| Ador Welding Limited | ||||||
| Rated amount enhanced | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Ador Welding Limited (AWL) at ‘CRISIL A+/Stable/CRISIL A1’.
CRISIL Ratings had assigned its 'CRISIL A+/Stable/CRISIL A1’ ratings to the bank faciltites of AWL on 31st March 2023.
The rating reflects AWL’s long-standing presence and extensive industry experience of the promoters, diversified end user industry base along strong distribution network, moderate working capital cycle and healthy financial profile. These strengths are partially offset by its susceptibility of the operating margin to volatility in raw material prices and exposure to intense competition from fragmented welding consumables and equipment industry. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of AWL and along with its wholly owned subsidiary, Ador Welding Academy Private Limited (AWAPL), together referred to as the Ador group, which is strategically important to, and have a significant degree of operational integration with AWL.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Long-standing presence and strong market position: AWL was incorporated in 1951 by J. B. Advani & Company (holding 50% stake) which was the first company of the Ador group. It’s extensive experience management has given them an understanding of the dynamics of the market. The company has further established long standing relationships with all its suppliers and customers including few big players and has developed a strong network of distributors. With the longstanding presence in the industry coupled with strong distribution network, the company has been able to establish a strong market position and brand recognition under the brand name ADOR, primarily in the consumables segment. This has led to steady growth in revenues for the past few fiscals to Rs. 760-770 crore in fiscal 2023 from Rs. 520 crore in fiscal 2019 backed by healthy demand of the products in the industry, and continuous repeat orders from customers.
Diversified end user industry base along-with strong distribution network: AWL caters to a diversified pool of industries such as automobiles, railways. cement, building & construction, pipelines, chemicals and oil & gas etc. Further, AWL has a strong distribution network having more than 220 distributors domestically and in various countries. A diversified end user industry along with PAN India presence base allows it to mitigate it to risk of obsolescence in case of any new technology coming into the market and overcome the risk of slowdown in a particular industry thus achieving higher growth.
Moderate working capital cycle: Working capital cycle has been improving as reflected in the decline in the gross current assets to 109 days as on March 31, 2022 from 193 days as on March 31, 2020. This is driven by reduction in debtors as well as inventory days. The debtor days have been reducing as the company has reduced its credit period to distributors and have been receiving on-time payments from them. Further, the inventory days have reduced as per the cautious call taken by the management to maintain moderate inventory levels. Debtors and inventory were at 52 and 56 days respectively as on March 31, 2022. Though working capital requirement is expected to increase with increase in scale of operations, it would continue to remain moderate over the medium term.
Strong financial profile: The company has a strong financial profile as reflected in strong networth and low TOLANW of Rs. 281.4 crore and 0.4 times respectively as on March 31, 2022. Networth is expected to improve to around Rs. 330-335 crore while TOLANW is expected to remain in the similar range as on March 31, 2023. This is due to low reliance on external debt and creditors to support working capital requirement as well as due to steady accretion to reserves. AWL debt protection measures have also been at healthy level due to leverage and healthy profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 11.2 times and 82.4 times for fiscal 2022. Interest coverage ratio is further expected to improve to around 17-18 times for fiscal 2023 backed by healthy profitability and low leverage.
Weakness: Susceptibility of the operating margin to volatility in raw material prices: Operating margins are exposed to volatility in its key raw materials price, i.e., steel. Moreover, raw material cost accounts for 70-75% of the operating revenue. The absence of long-term contract with suppliers regarding price and absence of fully order backed inventory accentuates AWL's exposure to volatility in raw material prices. This can be reflected in the decline in the operating margins in fiscal 2021 to 6.2% from 10% in fiscal 2020. Sustenance of healthy operating margins will remain a key monitorable. .
Exposure to intense competition: The welding industry comprises welding consumables, equipment’s and related services which is highly fragmented in nature. Welding consumables industry is intensely competitive due to the presence of numerous unorganized players in the segment. Further, AWL faces competition from existing players in the domestic as well as international market. This restricts the company's bargaining power with its customers and suppliers and hence affects the scale of operations. |
Liquidity: Strong Bank limit utilisation is low at around 8% for the past twelve months ended Jan-23. Cash accruals are expected to be over Rs 62-63 crore in fiscal 2024 and 2025 which are sufficient against negligible annual term debt obligation of Rs 0.08 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio are healthy at around 2.1 times on Sept 30, 2022. Healthy cash and bank balance of around Rs. 11 crore as on September 30, 2022. Further the company has liquid investment of around Rs. 17 crore as on September 30, 2022 and overall liquidity including unutilised bank lines of Rs 181 crore as on January 31, 2023. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business |
Outlook: Stable CRISIL Ratings believe group will continue to benefit from the extensive experience of its promoter, and established relationships with clients. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company AWL (previously known as Advani Oerlikon Limited) was incorporated in October 1951. The company is engaged in the manufacturing of welding consumables, welding and cutting equipment, gas cutting products, welding automation products and systems, personal protective equipment and accessories and provides flares & process equipment works.
AWL has four manufacturing facilities and are located at Silvassa (UT of Dadra and Nagar Haveli), Raipur (Chhattisgarh), and Chinchwad, Pune (Maharahstra) with an installed capacity 65000 MTPA.
It is listed in National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It promoted by J. B. Advani & Company. Mrs. Ninotchka Malkani Nagpal is the Executive Chairman and Mr. Aditya Tarachand Malkani is the Managing Director. |
Key Financial Indicators-Consolidated
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 18-Apr-2023 in line with the lender-wise facility details as on 31-Mar-2023 received from the rated entity..
Criteria Details
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