

Unorganized

M arket, 50%Organized

M arket, 50%

According to the business research & consulting firm Frost & SullivanIndian welding equipment market earned revenue of $208 million in 2008 aestimated to reach $311.5 million in 2015, signifying a CAGR of 6%.

We believe that Welding Consumablesmarket should grow at a blended CAGRof 15-16% p.a. for a period of next 2-3years led by the continuous electrodes

segment

The Indian welding equipment marketearned revenue of $208 million in 2008and is estimated to reach $311.5 millionin 2015, signifying a CAGR of 6%

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Domestic Growth Drivers

Welding consumables & equipment caters to the need of a whole ranindustries such as steel, petrochemicals, fertilizers, hydro electric and thepower, nuclear power, ship building, heavy machinery, defense, autom

general fabrication and engineering. The growth in these sectors is merereflection of how the Index of Industrial Production (IIP) shapes up ineconomy.

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The country is, at present, witnessing a surge in investments in the infrastructure sectors which have a combined weight of 26.7% in the IndIndustrial Production. This would present increasing opportunities for

Welding players. AWL which has a market share of ~23% is expected to beof the biggest beneficiaries.

Global Welding Consumables & Equipment Market Industry SiGrowth Rate

The global market for welding equipment and consumables increased $12.7 billion in 2007 to $13.2 billion by the end of 2008. It is estimated to $16.9 billion by 2013, a compound annual growth rate (CAGR) of 5%.

Global Welding Consumables & Equipment Market

12.713.2

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1214

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CY07 CY08 CY13

MktSize($billion

)

Recovery postglobal slowdown

The recent surge in investment in coreinfrastructure sectors would presentincreasing opportunities for the Weldingplayers. AWL which has a market shareof ~23% is expected to be one of thebiggest beneficiaries

The global market for weldingequipment and consumables increasedfrom $12.7 billion in 2007 to $13.2 billionby the end of 2008. It is estimated to

reach $16.9 billion by 2013, a compoundannual growth rate (CAGR) of 5%.

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Key Concerns

Slowdown in the growth of its user industries may lead to s

demand growth for AWLs products and thus may impact the revand profitability of the company.

Fragmented industry structure comprising of huge number of smaregional unorganized players may lead to unhealthy competitionprice wars which may impact companys margins and profitaHowever with the company present in high end welding segments &consistently coming out with new product launches and that too in areas, we believe AWL has been & will be able to mitigate this hard

Valuation & Recommendation

Ador Welding Limited, one of the leading players in the welding consumabequipment space, is all set to benefit from pick up in the investment cycle core infrastructure space resulting in strong demand outlay for its weproducts. With the volume growth of 25% forecasted for next two years, AWexpected to exhibit a revenue & PAT CAGR of 24% & 26% from FY10 to respectively. We recommend a BUY on the stock at CMP with a price taof Rs 298, an upside of 42% for 15-18 months horizon.

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Exhibit 01: Financials and Projections

Profit & Loss Statement Key RatiosY/E March, Fig in Rs. Cr FY2010 FY2011e FY2012e

Net Sales 261.5 320.0 400.0% Chg. 16.1 22.4 25.0

Total Expenditure 215.5 262.0 327.0

% Chg. 14.3 21.6 24.8

EBDITA 46.0 58.0 73.0

EBDITA Margin % 17.6 18.1 18.3

Other Income 3.9 3.0 4.0

PBDIT 49.9 61.0 77.0

Depreciation 13.1 15.0 18.0

Interest 0.6 1.0 1.0

PBT 36.1 45.0 58.0

Tax Provisions 10.5 14.0 17.5

Reported PAT 25.6 31.0 40.5

PAT Margin (%) 9.8 9.7 10.1

Raw Materials / Sales (%) 56.8 56.3 56.5

Employee Exp / Sales (%) 9.7 10.0 9.8

Other Mfr. Exp / Sales (%) 16.0 15.6 15.5

Tax Rate (%) 29.2 31.1 30.2

Y/E March, Fig in Rs. Cr FY2010e FY2011e FY2

Per Share Data (Rs)EPS 18.8 22.8

Cash EPS 28.5 33.8

DPS 6.0 7.0

Book Value 109.3 124.0

Capital, Liquidity, Returns Ratio

Debt / Equity (x) 0.0 0.0

Current Ratio (x) 2.2 2.3

ROE (%) 18.2 19.5

ROCE (%) 26.1 29.0

Dividend Yield (%) 2.8 3.3

Valuation Ratio (x)

P/E 11.2 9.2

P/BV 1.9 1.7 EV/Sales 1.1 0.8

EV/EBIDTA 6.0 4.7

Efficiency Ratio (x)

Inventory (days) 99 101

Debtors (days) 23 31

Creditors (days) 69 71

Balance Sheet Cash Flow StatementY/E March, Fig in Rs. Cr FY2010e FY2011e FY2012e

Share Capital 13.6 13.6 13.6Reserves & Surplus 133.9 153.8 181.6

Minority Interest 0.0 0.0 0.0Total Loans 0.0 0.0 0.0Deferred Tax Liability 1.2 1.2 1.2Total Liabilities 148.7 168.6 196.4

Gross Block 192.0 207.0 225.0Less: Acc. Depreciation 111.5 126.5 144.5Net Block 80.5 80.5 80.5Capital Work in Progress 12.0 10.0 10.0Intangible Assets 0.0 0.0 0.0Investments 0.0 0.0 10.0Net Current Assets 56.2 78.1 95.9Misc. Expd not w/o 0.0 0.0 0.0

Total Assets 148.7 168.6 196.4

Y/E March, Fig in Rs. Cr FY2010e FY2011e FY20

Profit After Tax 25.6 31.0 Depreciation & W/o 13.1 15.0

Working Capital Changes -11.7 -18.4 -Others 0.0 0.0 Operating Cash Flow 27.0 27.6 Capital Expenditure -13.3 -13.0 -Change in Investment 0.0 0.0 -Others 0.0 0.0 Cash Flow from Investing -13.3 -13.0 -Proceeds from equity issue 0.0 0.0 Inc/(Dec) in Debt 0.0 0.0 Dividend Paid -9.5 -11.1 -Cash Flow from Financing -9.5 -11.1 -Net Change in Cash 4.2 3.5 Opening Cash Balance 7.5 11.7

Closing Cash Balance 11.7 15.2

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STUDY SECTION

What is an Electrode?

It can be any one of these:

The flux coated rod in manual metal arc welding The tungsten in TIG welding The consumable wire in MIG / MAG welding

Why use welding?

One of the most cost-effective methods of joining metal components Suitable for thicknesses ranging from fractions of a millimeter to a third of a meter Versatile, being applicable to a wide range of component, shapes & sizes Joints produced by welding are permanent, strong, leak tight, reproducible and readily inspect

Process of welding:

A large number of welding processes and techniques are available. No process is universally the best. Eachits own special attributes and must be matched to the application. Choosing the most suitable process requconsideration of a number of factors viz type of metal, type of joint, equipment availability, labour availability, of consumables, labour costs, etc.

Arc Welding Process: Arc welding uses a welding power supply to create an electric arc between an electrand the base material to melt the metals at the welding point. They can use either direct (DC) or alternating current, and consumable or non-consumable electrodes. The welding region is sometimes protected by stype of inert or semi-inert gas, known as a shielding gas, and/or an evaporating filler material. The process owelding is widely used because of its low capital and running costs. Some of the processes widely used ar

under:

Shielded Metal Arc Welding (SMAW) is an arc welding process in which coalescence of metaproduced by heat from an electric arc that is maintained between the tip of a consumable coveelectrode and the surface of the base metal in the joint being welded. SMAW is one of the widely uprocesses, particularly for short welds in production, maintenance and repair work.

Gas Shielded Metal Arc Welding (GMAW), also referred as Metal Inert Gas (MIG) welding or MActive Gas (MAG) welding, is a semi-automatic or automatic arc welding process in which a continuand consumable wire electrode and a shielding gas are fed through a welding gun. A constant voltdirect current power source is most commonly used with GMAW. Originally developed for wealuminum and other non-ferrous materials, GMAW was soon applied to steel because it allowed for lowelding time compared to other welding processes. Today, GMAW is the most common industrial welprocess, preferred for its versatility, speed and the relative ease of adapting the process to rob

automation. The automobile industry in particular uses GMAW welding almost exclusively.

Gas Shielded Tungsten Arc Welding (GTAW), also known as tungsten inert gas (TIG) welding, arc welding process that uses a non consumable tungsten electrode to produce the weld (The tungelectrode is not consumed but produces the intense heat required to weld and a separate filler rod is ufor filling in the joint). The weld area is protected from atmospheric contamination by a shielding gas a filler metal is normally used, though some welds.

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GTAW is most commonly used to weld thin sections of stainless steel and non-ferrous metals sucaluminum, magnesium, and copper alloys. The process grants the operator greater control over the than competing procedures such as shielded metal arc welding and gas metal arc welding, allowinstronger & higher quality welds.

Flux-cored arc welding (FCAW)

FCAW which is a semi-automatic or automatic arc welding process requires a continuouslyconsumable tubular electrode containing a flux and a constant-voltage welding power supply.externally supplied shielding gas is sometimes used, but often the flux itself is relied upon to generatenecessary protection from the atmosphere. The process is widely used in construction because of its welding speed and portability. The flux core in the tubular consumable electrode contains more thanflux. It also contains various ingredients that when exposed to the high temperatures of welding genea shielding gas for protecting the arc. This type of FCAW is attractive because it is portable and genehas good penetration into the base metal.

Submerged Arc Welding (SAW)

Submerged arc welding (SAW) is a common arc welding process which requires a continuouslyconsumable solid or tubular (flux cored) electrode. The molten weld and the arc zone are protected fatmospheric contamination by being submerged under a blanket of granular fusible flux consisting of lsilica, manganese oxide, calcium fluoride, and other compounds. When molten, the flux becoconductive, and provides a current path between the electrode and the work. This thick layer of completely covers the molten metal thus preventing spatter and sparks as well as suppressingintense ultraviolet radiation and fumes that are a part of the shielded metal arc welding (SMAW) proce

Current share of Welding Processes in India

The share of SMAW process though having decreased over the last decade still remains the dominant weprocess with the current share estimated at 65% while the share of GMAW has gradually gone up to 27%. share of SAW and GTAW / others have been hovering at around 7% & 1% respectively.

Ventura Securities Limited

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This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, bresponsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned inarticles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whin part without written permission is prohibited. This report is for private circulation.

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