Google Search

11 July 2009

ANNUAL REPORT UPDATE : ADOR WELDING

This is the time of the year when one reviews the investments made in the past to see how they are faring. One such company which recently came out with its Annual Results is Ador Welding. I had initiated a coverage on the stock as a value pick in Jul 08 when the index was at 4162 and the stock at Rs 141. The stock was valued, then at Rs 171.  You can read the report here.

Now the index is at 4003 (drop of 3.82%) while the stock is at Rs 122 ( a drop of 13.4%). It touched a 52 week high of Rs 160 and a low of Rs 74 while giving a dividend of Rs 4 ( a current dividend yield of 3.27%).

Business
The under performance of the stock can be attributed to three factors:-
  1. Slowdown in the domestic economy causing drop in welding consumable prices.
  2. Sharp decline in Equipment and Project Engineering due to curtailment of capex plans.
  3. Export dependence on Oil producing countries where the slowdown is significant.
None of the factors mentioned above show a sign of change for the better, in the immediate future. Perhaps six months down the line things may be different but that would be contingent on a reasonable investment in infrastructure development in the country, easing of the liquidity situation and an up move in the global economic scenario. Tall order that.

However to be fair to the management, the company is continuing towards completion of its capex plans and gearing up(operationally) to take advantage of any positive up move. And all this it has done while keeping the company totally debt free giving it significant manoeuvre space if the situation so warrants.

Financials
Sales have dropped 13% and though the cost of materials has also reduced, the overall net profit has dropped 46%. Some part of it can be explained by the increased depreciation and a higher provision for taxation(which is surprising considering the 17% fall in gross profit!). If one carries out these tweaks on the P&L account, the net profit should be Rs 16.31 Cr instead of Rs 12.16 Cr and the EPS should be Rs 11.99 instead of Rs 8.94. 

Valuation
At a cost of equity of 15 % and a growth rate of 10% the stock can be valued at Rs 125. However the adjusted value is Rs 155. 
The current PE 13.65 is high for a company with a market cap of Rs 166 Cr and ROE of 12%.  

The Verdict
Well, this company, like the market, has seen better times and is likely to do so in the future too. However at the current juncture it does'nt offer the 'moat' like quality that would make for a mouth watering treat for a Grahamite.


5 comments:

sumi said...

Happy to see the moat aspect analyzed in the last bit of the post. As usual the analysis is a really good read.

Puneet said...

@ Sumi. Thanks.

TSR said...

MAX PROFITS TRADING JUST NIFTY,NOTHING ELSE..!!

www.niftyviews.com

Hi Friends,we have high success rate in nifty calls,our testimonial is our clients with whom you can chat online in our live chat.

We dont just trade, we create wealth.

Every small and big investors can make money through our nifty calls, trade from 2 to 20 lots to get huge profits consistently.

We top it up with attractive rates which you will make up by just trading 1 call.
Yes, we are that confident of our calls.

Come online to our 24hrs free chatroom where 200++ members trade together at: www.niftyviews.com

Also check the performance before you suscribe at: http://tsrnifty.blogspot.com/

FOR PAYMENT DETAILS http://groups.google.com/group/STOCKRESEARCHER/web/payment-details

Join our Google group: http://groups.google.com/group/STOCKRESEARCHER

Add me on orkut for daily updates: http://www.orkut.com/Profile.aspx?uid=1619632468359550031

For free calls on your cell phone
SMS- JOIN Sresearchers and send to 567678
Or SMS ON Sresearchers to 09870807070

Anonymous said...

Your blog keeps getting better and better! Your older articles are not as good as newer ones you have a lot more creativity and originality now keep it up!

Anonymous said...

I am just making a blog related to this. If you agree, I would like to use some of your content. And with full refernce of course. Thanks in advance.

- Andre

DISCLAIMER

This blog should not be construed as investment advice, either on behalf of particular stocks or in regard to overall investment strategies. It is a site aimed at understanding competitive advantages and valuing businesses. The information provided here comes from publicly accessible sources, but errors in these sources and in transcription may occur. Any investment decisions you make should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.