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Ador Fontech, an associate company of Ador Welding (formerly Advani Oerlikon), was
incorporated in August 1974, as Cosmics Fontech. It subsequently changed its name to Ador
Fontech. In 1992, it acquired Fist India (P) Ltd and Kostech India Pvt Ltd. These
companies were subsequently merged with the company as a division.
Ador Fontech focuses on maintenance welding, which is a niche segment
requiring specialised skills. It offers products and solutions for reclamation welding and
recycling of vital machinery components. The company’s product basket includes filler
wires, welding equipment/accessories, wire feeders, wearplates and cladded pipes. Apart
from manufacturing these products, Ador Fontech also acts as a value-added reseller for
Alloy Steel International, Australia; Berkenhoff, Germany; CEA, Italy; Cepro, Netherlands;
Degussa, Germany; Euromate, Netherlands; Gasflux, US; Protector, Australia/Singapore; and
Sulzer Metco, Swiss /US for their products in India. It also offers a high temperature
process for maintenance products from Aremco, US.
Ador Fontech supplies products and services to almost all the core
sectors and several engineering industries. The focus of its activities is to provide
metal joining, reclamation welding and surfacing solutions. Weld repair is commonly used
to improve, update, and rework parts so that they equal or exceed the usefulness of the
original part. Its major customer base includes mining industries, steel and other
metallurgical complexes, power plants, railways, road transport workshops, shipping
industries, sugar mills, cement plants, fertilizer and chemical plants, oil drilling and
refining sector, defence units and numerous engineering industries.
Almost all its customers now have optimistic growth plans. Worldwide,
the demand for metals, alloys and mineral resources is on the rise. This augurs well for
Ador Fontech. The other opportunities are in the fields of high productivity welding and
cutting systems, welding fume extraction systems, specialised surfacing and hard-facing
alloys and deposition equipment.
On the financial front, Ador Fontech has been a consistent performer
with respectable sales and profitability right since 1992. Notably, even during adverse
times, the company never made losses and has always paid dividends.
In the nine months ended December 2004, Ador Fontech's net sales
increased by 31% to Rs 37.15 crore. The operating profit margin (OPM) expanded by 190
basis points to 7.5% and the operating profit (OP) jumped 75% to Rs 2.78 crore. The profit
after tax (PAT) was up 142% to Rs 1.45 crore.
In the quarter ended December 2004, its financials have grown at a
faster pace. Sales shot up by 52% to Rs 14.80 crore, OP swelled by 182% to Rs 1.38 crore
as OPM expanded by a huge 430 basis points to 9.3%. PAT went up a whopping 329% to Rs 73
lakh.
We expect Ador Fontech to register sales and a net profit of
Rs 52.84 crore and Rs 2.60 crore, respectively. On an equity of Rs 3.50 crore and
face value of Rs 10 per share, EPS works out to 7.4. At the current price of Rs 55, P/E
works out to just 7. This is attractive considering that the welding and maintenance
industry is set to experience a new wave of growth.
Moreover, over the past many years, Ador Fontech’s dividend pay-out has always
been above 60%. We expect it to declare aroung 35% dividend for the current year ending
March 2005 (up from 25% last year). This gives dividend yield of 6.4%! Thus, while the
investor-friendly dividend policy will enable the investors to earn healthy annual income,
the bullish environment for the welding and maintenance industry will yield rich capital
gains on investment. |
