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10 July 2008

Ador Welding Ltd : Research Report – Initiate Buy

Summary of the Sector and The Company

Ador Welding is a leader in welding solutions providing arc welding and continuous welding electrodes, welding equipment and accessories. It has clients in high growth sectors like defense, ship building, power(nuclear, thermal and hydro), auto, general and heavy engineering, petro chemical and fertilizer plants. Almost all of which are related to the infrastructure sector.

Automatic welding (welding solutions), in India accounts for only 20% of the domestic market as against almost 60% in developed countries. This share is expected to improve, firstly due to the expected expansion in the infrastructure sector and secondly, as more and more Indian companies are likely to resort to automatic welding to achieve greater efficiency in their operations. Ador Welding with 400 distributors and 250 technical representatives therefore has the elements in place so as to be able to play a major role in this growth.

Fundamental Aspects

Amongst its peers the company has a low Price Earning Ratio(8.49) and an amazingly high dividend yield of 6.64%. It is a debt free company with a market capitalisation of Rs 192 Cr and a Return On Equity of 17.96%.

The stock is currently trading at Rs 141/- and we see it as undervalued by Rs 30 . The true value of the stock is Rs 171/- which translates into a return of 21.3%. This is the value of the arbitrage opportunity available in the stock. Any growth in the sector and company would result in a concomitant higher valuation.


talespinner said...

How have you brought out that the stock is undervalued by 30/- ?

Puneet said...

Using Dividend Discount and Free Cash Flow To Equity Models and a Cost of Equity of 17.4%, we arrive at a current state valuation of Rs 171.

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