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Ador Fontech – Certain multibagger in long run

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Ador Fontech Ltd is an Ador group company. The other well-known company under the same management is Ador Welding Limited. The primary business of Ador Fontech is – Life enhancements of vital machinery components. 
The Company supplies products, services and solutions that help in conservation of mineral reserves. This is done through implementation of value- added reclamation, fusion, surfacing and coating solutions. The following factors make it a good value bet for the long term investors.

Outlook:-
Considering the growth in various user industries such as steel, cement, power, mining, metallurgical complexes, Ador Fontech’s core business of recycling and life enhancement provides an increasing window of opportunity,as India being on the path of growth needs such industries at large scale and that provides an oppurtunity for players like Ador Fontech. 
The company basically manufactures and trades such reclamants, surfacing and coating solutions. 
The company has 4 manufacturing units: 2 in Bangalore, 1 each in Nagpur & Ahmednagar
In the trading segment, the company exclusively represents in India renowned international companies like Euro mate, Cepro, Sulzer Metco, Gasflux, Arco plate, Alloy steel, Deloro Stellite international for their products.

Product & Services:
The products and services of the company can be categorized as follows:
Low heat input welding alloys
Hard-facing and wear resistant products
Welding,cutting and welder safety equipment
Fon reclamation services
In-situ reclamation services
Therma spray technology, services and solutions

Business Opportunities:-
There is a plethora of opportunities to enhance the market share of the Company and also to bring in newer concepts related to repair and refurbishment operations as it is in the life enhancement segment so it can bring down replacement cost of machinery and equipments for the companies thus improving their bottomline. 
The main threat lies in the fact that there are many players both in the organised and organised sector but given the oppurtunities, there is still room ahead with India growing and industrialization taking place in a major way.

Financial Highlights:-
The company has a small equity base of Rs 3.5 crores and does not have any debt on its book, a conservative approach. 
Over the last five years the net profit of the company has increased from 1.51 crores to 8.82 crores on sales of 101 crores for FY2008, and the company generated positive cash flow of 7.8 crore from its operating activities for FY2008. 
The promoter holding has increased steadily from 19% as at sep 4,2007 to 24.28% till recently. For the three quarters ending dec,08 company hasmade a net profit
of 6.08 crores in comparison to 5.14 crores for the same period last year. A good showing considering cost cutting across all sectors. The company is conservatively capitalized with no debt.

Valuation:-
The company has been regularly scaling up dividend. It paid a dividend of 25% in 2004, 35% in 2005 , 40% in 2006,50% in 2007 and 50% in 2008.
Between 2003 & 2008, Ador Fontech’s revenues have grown at a CAGR of 19% and Net profit at a CAGR of 42% highlighting the increasing efficiency of operations.
Low promoter holding is not a matter of concern as promoters have increased their holding over a period of time as mentioned earlier. 
At the current market price of Rs.140, the company offers a high margin of safety because of its consistent dividend record & also an opportunity to invest in a niche growth sector at attractive valuations.

Written by amitdipsite

November 9, 2009 at 8:03 am

Posted in Uncategorized

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