Ador Welding Limited (ADOR) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Adore Welding Limited, due to FY27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I am now on the conference call over to Mr. Aditya Malkani, Managing Director and CEO of Adore Welding Limited. Thank you very much, sir.

Thanks. You can hear me?

Yes, sir.

Okay, perfect. Thank you. This year, we completed 75 years. In 1951, we became India's first welding manufacturer, and today we have five manufacturing units, more than 850 people, Thank you. We are expanding our network and evaluating opportunities in Europe to create a broader and more diversified international presence. Welding powers solutions with key customers. Support training and application teams connect these channels by helping customers select, deploy and optimize the right solutions. Portages of skilled welders drive customers. Large, mid-speed brings orbital welding technology to the power, helping customers improve consistency, efficiency and weld quality. In line with the CapEx plan we had shared earlier, these investments will modernize our manufacturing base, support future demand, and improve our ability to scale efficiently. Open the floor for questions.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to all the participants, anyone who wishes to ask a question, please press star and one. First question is from the line of Radhraksh Raheja from iThought Financial Consulting. Please go ahead.

Thank you for the opportunity, sir. I hope I'm audible.

Yeah, go ahead.

Yeah, sir, I wanted to get more clarity on the gross margin side. I think you have highlighted in your opening commentary as well that raw material pricing pressure was there, and we have taken some price highs. So, how are we thinking on the gross margins line? Because they seem a bit on the lower side. Because of the price side, should we expect more recovery in the second half?

Yeah, so let's analyze Q2 for what Q2 is. And if you ask me, approximately 80% of the strategy in terms of a growth plan that we have. I think this year that we have laid out, we don't see Q2 as hurting us too bad. I would have liked it to have been a little bit better, but look, the visionary and cost input pressures are quite severe, and we've been able now to settle it down, and we're quite confident we'll be able to recover that as we call it.

Makes sense, sir. Sir, but what would be the sustainable number? I'm assuming there will be some quarterly dips here and there, and we'll bounce back and we'll be on the higher side as well. But on a sustainable level, what we could pencil in going forward?

On the 12-13 level, I keep saying that. I have no problem with saying that. It has to be between the 12-13 level. Our job is to get it to between that 12-13 level and then push upwards from there.

Makes sense. Sir, I'm in the gross margins. 12-13 would be our EBITDA level, right?

EBITDA level on the 12-13. Gross margin level as being approximately in the region of at least 37-38 is what we're looking at. Ideally, it's what we should be in a position to do.

Understood, sir. Understood. And since this 20% plus growth that we are witnessing, is there a visibility on this going forward?

There's a certain amount of it, I would say, just to break it down, there's a certain amount of it that's obviously inflationary, but we are seeing growth 10% double-digit region. We are seeing as far as volumes go as well, so we're kind of happy with that. We're seeing the sustainable seem to be okay, and I hope that that remains. It's a little bit better than we expected it to be in terms of demand, and like you said, the margins are what we have to prioritize and meet that demand accordingly. But, yeah, it seems to be okay.

Understood, sir. Sir, what was our export share in H1 FY27, and what's the visibility here?

The region of 15-20% with it in HY1 being slightly in the higher order.

Okay. And going forward, sir, are we expecting some major delta here, or should we...

We spelled it out in our long-term strategy, where we are going to continue to be aggressive.

Got it, got it, sir. And, sir, any EBITDA losses on the FLAIR segment in H1?

EBITDA, sorry, say that again.

Did we make any losses at EBITDA level in the FLAIR segment?

No, no, no, no. The FLAIR segment is pretty much done for now. There's nothing major that's there. We have a few product lines that are not massive at all, that are small, and there's no losses.

So, what was the revenue contribution from that segment in H1?

It's insignificant. It's insignificant.

Oh. And, sir, apart from the raw material cost pressure, are we seeing any other one-offs in H1 numbers?

If you talk to a lot of companies, which you guys will have done research, there are a lot of increasing inflationary costs from incoming logistics. There's a lot of stuff that we've been dealing with. So, I think just a bit of that and sort of sorting that out as we pass it forward. Like I've said, product mix is something that has played a role in Q2 a little more heavier than we would have. But that's okay. I think that we're kind of okay with that.

Got it, sir. Got it. And, sir, I think in the last call, we have mentioned that we are still...

I'm sorry to interrupt. I'm really sorry to interrupt, Mr. Rudraksh. Can you please rejoin the team? Thank you. Next question is from the line of Suraj Malu. From Catamaran Ventures, please go ahead.

Thank you for this opportunity. First question is, what is the volume growth in this quarter?

It's in the approximate high teen somewhere, mid-teen level.

Right. Got it, sir. And, sir, in terms of raw material, you address the point, but can you give an understanding of what would be the breakup of raw materials? Like, if 100 rupees is the raw material required, Like 50-60% would be mild steel. What would be those components and which of them have increased so much that has increased the raw material cost for us?

I can tell you that we're pretty good. So there's a mix of all of those things that go.

So all of these have increased, like weed steel or those powders or electronics, I understand.

Everything, I think everything across the board, every managing that supply chain process and you're managing how passing it forward accordingly. I think we just have to be a little bit patient. I'm not stressed about will the market now.

How do you see this meet, like the team's volume growth continue, like going forward? Is that possible? You got it. Thank you very much.

The question is from the line of Bhavga Gandhi from Bajaj Alternate Investment Management Limited. Please go ahead.

Yeah, hi. Thanks for the opportunity. Hope I'm audible. Yeah, yeah. Hi. My first question is regarding EDDAR weldos. What exactly are we doing over there? Also, the digital welding management initiative that you've taken, what is the vision for that? You're looking out for some acquisition as well, so if you can throw some light on that as well.

So, Weldoss is a technical add-on product that gives welder... It's very much a part of moving up the value.

And on the acquisition front, are we looking for acquisition on the robotic side? I mean, if you can provide some clarity on that, the one that you mentioned in the PhD.

Nothing is going to happen because the ecosystem you're dealing in is very tiny, so it's not like a very large industry, so it's a tiny ecosystem, so I don't want to jump the gun on anything.

And without even specifying the margins, if you can at least give the pecking order within the segments, which gives us the highest margins because we have industrial M&R, welding, automation, equipment, and consumerism.

If you look back historically, you're able to get a lot of that data. The merger is really in line with that. It depends upon how you're sourcing and manufacturing. We tend to be slightly heavier simply because of our India heavy manufacturing versus sourcing from other countries. But that's part of it. And the automation will take time to build up to that similar level as the equipment and cell becomes yours.

Okay. Fair enough. I'll get back in. Thank you. Thank you so much.

Thank you. Next question is from the line of Dharmir Vani from Ginnick Capital. Please go ahead.

Thank you for the opportunity. I just wanted to ask on the inventory part.

Is there any one-off this time, or is it on the build-up on the back of good visibility that we have?

No, it's on the back of, it's a mix. I'll say, again, inventory level, the slightly higher payables, or the payable. There are two parts. One is order back.

Okay.

And the drop-in payable suicide is on backups due to this all macro instability or is it that we are able to pay quickly and get full discounts?

No, it's a mix of availability, it's a mix of what the conditions we're demanding, it's a mix of our growth reasons that we have in it.

Before we take the next question, a reminder to all the participants, if you wish to ask a question, please press star and 1. We will take the next question. From the line of Krasinjit Paul from Paul Asap, please go ahead.

Yeah. Good morning, sir. Am I audible? Yeah, yeah, go ahead. Yeah. Thank you for the opportunity. Sir, my question is, last year you had shared an aspiration of reaching 2,000 crore of revenue by FY29. So, can you tell me, like, are we on track? And second, does the existing capacity can do up to 2,000 crore of revenue?

So, we're shown that opportunities are there and the market is moving in a certain direction. If it continues, the underlying continues to provide that opportunity, I think we're on track. We obviously have a lot of, two, three years, I discussed this in previous meetings, over the next two, three years, we will have to lay out a little bit of capex, but it's nothing extraordinary. If you look at it, our normal average capex is anywhere in the region of, what, 35 to 40 crores a year. I think there'll be one or two years. We might pick that up a little bit, take it up to 60-70 times for 1-2 years.

Okay, so for that capex, do you think any major debt requirement is there or equity dilution will be there?

No, I don't think so. I think we're quite well, our balance is quite strong to be able to take that on. So I don't think that's part of the plan at the moment.

Okay, and sir, last question is you have already addressed the commodity inflation, some sort of tie side. So, can we assume that the gross margin that you witnessed in Q2, that will be on the lowest level, or the pressure or the pain will continue in Q3, Q4, or can we assume that?

I can only tell you exactly what we've discussed in terms of pressures, and we're not okay with that. And we will push back accordingly, and we do not want that to be the norm at all. That will not be the norm. So, we have to recover from that.

Okay, so, you can expect Q3 onwards, the gross margin will be recovered.

We see that right now. It's early days in Q3, but we see that, and we're only working towards that very hard, yes.

Okay, and how much, like, whatever the growth we are planning, let's say, 2012, so how much you are thinking about the changing product mix, higher realization, or, like, how much will come from the volume growth? So, which you are preferring? Whether you are preferring purely volume growth or, like, more on to the higher realization, late growth, product mix, change growth?

If I had to estimate, I'd say 60-70% of that growth will come from, I'd say 60-70% of it has to come from product mix, such is the nature of the industry.

Okay. So, one last question. I was checking many of our peers, like one of the smaller peers, like Diffusion Engineer, they are saying that welding consumable market is not expanding that big, so they are moving towards engineering service, project management type of service. It's the same division that you have exited. So if we talk about your segment, welding consumables, do you think that the industry is growing? I mean, whatever the growth you are planning, 2,000 crore revenue, so do you think there is enough scope to grow within the market? Or like you must need to venture internationally to reach that growth? Or the domestic market is big enough for that?

So I won't comment on anyone else. I will tell you that definitely the welding consumable market is at good levels in various industries, and there is no reason welding consumables should not.

Thanks a lot. Wishing you all the very best.

Thank you. Next question is from the line of Dharmendra Grover from Alois Capital. Please go ahead.

Yeah, good afternoon. Just a couple of questions. One, on the raw material side, has the prices been increasing primarily because of the freight, or is it other reasons?

Finally, it's a lot to do with input costs that stem from steel and other raw material components. Freight is a small part of it, but it's definitely a relevant part of it, especially in imports. But no, I'd say steel, if you guys are watching steel, you'll see what's happening. There are tremendous increases. So that's a large, very significant part of it.

But do you think this is temporary and is this something that will settle down?

I can't comment on steel prices. I can only say, I hope they, I hope they, the more flattened out and even they are, they help everyone in the industry, but I can't comment on that. I don't see, I don't see them softening anytime soon. I don't think they're going to be as rapidly increased either, but that's my perspective on it right now. I mean, I, you know, we're We do a little bit of strategic as well, which is what you are seeing in the balance sheet on the 30th September. We do a little bit of strategic as well, but I think the nature of the type of steel that we buy, you can't do excessive strategic.

In terms of on the final finished product side, how much of it has got passed through?

Maybe it got passed through a bit later than I would have liked. Getting done now, it's all coming through. Because that's the nature of the market, and if you're growing as aggressively as we are trying to grow, you take on certain things in a certain way.

Yeah, I can understand because consumables will not be so, in terms of demand will not be so high.

As you have India's growth story play out, you have very large customers, large commitments, stuff like that. You know, you have to do it step by step. You know, you can't be welding some more competitive field than some other industries. You can't just, you know, you can't do everything tomorrow morning. It takes a little bit of a journey, but it's getting there. And I think we've been, most of the time, been able to pass through. We have to keep in mind the last three, four months has been very unprecedentedly, you know, sporadic in terms of the rise. So you have to manage that process. But I'm not concerned about it from a long-term basis at all.

Yeah, so I can understand, which means that in the medium term, we'll come back to the same kind of margin trail that we have been.

Like I said, very openly, I've got to get to between the 12th and 13th level is what I have to get to. So we have to make that happen.

Understand. Thank you. Thank you very much.

Thank you. Ladies and gentlemen, to ask a question, please press star and one. Next question is from the line of Mahesh Atan from Dharia Investment Advisors. Please go ahead.

Am I audible? Sir, we see that the demand in this electrode segment has actually, you know, kind of going up. Actually, it's going up because of the manufacturing thing happening on a lower MSM scale. So how exactly are we catering to that market, consumable market? Because when we see, and we go on to the ground, there are a lot of unorganized players who are actually taking up the shelf over there. So how is the management looking at that?

So, well, I think it's consumable at the end of the day is an engineering product. And an engineering product that has, then you have customer, unorganized product. A customer of an unorganized product is not only my customer at all. Ours is very engineering-centric. We work with oil and gas. We work on shipbuilding. We work in all of these competitive sectors, and that's what we try.

And on the margins front, our gross margins have gone down because of, as you explained to the previous cost spend, that the steel prices rose to a level which even in the management did not anticipate. And so, when do you see, like, this tapering off? I mean, are there any...

When you say tapering off, you mean in terms of the marginal, the steel prices, or you mean in terms of... ...the oil prices through?

No, I'm talking about the steel prices, because...

Steel prices, I can't comment. Like I told someone, I absolutely can't comment. It does not seem like they are softening. It does not seem like they are softening. But I don't think I have much more reading than that. They seem to be okay. But my pass-through is happening much better now than it was.

And sir, what was the price increase you have taken compared to the price increase in the steel? You can just qualify that.

No, in line with it. No, but basically, it's about the time lag that sometimes kicks in, or it's about certain contracts that you're tied into. It's about, you know, all of those different, different factors that play in. We kept the fact that we can't absorb anything on that front, right? So, you play it accordingly.

So, do you think that the pass-on in the next quarter or so would suffice our raw material increase or inflation there?

Yeah, sure. That's how we can get back to that.

If I may ask, sir, what was the percentage increase in the steel quarter on quarter?

Percentage increase in steel, Q2 versus Q, 78%.

Okay, and steel constitutes what percentage of our raw material?

Sorry?

Steel constitutes what percentage of the raw material cost?

It varies, sir. It varies. I can't go into excess detail on that. It varies. These are things that you can find out online. I'd rather not get into excess detail. Please understand the reason I don't is simply because at the end of the day, I have to manage a competitor profile as well. So I think these are things online you will find.

Right, all right, sir. All right, sir. And, sir, when you say that you are trying to move to the high-value segment, and what areas are you looking at when you say that?

Within welding space, there are two, three high-value segments that you look at. So, in consumables, you talk of moving to more highly specialized fields, better and stronger approvals, for example, the shipbuilding sector and oil and gas sector that puts us in a higher playing sphere, better classes around automation.

Sir, I also see that there you are also looking for, you know, inorganic growth. Are there anything in the pipeline that you are considering?

We are exploring. In the early days, we are exploring. Like I said, the ecosystem is very large, so I can't really get into excess detail, unfortunately, until we have more clarity.

But it is going on.

It is part of our job to keep looking.

All right, sir. All the best. Thank you. Thank you, Graeme.

Thank you. Next question is from the line of Rohit from iThought PMS. Please go ahead.

Hi, good afternoon. So, I think in the opening remarks, you alluded to three things, which is sort of your focus area. One was exports, the other was product mix, and the other was going deeper with your customers. So, can you talk a bit about the last two, the product mix and going deeper with your existing customer in terms of gaining volature? So, if you can maybe talk a bit about that in more detail. Like, we've been, as you said, we've been, yeah.

I'll talk about the latter first. I'll talk a little bit about that. Adore has the benefit of trying to be supplying a large enough share of wallet. So if you look at the strategies we would have done, which is basically gearing ourselves and look, we are less represented over there. So we talk about the top 50, top 100 consumers in the country. We feel we should be more aggressive sitting in front of them. That takes time. It doesn't happen overnight, but the entire organization is working hard towards that. And that's basically where that stems from. Now, the second part leaps into that a little bit because...

And to an earlier question, you said that 60-70% of the growth will be driven by product mix.

I mean, the incremental growth...

Yeah, incremental growth.

Correct, correct. I didn't mean the incremental growth. Yeah, yeah, yeah. Yes, yes.

So, what do you mean by that in the sense that, I mean, is it like there were some products Yeah, it's not only product gaps.

Product gaps is one part. It's about tail gaps. It's about being in front of a customer's gap, right? Stuff like that, that you may be selling. Like I said, the welding world has a thousand, five thousand SKUs. You may be selling some, you're not selling the other. So, we have several products that are now, we have plugged a lot of those gaps. We have plugged many, many gaps over the last two, three years. Now, we have to be aggressive in positioning that in front of the customer. I'm not really worried about that anymore. I was more worried about that two, three years ago. Now it's about seeing the benefit of playing that out in revenue and margin. We're trying to grow that. So one is, look, what happens with the merger is, Fontech also has a fabrication industry. So we have now taken those out. So you're seeing, you want to see a natural growth rate at the levels you will see in the other markets. We're going to grow 20% over there tomorrow. That's going on. Yeah, very much. It's a very important part of the business. It's a very important part of our...

Last question, I think you've hired a lot of people in the last probably 12 to 18 months or probably 24 months. In terms of incentivizing them or in terms of the whole plan, maybe there's an ESOP plan, etc. If you can maybe articulate that as well.

Yeah, we have an ESOP plan for the company, part of our ESOP plan, chunk of that. We introduce ESOP plan probably moving in the right path. Thank you, sir.

Thank you. Next question is from the line of Yashpatan. From the Lal and Brocha, please go ahead.

Yeah, thank you for the opportunity. Hope I'm audible.

Yeah, go ahead. Please try it.

So, the short-term bank borrowing rose to around 28 crores, from 90 crores, around 2.27 crores. Is this time there is no leverage to fund the working capital cycle? Or will the short-term borrowing remain elevated?

So, just to explain, a lot of variance got to do with health. I don't want to give you the data on what our current order book is, I'm sorry, but that's kind of confidential data, but I will tell you that shipbuilding, as you can see, has a lot of opportunity. There's a lot of work going on in India and shipbuilding, there's a lot of opportunity that's there. We are seeing some benefit to it, but there's a lot more that can be done continuously. We definitely believe it can be an incremental growth, a very significant incremental growth for the welding industry.

Are we getting orders for any inquiries regarding shipbuilding? Sorry, sorry. Say that again, sir. Are we getting orders for getting any inquiries regarding shipbuilding? Thank you. Thank you.

Next question is from the line of Nersar Parikh from Native Invest. Please go ahead.

Hi, thanks for taking the question. I think you spoke about it earlier, but if you can just, you know, touch a bit in terms of, you mentioned on, you know, tapping the top 40, 50, you know, consumers of steel and how do we do that. But, you know, from a revenue perspective, we are obviously not seeing that kind of movement. How are you looking at it? Because it's been around a year since we have been, you know, kind of talking about that and hiring people.

In my opinion, you're seeing it. I'm absolutely outperforming that. It's a part of that that's been exported. It's part of that that's been generated. So seeing it incrementally play out, it will keep having a larger and larger role. But I think in the last 6-8 months, the data I see...

Secondly, on the export side, other than Middle East, is there any other geography that we have?

Ladies and gentlemen, due to time constraint, we take that as the last question for today. I would now like to hand it back to the management for closing comments.

Okay. Thank you, everyone, for joining us. I hope we've been able to answer the queries. We look forward to such interactions in the future and hope to meet your expectations. Thank you.

On behalf of Adobe Welding Limited, that concludes this conference. Thank you all for joining us today, and you will now disconnect your lines.