Ador Welding Ltd. share price target

Impressive Quarter, margins under pressure though: Ador Welding (AWL)has registered a turnover growth of a massive 54.5% sequentially mainly due to low base effect resulted from demonetization during Q3FY17 & 5.1% YoY growth for Q4FY17 mainly on account of decent order book. EBITDA margin has contractedby 166 bps QoQ & 321 bps YoY for Q4FY17 to reach 6.3% owing to relatively higher operating expenses. EBIT & Net profit margins have also contracted by 68 bps &38 bps sequentially to 4.6% & 4.8% respectively in Q4FY17. Though the restoration of the repaired plants has resulted in improved production levels, demonetization seems to keep the revenue under pressure as the industrial activity remainedpressurized.

Improving Domestic Demand Environment Aided by GovtPolicies: Flat Quarter, margins affected due to weak growth - Ador Welding (AWL) has registered a meager turnover growth of 0.3% sequentially & 20.9% YoY growth forQ3FY17 mainly on account of decent order book. EBITDA margin has contracted by 184 bps QoQ & 263 bps YoY for Q3FY17 to reach 7.3% mainly on account of relativelyhigher expenses over revenue. EBIT & Net profit margins have also contracted by 180 bps & 66 bps sequentially to 4.8% & 4.0% in Q3FY17. Though the restorationof the repaired plants has resulted in improved production levels, demonetization seems to hit the revenue as the industrial activity remained pressurized.

Banking on Revival in Domestic Demand Environment: Recuperating from Q1FY17 disappointment: Ador Welding (AWL) has registered a turnover growth of 31.6% sequentially & 10.9% YoY growth for Q2FY17 mainly on account of healthy order book. EBITDA margin has also expanded by 620 bps QoQ & 150 bps YoY for Q2FY17 to reach 9.1% mainly on account of stableraw material and other expenses. EBIT & Net profit margins have also expanded by 680 bps & 310 bps sequentially to 6.6% & 4.7% in Q2FY17. Positivity in results maybe related to the restoration in their plants which suffered repairs during Q1FY17 due to which production was cut down.

Banking on Revival in Domestic Demand Environment: Surge in domestic industrial activity complemented by adequate capacityheadroom - Growth in investment activities and increased investments in key sectors like power, steel, construction, infrastructure and cement are giving an optimistic outlook for future. We believe the Gross Fixed Capital Formation (GFCF)to GDP to improve to over 33% by FY17E; also AWLs current capacity utilization levels of ~ 65%-70% leave enough headroom to sustain the anticipated increase in demand. We expect the capacity utilization rates to surge up to ~ 80%-85% by FY18E to aid revenue to grow at 7.5% CAGR for FY16-18E.