AIA Engineering– a niche player with an international presence – BUY with a target of Rs 900/-

AIA Engineering Ltd (AIAE), established in 1979 in Ahmedabad, is a design, development and manufacturing company in a niche grinding segment.

The company with a market cap of approximated Rs 7400 crores, is the World’s second largest producer of Hi-chrome casting. Its wholly owned subsidiary Vega Industries is the global distributor of AIAE products outside India. Together AIAE and Vega are considered to be a quality benchmark by their customers.

The group has demonstrated that they can continuously develop products that provide reduced maintenance costs and improved cost-effectiveness to customers.  Their origins are in products for cement companies but now they provide to mining and power too.

For cement companies and for use in mining they make Grinding Media, Shell liners and Diaphragms.   Processing fuel is a critical part of the cost of power generation and the group helps power plants worldwide to keep down these costs by designing components that reduce downtime and maintenance costs. Additionally AIAE also offer expert services for industrial grinding and crushing operations.

Global market for Mill Internals for mining and cement sectors is estimated at 3mn MT (Rs 125bn) and is growing at 4-5% per anum. Demand is driven by new projects and replacement for wear parts.

AIA currently has capacity to manufacture 260,000MT  of high chromium wear parts and is pursuing capacity expansion to reach 440,000MT.

The company continues to build on predominant position in cement globally with strategic focus on emerging markets and China

Strong Q1FY15 quarter

AIA Engineering has reported a consolidated sales turnover of Rs 492.12 crore and a net profit of Rs 95.14 crore for the quarter ended Jun ’14. Other income for the quarter was Rs 22.83 crore. For the quarter ended Jun 2013 the consolidated sales turnover was Rs 485.45 crore and net profit was Rs 65.54 crore, and other income Rs 5.34 crore.

The top line was a tad below estimates, but the 24% YoY EBITDA growth was encouraging, the key positive was the 800bps growth in gross margins and the expansion in operating margins, the brown filed capacity expansion is also as per plan. The mere 1% YoY growth in sales due to postponement of billing of 4k MT mining volumes and was a negative.

With further scope to increase capacity utilisation and penetrative pricing reaching scale, leading to stronger profitability, I think that AIA earnings will see a good growth and I estimate an FY16E EPS of Rs 50/- giving me a target of Rs 900/- with a 18x multiple.

 

Comments

  • Hi sharmila,

    What is the time frame that we can expect the above target. The stock seemed to have gained over 40 percent in the last few months.. My query is should one wait for a pullback before buying or is this the right time.

    Ashish BAugust 11, 2014
    • The stock has hit the target but you can stay invested.

      Sharmila

      Sharmila JoshiNovember 7, 2014
  • Target achieved in this counter today!!! Thank you very much for your excellent view.

    Thanks,
    Bharath S.

    BharathSeptember 2, 2014
    • yes, but you can stay invested.

      Sharmila

      Sharmila JoshiNovember 7, 2014
  • Hello sharmila mam

    your AIA call is superb and hit target. Kindly post your new recommendation. I am eagerly waiting for your new call.

    Amarjeet singh
    Finance Head
    TCIL-Dubai Branch

    AMARJEET SINGHSeptember 3, 2014
    • thanks so much, do keep reading.

      Sharmila

      Sharmila JoshiNovember 7, 2014
  • Good information. send me time by time such profitable investment

    Mangesh KadamSeptember 9, 2014
    • thankyou, do keep reading.

      Sharmila

      Sharmila JoshiNovember 7, 2014

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