Operator: Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference call over to Mr. Aditya Malkani, Managing Director and CEO of Ador Welding Limited. Thank you and over to you, sir.
Aditya Malkani: Thanks. You can hear me? I can carry on?
Operator: Yes, sir.
Aditya Malkani: Okay, perfect. Thank you for attending the call. I apologize for the slight delay. We had a technical issue on our side. Good morning, and a very warm welcome to everyone present. With me today are Mr. Surya Narayan, our CFO and Head of Strategy, and Mr. Bidé, our Company Secretary and Chief Compliance Officer, as well as SGA, our investor relations advisors. I hope you have received our investor deck. This year has been special for Ador. In fact, yesterday, we completed 75 years. In 1951, we became India's first welding manufacturer, and today we have five manufacturing units, more than 850 people, a presence in over 15 countries, and a government-recognized R&D center. To reward our shareholders for their trust, the board has declared an interim dividend of INR 7.5 per equity share. Let me start with the headlines.
Aditya Malkani: Revenue for the quarter grew about 23% year on year to INR 345 crores, and H1 revenue was also up 23% at INR 654 crores. Growth was supported by healthy demand across core end markets, including infrastructure, power, oil and gas, railways, shipbuilding, defense, and heavy fabrication. Strong capital goods activity in India provided a favorable operating environment during the quarter. We also want to address the margin issue directly. Gross margins for the quarter were 34.2%, with input cost inflation particularly higher. Steel and other raw material prices being one of the key pressures. We have taken calibrated price increases and will continue to do so in a measured manner. Despite this pressure, EBITDA grew 9% in the quarter, and H1 EBITDA margin was 11.2%, slightly higher than last year.
Aditya Malkani: Our objective of steadily improving EBITDA margins remains unchanged, although input cost cycles may affect pace of progress in individual quarters. Three drivers underpin this growth: expanding our international reach, improving product mix, and deepening customer engagement. The first part is exports. The Middle East remains our principal international market, served through the Dubai hub. Building on that base, we are expanding our networks and evaluating opportunities in Europe to create a broader and more diversified international presence. Product mix. Supported by collaborations, our partnerships enable us to offer higher end welding power solutions as well as MIG solutions. As Hypertherm's master distributor in India, we provide advanced plasma cutting systems. In consumables, we continue to introduce specialized high performance products for demanding applications. Third is customer engagement. We are strengthening direct relations with key customers while continuing to support and expand our distribution network.
Aditya Malkani: Our technical support, training, and application teams connect these channels by helping customers select, deploy, and optimize the right solutions. Automation remains a strategic priority as rising labor costs and shortages of skilled welders drive customers, large, midsize, and small, to invest in productivity. Our partnership with Liburdi brings orbital welding technology to the power, nuclear, oil and gas, shipbuilding sectors, helping customers improve consistency, efficiency, and weld quality. On operations, we are investing in new consumables line, in line with the CapEx plan we had shared earlier. These investments will modernize our manufacturing base, support future demand, and improve our ability to scale efficiently. With that, I now open the floor for questions and answers.
Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to all the participants, anyone who wishes to ask a question, please press star and one. First question is from the line of Rudraksh Raheja from iThought Financial Consulting. Please go ahead.
Rudraksh Raheja: Yeah. Thank you for the opportunity, sir. I hope I am audible.
Aditya Malkani: Yeah, go ahead.
Rudraksh Raheja: Yeah. Sir, I wanted to get more clarity on the gross margin side. I think you have highlighted in your opening commentary as well that raw material pricing pressure was there, and we have taken some price hikes. So how are we thinking on the gross margins line? Because they seem a bit on the lower side.
Aditya Malkani: Yeah.
Rudraksh Raheja: So because of the price hike, should we expect more recovery in the H2?
Aditya Malkani: Yeah. Let's analyze Q2 for what Q2 is. If you ask me, approximately 80% of the reason that you are seeing a gross margin dip has to do with quite severe inflation in costs across the board. I think a lot of people are feeling it across the board in many ways. I would say 80% of it stems from there. About 15% to 20% stems from an aggressive strategy in terms of a growth plan that we have, which is okay. It does not impact margins very heavily at all. I think going forward, you will definitely see the recovery. We are fairly confident as far as our long-term goal goes for the next three, four years that we are laid out, as far as our plan goes for this year that we are laid out, we do not see Q2 as hurting us too badly from that perspective.
Aditya Malkani: We would have liked it to have been a little bit better, but look, the supply chain, inflationary, and cost input pressures are quite severe, and we have been able now to settle it down, and we are quite confident we will be able to recover that as we go forward.
Rudraksh Raheja: Makes sense, sir. Sir, but what would be the sustainable number? I am assuming there will be some quarterly dips here and there, and once we will bounce back and we will be on the higher side as well. But on a sustainable level, what we could pencil in going forward?
Aditya Malkani: It has to be between 12 to 13 level. I keep saying that. I have no problem in saying that. It has to be between the 12, 13 level. Our job is to get it to between that 12 to 13 level and then push upwards from there. It is possible. We just have to be a little patient through the quarterly global issues that are there a little bit. But between that level, it is very possible.
Rudraksh Raheja: Makes sense, sir. Sir, I meant the gross margins. 12, 13 would be our EBITDA levels, right?
Aditya Malkani: EBITDA level on the 12, 13%. Basically, we are looking at the gross margin level at being approximately in the region of at least 36% to 38%. 37%, 38% is what we are looking at ideally is what we should be in a position to do, and we see that recovery possible. It shouldn't be a problem.
Rudraksh Raheja: Understood, sir. Sir, this 20%-plus growth that we are witnessing, is there a visibility on this going forward?
Aditya Malkani: There is a certain amount of it, I would say, just to break it down, there is a certain amount of it that is obviously inflationary. But we are seeing growth to be in the plus 10% double-digit region, we are seeing as far as volumes go as well. So we are kind of happy with that. We are seeing the international market provide even north of that opportunity. I think it is sustainable. It seems to be a lot of things clicking that seem to be okay, and I hope that remains in there. It is a little bit better than we expected it to be in terms of demand. Like you said, the margins are what we have to prioritize and meet that demand accordingly. But yeah, it seems to be okay.
Rudraksh Raheja: Understood, sir. Sir, what was our export share in H1 FY27, and what is the visibility here?
Aditya Malkani: I think somewhere in the region of 15% to 20%, with it in HY1 being slightly in the higher part of that.
Rudraksh Raheja: Okay. Going forward, sir, are we expecting some major delta here or should the-
Aditya Malkani: No, I think we spelled it out in our long-term strategy, where Ador wants to be as a brand, where Ador wants to be placed globally. Exports is a very important part of that. We are going to continue to be aggressive over there. That does mean, at times, the product mix is slightly different to an ideal margin mix, but that's okay. I think that's part of the strategy of where we want to be in three, four years as a brand. We will keep taking that on. That's all right. It is still margin accretive and beneficial to Ador. I am okay with that. But we intend to try to grow that.
Rudraksh Raheja: Got it, sir. And sir, any EBITDA losses on the flare segment in H1?
Aditya Malkani: Any EBITDA? Sorry, say that again.
Rudraksh Raheja: Did we make any losses at EBITDA level in the flare segment?
Aditya Malkani: No. The flare segment is pretty much done for now. There is nothing major that is there. We have a few product lines that are not massive at all, that are small, and there is no losses over there. No. Nothing.
Rudraksh Raheja: Sir, what was the revenue contribution from that segment in H1?
Aditya Malkani: It is insignificant.
Rudraksh Raheja: Okay.
Aditya Malkani: It has literally no bearing at all on anything anymore. It is insignificant. Do not worry.
Rudraksh Raheja: Apart from the raw material cost pressure, are we seeing any other one-offs in H1 numbers?
Aditya Malkani: I wouldn't say one-offs, but I think if you talk to a lot of companies, which you guys will have done the research, there's a lot of increasing inflationary costs of incoming logistics. There's a lot of stuff that we've been dealing with. So, I think just a bit of that and sort of sorting that out as we pass it forward. Like I've said, product mix is something that has played a role in Q2 a little more heavier than we would have thought. But that's okay. I think we're kind of okay with that. That's it.
Rudraksh Raheja: Got it, sir. And sir, I think in the last calls you have mentioned that we are still-
Operator: I'm sorry to interrupt. I am really sorry to interrupt, Mr. Rudrax. Can you please rejoin the queue?
Rudraksh Raheja: Yeah. Thanks.
Operator: Thank you. Next question is from the line of Suraj Malu from Catamaran Ventures. Please go ahead.
Suraj Malu: Thank you for this opportunity.
Aditya Malkani: Yeah.
Suraj Malu: First question is, what was the volume growth in this quarter?
Aditya Malkani: It is in the approximate high, I would say, teens somewhere there. I will just put it there because I do not want to get into too much more of that. But it is approximately in the mid-teen levels like that.
Suraj Malu: Right. Got it, sir. Sir, in terms of raw material, you addressed the point, but can you give an understanding of what would be the breakup of raw materials? If INR 100 is the raw material required, 50% to 60% would be mild steel. What would be those components and which of them have increased so much that has increased the raw material cost for us?
Aditya Malkani: I am not going to excess detail on it. I can tell you that, look, I mean, these are things that now are publicly available if you were to read about it. But steel plays a very large segment there. There are a lot of chemicals that come into play as well. This is for our consumable business on the equipment side, there is a lot of electronics, there is a lot of PCBs, there is a lot of other stuff like that, which has an import factor as well that goes into it. So there is a mix of all of those things that go into it from that aspect. Raw metal
Suraj Malu: All of these have increased, like be it steel or those powders. For electronics, I understand.
Aditya Malkani: I think everything across the board everywhere is going up. I do not think it is only particular to us, but I think everywhere across the board. Copper, we have seen fluctuating quite a bit. I think that is the reality that we are all dealing with right now. So you are managing that supply chain process, and you are managing how passing it forward accordingly. I think we just have to be a little bit patient. When it is very rapid, like it suddenly happens in June, July, August, blah, you have to manage it through. But I think it is okay. The market is readjusted. So I am not stressed about will the market now readjust? No, the market is readjusted already.
Suraj Malu: And sir, how do you see the teens volume growth continuing going forward? Is that possible?
Aditya Malkani: We see it fairly decent going forward. We expect it to be good going ahead. I think we are being aggressive. We continue to be aggressive going forward into FY28. We continue giving our sales teams quite aggressive targets on that. So I think we will remain aggressive on that.
Suraj Malu: Got it. Thank you very much, sir.
Aditya Malkani: Thank you.
Operator: Thank you. Next question is from the line of Bhavya Gandhi from Bajaj Alternate Investment Management Limited. Please go ahead.
Bhavya Gandhi: Yeah. Hi. Thanks for the opportunity. Hope I am audible.
Aditya Malkani: Yeah, go ahead.
Bhavya Gandhi: Yeah. Hi. My first question is regarding Ador WelDoS. What exactly are we doing over there? Also, the digital welding management initiatives that you have taken, what is the vision for that? You are looking out for some acquisition as well, so if you can throw some light on that as well.
Aditya Malkani: WelDoS is a technical add-on product that gives welder data back to the customer to see efficiency of welding. It is step by step to be accepted in the field. It is not going to be a game changer in any way. It is part of a technology upgradation and more data available to the user customer. So that is what WelDoS does. But that is one part of the puzzle of exactly the digitization and automation kind of pie that Ador is looking at. So automation is a lot of drive for that. We are looking at more high-end synergistic machines that give more information as well. We have tie-ups accordingly. We are trying to flood the market a little bit more aggressively with that. So that is basically that story. Does the impact come in a quarter? No, these impacts do not come in a quarter.
Aditya Malkani: They take a little bit longer to come, but it is very much a part of moving up the value chain.
Bhavya Gandhi: Okay, fair enough. On the acquisition front, are we looking for acquisition on the robotics side? If you can provide some clarity on that, the one that you have mentioned in the past.
Aditya Malkani: We are exploring options. I think it is very early that nothing is going to happen because the ecosystem you are dealing in is very tiny. It is not like a very large industry. It is a tiny ecosystem, so I do not want to jump the gun on anything. We are exploring what options are there that add value from an automation perspective from that end.
Bhavya Gandhi: Got it. Without even specifying the margins, if you can at least give the pecking order within the segments, which gives us the highest margins, because we have industrial M&R, welding, automation, equipment, and consumables. If you can just quickly-
Aditya Malkani: I think if you look back historically, then you will be able to get a lot of that data out simply by looking with pre-merger days. You will get a lot of that data as well. It used to give segments. I think if you look at the trend, it follows a lot of that. M&R tends to be smaller as the size of industry with slightly higher margins. Consumables tend to have greater turns. It depends on the product mix. That is exactly where product mix plays a role. Equipment can be fairly in line with that. It depends upon how you are sourcing and manufacturing. We tend to be slightly heavier simply because of our India heavy manufacturing versus sourcing from other countries. That is part of it. The automation will take time to build up to that similar level as the consumables. Yeah.
Bhavya Gandhi: Okay, fair enough. I will get back in the queue. Thank you so much. Yeah. That is all. Thank you.
Operator: Thank you. Next question is from the line of Dhruv Ilani from Girik Capital. Please go ahead.
Dhruv Ilani: Yes, ma'am. Thank you for the opportunity. I just wanted to ask on the inventory part, is there any one-off this time, or is it on the buildup on the back of good visibility that we have?
Aditya Malkani: Well, it is a mix, I will say. Again, the slightly higher inventory levels, the slightly higher payables or the payables being down from that perspective, I would say are two parts. One is order book. That is, I would say, 75% to 80% of the reason. Another 15% to 20% of the reason is availability of steel in the market was a concern. So we had to be a little bit aggressive in terms of what we needed to do. That sometimes does not make a number on 30 September look as great as it should, but it will even out through the year.
Dhruv Ilani: Okay. The drop in payables you said is on back of due to this all macro instability, or is it that we are able to pay quickly and get bulk discounts?
Aditya Malkani: No, it is a mix of availability, it is a mix of what the conditions were demanding, it is a mix of our growth reasons that we have in certain segments and product mix. I think from that perspective, it will stabilize. I do not think you need to overanalyze it at all. I am not stressed about it over the coming months in terms of how it plays out. I think you have to look at it as what the macroeconomic situation is at that moment in time. I do not think it is a trend from that respect.
Dhruv Ilani: Okay. Thank you.
Operator: Thank you. Before we take the next question, a reminder to all the participants, if you wish to ask a question, please press star and one. We will take the next question from the line of Prasanjit Paul from Paul Asset. Please go ahead.
Prasenjit Paul: Yeah. Good morning, sir. Am I audible?
Aditya Malkani: Yeah. Go ahead.
Prasenjit Paul: Yeah. Thank you for the opportunity. Sir, my question is, last year you had shared an aspiration of reaching INR 2,000 crore of revenue by FY29. Can you tell me, are we on track? Second, does the existing capacity can do up to INR 2,000 crore revenue?
Aditya Malkani: We are not very far off track. We are fairly on track, I would say. This last six, eight, nine months has shown that opportunities are there and the market is moving in a certain direction. If it continues, the underlying continues to provide that opportunity, I think we are on track. We obviously have a lot of ifs and buts along the way in terms of global strategy, in terms of automation, all of that. But we are on a certain path that is encouraging. CapEx, no. There is a certain amount of CapEx that we will have to do. I think there is a certain amount of CapEx in the next two, three years. I discussed this in previous meetings. Over the next two, three years, we will have to lay out a little bit of CapEx, but it is nothing extraordinary.
Aditya Malkani: If you look at it, our normal average CapEx is anywhere in the region of about INR 35 to INR 40 crore a year. I think there will be one or two years, we might pick that up a little bit, take it up to INR 60, INR 70 type for one, two years. Beyond that, nothing very significant.
Prasenjit Paul: Okay. For that CapEx, do you think any major debt requirement is there or equity dilution will be there?
Aditya Malkani: No, I don't think so. I think we're quite well. Our balance sheet is quite strong to be able to take that on, so I don't think that's part of the plan at the moment, at least.
Prasenjit Paul: Okay. Last question is, you have already addressed the commodity inflation, some sort of price hike. Can we assume that the gross margin that you witnessed in Q2, that will be on the lowest level or the pressure or the pain will continue in Q3, Q4, or can we assume that?
Aditya Malkani: I can only tell you exactly what we've discussed internally, which is very hard, that Q2 was a bigger dip than we are okay with. It was done due to certain market pressures, and we're not okay with that. We will push back accordingly, and we do not want that to be the norm at all. That will not be the norm. So we have to recover from that.
Prasenjit Paul: Q3.
Aditya Malkani: And get back to our trend that we are okay with.
Prasenjit Paul: Okay. We can expect Q3 onwards, the gross margin will be recovered?
Aditya Malkani: We see that right now. It is early days in Q3, but we see that, and we are working towards that very hard. Yes.
Prasenjit Paul: Okay. How much, like whatever the growth we are planning, let's say INR 2,000 crores. How much you are thinking about the change in product mix, higher realization, or how much will come from the volume growth? Which you are preferring, whether you are preferring purely volume growth or more onto the higher realization, led growth, product mix change growth?
Aditya Malkani: If I had to estimate, I'd say 60% to 70% of that growth will come from product mix, which doesn't necessarily mean that it can't be at the right margin level. It's a question of the right product mix going into the right customers across India as well as our international markets. But I'd say 60% to 70% of it has to come from product mix, such as the nature of the industry. A third of it will come out of the innovations we might do in welding equipment, the partnerships we might do, the automation we might do. All of those things can help drive quite a lot. I'd say 20% to 25% of it, maybe.
Prasenjit Paul: Okay. Sir, one last question. I was checking many of our peers, like one of the smaller peers, Diffusion Engineers. They are saying that welding consumable market is not expanding that big, so they are moving towards engineering service, project management type of service, the same division that you had exited. If we talk about your segment, welding consumables, do you think that the industry is growing? Whatever the growth you are planning, INR 2,000 crore revenue. Do you think there is enough scope to grow within the market? Or you must need to venture internationally to reach that growth, or the domestic market is big enough for that?
Aditya Malkani: I won't comment on anyone else. I will tell you that definitely welding consumable market does provide adequate growth opportunities. That's what we do. That's where we are placed, and there is adequate growth, and the growth you're seeing in this HY1 is a lot driven by that. It's simply related to steel consumption. So it's about steel consumption data. If you see growth happening there, and you believe that steel will continue to be consumed at good levels in various industries, then there's no reason welding consumables should not.
Prasenjit Paul: Okay. Thanks a lot. Wishing you all the very best.
Aditya Malkani: Thank you.
Operator: Thank you. Next question is from the line of Dharmendra Grover from Helios Capital. Please go ahead.
Dharmendra Grover: Yeah, good afternoon. Just a couple of questions. One, on the raw material side, have the prices been increasing primarily because of the freight, or is it other reasons? And secondly,
Aditya Malkani: It's a lot to do with input costs that stem from steel and other raw material components. Freight is a small part of it, but it's definitely a relevant part of it, especially in imports. I'd say steel, if you guys are watching steel, you see what's happening there. There are tremendous increases. So that's a large, very significant part of it.
Dharmendra Grover: But do you think this is temporary, is this something that will settle down?
Aditya Malkani: I can't comment on steel prices. I can only say I hope the more flattened out and even they are, they help everyone in the industry. But I can't comment on that. I don't see them softening anytime soon. I don't think they're going to be as rapidly increased either, but that's my perspective on it right now. We're not big enough. The steel guys are the big guys who will decide that, so we have to follow a little bit of that. There are many global factors that kick in.
Dharmendra Grover: Your purchase agreements are primarily on a spot basis, is it?
Aditya Malkani: We do a little bit of strategic as well, which is what you are seeing in the balance sheet for 30 September. We do a little bit of strategic as well, but I think the nature of the type of steel that we buy, you cannot do excessive strategic. It does not work like that in our opinion.
Dharmendra Grover: In terms of on the final finished product side, how much of it has got passed through, and what do you think
Aditya Malkani: All of it has got passed through a bit later than I would have liked. In Q2, it happened a bit later. How it is getting done now, it is all coming through because that is the nature of the market and if you are growing as aggressively as we are trying to grow, you take on certain things in a certain way. But most of it gets passed through very, very quickly. I think in Q2, we have been a little bit slow on a few things, which is okay. As I said, it is a temporary blip in the journey, so I think it is okay.
Dharmendra Grover: I can understand because consumables will not be so much of the price sensitivity in terms of demand will not be so high compared to the other products.
Aditya Malkani: It varies. It varies sector to sector. As you have India's growth story play out, you have very large customers, large commitments, stuff like that. You have to do it step by step. Welding's a more competitive field than some other industries. You can't do everything tomorrow morning. It takes a little bit of a journey, but it's getting there. I think we've been, most of the time, been able to pass through. We have to keep in mind, the last three, four months have been very unprecedentedly sporadic in terms of the rise. You have to manage that process. But I'm not concerned about it from a long-term basis at all.
Dharmendra Grover: Yeah. I can understand. Which means that in the medium term, we'll come back to the same kind of margin trail that we have been.
Aditya Malkani: Like I said very openly, I've got to get to between the 12% to 13% level is what I have to get to. We have to make that happen.
Dharmendra Grover: Understand. Thank you. Thank you very much.
Aditya Malkani: Thank you.
Operator: Thank you. Ladies and gentlemen, to ask a question, please press star and one. Next question is from the line of Mahesh Atal from Dhairya Investment Advisors. Please go ahead.
Mahesh Atal: Am I audible?
Aditya Malkani: Yeah. Please go ahead.
Mahesh Atal: Sir, we see that the demand in this electrode segment has actually going up. It's going up because of the manufacturing thing happening on a lower MSME scale. How exactly are we catering to that market, consumable market? Because when we see and we go on to the ground, there are a lot of unorganized players who are actually taking up the shelf over there. How is the management looking at that?
Aditya Malkani: Welding consumable at the end of the day is an engineering product. An engineering product that has different approval structures and stuff like that. Just to give you a very quick overview, welding consumables consists of, we have probably a couple of thousand SKUs in it. In those couple of thousand SKUs, you have tier 1, tier 2, tier 3 types of companies that compete against those SKUs as well. Then you have customers who have tier 1, tier 2, tier 3 types of approvals and requirements that they have for their process. A customer of an unorganized product is not really my customer at all. Ours is very engineering centric. We work on oil and gas, we work on shipbuilding, we work in all of these specialized sectors where quality of an engineered product matters a great deal.
Aditya Malkani: I think everything has a place in the market. I don't get stressed about the unorganized sector too much. I care about within the organized competitive sector that we play in, how is our market share doing from that angle. That's what we track.
Mahesh Atal: Sir, on the margins front, our gross margins have gone down because of, as you explained in the previous part, that the steel prices rose to a level which even the management did not anticipate. When do you see this tapering off? I mean
Aditya Malkani: It is already tapering.
Mahesh Atal: Are there any-
Aditya Malkani: When you say tapering off, you mean in terms of the steel prices, or you mean in terms of-
Mahesh Atal: Yeah
Aditya Malkani: our ability to pass this through?
Mahesh Atal: No, I am talking about the steel prices, because
Aditya Malkani: Steel prices, I cannot comment. Like I told someone, I unfortunately cannot comment. It does not seem like they are softening. But I do not think I have much more reading than that. They seem to be okay, but my pass-through is happening much better now than it was for a little brief period in time in Q2. Let us put it that way.
Mahesh Atal: And sir, what was the price increase you have taken compared to the price increase in the steel? If you can just quantify that.
Aditya Malkani: We go in line with it. But basically, it is about the time lag that sometimes kicks in, or it is about certain contracts that you are tied into. It is about all of those different factors at play. We have to factor in. We cannot absorb anything on that front. So you play it accordingly.
Mahesh Atal: So do you think that the pass on in the next quarter or so would suffice our raw material increase or inflation there?
Aditya Malkani: Yeah. Should. That is how we can get back to our targeted margin levels. That is the only way. There is no other answer.
Mahesh Atal: If I may ask, sir, what was the percentage increase in the steel quarter-on-quarter?
Aditya Malkani: Percentage increase in steel Q2 versus Q1 must be anywhere in the region of 7% to 8%.
Mahesh Atal: Okay.
Aditya Malkani: Q1
Mahesh Atal: Steel constitutes what percentage of our raw material?
Aditya Malkani: Sorry?
Mahesh Atal: Steel constitutes what percentage of the raw material cost?
Aditya Malkani: It varies. I cannot go into excess detail on that. It varies. These are things that you can find out online. I would rather not get into excess detail, and please understand the reason I do not is simply because at the end of the day, I have to manage a competitive profile as well. So I think these are things online you will find, sir.
Mahesh Atal: All right, sir. When you say that you are trying to move to the high-value segment, what areas are you looking at when you say that? I mean
Aditya Malkani: Within welding space, there are 2, 3 high-value segments that you look at. So in consumables, you talk of moving to more highly specialized steels, that is part 1. 2 is better and stronger approvals. For example, we might work on an approval in a shipbuilding sector, an oil and gas sector that puts us in a higher playing sphere with a tier 1 sort of place. The third thing is better technology welding equipment. The newer generation technology stuff like that. The last is around automation basis. So we have all of these that come into the world of welding and cutting, which we play in.
Mahesh Atal: Sir, I also see that you are also looking for inorganic growth. Are there anything in the pipeline that you are considering?
Aditya Malkani: We are exploring. It is the early days. We are exploring. Like I said, the ecosystem is not very large, so I cannot really get into excess detail unfortunately, until we have more clarity. But it is going on. It is part of our job to keep looking at it.
Mahesh Atal: All right, sir. All the best. Thank you so much.
Aditya Malkani: Thank you very much.
Operator: Thank you. Next question is from the line of Rohit from iThought PMS. Please go ahead.
Aditya Malkani: Go ahead.
[Analyst] (iThought PMS): Yeah. Hi, good afternoon.
Aditya Malkani: Hi.
[Analyst] (iThought PMS): So I think in the opening remarks, you alluded to three things which is sort of your focus area. One was exports, the other was product mix, and the other was going deeper with your customers. Can you talk a bit about the last two, the product mix and the going deeper with your existing customer in terms of gaining wallet share? If you can maybe talk a bit about that in more detail, like we've been, as you said, we've been.
Aditya Malkani: I will talk about the latter first. I will talk a little bit about that.
[Analyst] (iThought PMS): Yeah.
Aditya Malkani: See, Ador has the benefit of being, and very thankful for having a very strong distribution network across the country. But one of the things that we find that we are not strong enough at is being in front of some very large customers directly who want to deal directly. We have a few very good relationships, but there are many more that can be done and developed accordingly that we may not be supplying to, or if we are supplying to, we are not supplying a large enough share of wallet. If you go and research about us, you would have seen certain hirings we would have done. You would have seen certain strategies we would have done, which is basically gearing ourselves that, look, there is a larger growth opportunity sitting over there, or we are less represented over there.
Aditya Malkani: We talk of top 50, top 100 consumers in the country, we feel we should be more aggressive sitting in front of them. That takes time. It does not happen overnight, but the entire organization is working hard towards that, and that is basically where that stems from. The second part leads into that a little bit because what happens is the product mix sitting with these top 50, top 100 customers tends to be a little more on products like continuous products and stuff like that, where you need to be a little more aggressive in terms of making an entry. So it leads into that a little bit.
[Analyst] (iThought PMS): Right. To an earlier question, you said that 60%, 70% of the growth would be driven by product mix. Then the remains.
Aditya Malkani: Incremental growth.
[Analyst] (iThought PMS): Yeah, incremental growth. Correct.
Aditya Malkani: I don't mean the overall pie, I mean the incremental growth.
[Analyst] (iThought PMS): Yeah.
Aditya Malkani: Yes.
[Analyst] (iThought PMS): So what do you mean by that in the sense that, I mean, is it like there were some products which there were gaps in our
Aditya Malkani: Yeah. There were gaps. We were not as aggressive. It's not only product gaps. Product gaps is one part. It's about sales gaps. It's about being in front of a customer gap, right? It's stuff like that you may be selling. Like I said, the welding world has 5,000 SKUs. You may be selling some, you're not selling the other. We have several products that are now we have plugged a lot of those gaps. We have plugged many gaps over the last 2, 3 years. Now we have to be aggressive in positioning that in front of the customers and doing all of that. I'm not stressed about do we have a product gap? No, I'm not really worried about that anymore. I was more worried about that 2, 3 years ago.
Aditya Malkani: Now it's about seeing the benefit of playing that out in revenue and margins with customers.
[Analyst] (iThought PMS): Sure. Just a couple of more questions. One was, of course, we merged Fontech and back of the envelope, it seems Fontech has been around that INR 220 crore, INR 230 crore since the time even prior to the merger, they were around that time, plus minus, and they are still around there. Is it fair or, I mean, are we trying to also grow that segment or there were some gaps there as well earlier?
Aditya Malkani: We are trying to grow that segment. One is, look, what happens with the merger is, Fontech also had products that were related to what I would call fabrication industry. We have now taken those out and put it into the larger welding atmosphere. You are seeing better growth opportunities come for that. You go down to Fontech being very M&R core. In the M&R core, there are definitely opportunities. You will not see a natural growth rate at the levels you will see in the other markets. There are products that can be added on, complementary products that can be added, transplant of services can be done. You can see that. You cannot suddenly say, "I am going to grow 20% over there tomorrow morning." You can grow 8%, 10%, 12%.
Aditya Malkani: There is a lot of work that we have to keep doing step by step to get there. That is going on. Yes, very much. It is a very important part of the business. It is a very important part of our margins. It matters a lot.
[Analyst] (iThought PMS): Last question, I think you have hired a lot of people in the last probably 12 to 18 months or probably 24 months.
Aditya Malkani: Yeah.
[Analyst] (iThought PMS): In terms of incentivizing them or in terms of
Aditya Malkani: Yeah
[Analyst] (iThought PMS): the whole plan, maybe there is an ESOP plan, et cetera. If you can maybe articulate that as well, that would be useful.
Aditya Malkani: Yeah. We have an ESOP plan for approximately 50 people in the company are part of our ESOP plan, with senior management obviously having a larger chunk of that. We introduced the ESOP plan probably a year and just a little bit over a year ago. So that is part of it. We have incentive plans that are laid out. We are very incentivized relating to profitability across the company, and we keep enhancing that. So yeah, we do that a lot and we have got a good bunch of good senior talent now and they have a lot of responsibilities in front of them, but they are moving in the right path. So it is going well.
[Analyst] (iThought PMS): Got it. Thank you.
Aditya Malkani: Thank you.
Operator: Thank you. Next question is from the line of Yash Patil from Dalal & Broacha. Please go ahead.
Yash Patil: Yeah. Thank you for the opportunity. Hope I am audible.
Aditya Malkani: Yeah, go ahead, please. Sorry.
Yash Patil: The short-term bank borrowing rose to around INR 28 crores from INR 90 crores, around INR 2.27 crores at FY27. Is this trend a seasonal average to fund the working capital cycle, or will the short-term borrowing remain elevated to FY27?
Aditya Malkani: Most of it, just to explain, a lot of it has got to do with LCs and BGs and stuff like that as we grow. A fair amount of it is from that angle. We have a little bit of the working capital perspective. It is very controllable levels, and it is just a question of managing it. Like I said, due to some strategic purchases, strategic stock, due to a few decisions we take as we grow to 20%, I would not read too much into the H1 data from that perspective at all as far as the trend goes.
Yash Patil: Got it. On the CapEx front, will the INR 30 to INR 35 crores be sufficient to support the company's growth aspiration, or will additional investment be needed in that sense?
Aditya Malkani: This year will be approximately INR 30, INR 35 crores, which if you see the trend for the last few years is similar. But we do have CapEx planned for the next 2 financial years, which will be in the region of INR 60, INR 65 to INR 70 because we do have to invest towards where we want to go each year. So for 2 years, FY27, FY28, you will see a slight jump up in that, and then it will kind of reduce to this normal level. There is nothing exceptionally large. That is what I meant.
Yash Patil: Okay. Just last question. How big is the opportunity in shipbuilding and what is the current order book you can see in shipbuilding, defense, and wind energy sector?
Aditya Malkani: Look, I do not want to give you the data on what our current order book is. I am sorry, but that is kind of confidential data. But I will tell you that shipbuilding, as you can see, has a lot of opportunity. There is a lot of work going on in India in shipbuilding. There is a lot of opportunity that is there. We are seeing some benefit to it, but there is a lot more that can be done continuously. We definitely believe it can play a very significant incremental growth for the welding industry.
Yash Patil: Are you getting orders or any inquiry regarding shipbuilding or
Aditya Malkani: Sorry. Say that again, sir.
Yash Patil: Are you getting orders or getting any inquiries regarding shipbuilding?
Aditya Malkani: Oh, yeah. Most definitely. Most definitely.
Yash Patil: Yeah. Thank you.
Aditya Malkani: No. Thank you.
Operator: Thank you. Next question is from the line of Nasir Parekh from Native Invest. Please go ahead.
Nasir Parekh: Yeah. Hi. Thanks for taking the question. I think you spoke about it earlier, but if you can just touch a bit in terms of, you had mentioned on tapping the top 40, 50 consumers of steel and how do we do that. From a revenue perspective, we are obviously not seeing that kind of movement. So how are you looking at it? Because it has been around a year since we have been kind of talking about that and hiring people.
Aditya Malkani: In my opinion, you are seeing it. We have grown 21% for Q1. So you are seeing parts of it. I do not think that is the average growth rate of the industry at all. We are definitely outperforming that. There is a part of that that is being export-related. There is a part of that which is India-related. You are seeing it incrementally play out. It will keep having a larger role. But I think in the last six, eight months, the data I see, I think I am seeing some benefit to that, definitely.
Nasir Parekh: Okay. Secondly, on the export side, other than Middle East, is there any other geography that we have?
Aditya Malkani: We are present in the US. We have presence in parts of Africa. We have presence in two different markets in Europe. We are entering a third one as well. Yes, we do. But the Middle East is about 80%, 85% of the export sales, but we expect that the other markets will grow. These FTAs and all of that that are coming in, we are seeing greater push, greater pull, not push. We are seeing greater pull, so the time to market is getting a little bit faster. But yeah, we expect these other markets to play a good role as well.
Nasir Parekh: Okay. Thank you.
Aditya Malkani: Thank you.
Operator: Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question for today. I would now like to hand it back to the management for closing comments.
Aditya Malkani: Okay. Thank you, everyone, for joining us. I hope we have been able to answer the queries. We look forward to such interaction in the future and hope to meet your expectations in the future as well. In case you require any further details, you may contact us or SGA, our investor relations partner. Thank you very much.
Operator: Thank you. On behalf of Ador Welding Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.
