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AIA ENGINEERING LTD. (AIA)
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.370
CONS. FY12E P/E: 13.6X
q AIA reported Q3FY11 results; marginally below our estimates on revenue
and profitability front.
q Margins pressure exists due to increasing input prices; currently company
is finding difficulty in passing on these increases to the end user
q We tweak our earning estimates slightly downward for FY11 and FY12
taking into account 1) marginal decline on volume estimates 2) increase
in realization to factor in input price inflation.
q We change our recommendation to 'ACCUMULATE' from 'REDUCE' in
view of recent correction to the stock price. Revised target price of Rs.370
(Rs.450 earlier).
n The company produced 34787 MT of mill internals in Q3FY11, up 22% on YoY
basis and it sold 28405 MT in Q3FY10, up 22.8% on YoY basis. The growth is on
account of sale of ~11700 MT vis-a-via 11000 MT in Q2FY11 of mill internals for
the mining segment.
n The average realizations are up to Rs 97/Kg vis-à-vis Rs 86/kg. This was mainly
driven by the higher raw material prices.
n Company reported revenues of Rs.2.9 bn, up 16% YoY mainly driven by the
exports which contributed 55% of total revenues.
n The operating margins fell sharply on YoY basis to 19.4% primarily due to rise in
the prices of its key raw material i.e. Ferro chrome which the company was unable
to pass on to its customers.
n However the company has taken price increases and this is likely to get visible
from Q1FY12E as from historical perspective we highlight that there is always a
lag of a quarter in this.
n Company reported EBIDTA at Rs 569 mn down 14.4% YoY and 1.8% on sequential
basis on account of increased input cost and sales mix skewed toward
mining that enjoys lesser margins vis-à-vis cement and power segments.
n Company continues to maintain its leadership position in the industry. Its strong
debt free balance sheet accounted for low financial charges that resulted in the
PAT of Rs 463 for the quarter.
n At the end of Q3FY11, AIA has net cash and liquid investments worth Rs.3.2 bn
thereby translating into cash of Rs.34 per share.
n As of Q3FY10 the company has an order book of Rs.4.4 bn. This comprises of
more then 95% of replacement orders with over 60% of exports.
Looking to set up additional 1 lakh MT capacity
n Considering the pick up in demand for high chrome mill internals from the mining
segment the company has decided to set up additional 1 lakh MT capacity
around Ahmedabad.
n Company has started acquiring land in the Changodhar / Odhav area near
Ahmedabad. It would entail a capex of Rs.2.5 bn and it is expected to be operational
by October 2012.
n We opine that this is positive in the long term as it would lead to the next phase
of growth for the company going forward in its core cash generating business.
Financials
We tweak our earning estimates for the company for FY11-12E on account of 1)
marginal decline on estimated volumes in FY11-12E 2) increase in realization to factor
in input price inflation 3) slightly lower operating margins in 1HYFY12E.
Valuation and Recommendation
n We continue to remain positive on the long term growth prospects of AIA due to
strong business model with quality products, rising operating margins and expanding
markets of mill internals for the mining segment.
n In view of the above changes effected us on company's estimates for FY11E and
FY12E, we arrive at a on year DCF based target price of Rs 370 on company's
stock.
n We upgrade our recommendation on company's stock to 'ACCUMULATE' from
'Reduce' in view of the 1) recent correction in the stock price 2) limited upside to
our target price of Rs 370.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AIA ENGINEERING LTD. (AIA)
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.370
CONS. FY12E P/E: 13.6X
q AIA reported Q3FY11 results; marginally below our estimates on revenue
and profitability front.
q Margins pressure exists due to increasing input prices; currently company
is finding difficulty in passing on these increases to the end user
q We tweak our earning estimates slightly downward for FY11 and FY12
taking into account 1) marginal decline on volume estimates 2) increase
in realization to factor in input price inflation.
q We change our recommendation to 'ACCUMULATE' from 'REDUCE' in
view of recent correction to the stock price. Revised target price of Rs.370
(Rs.450 earlier).
n The company produced 34787 MT of mill internals in Q3FY11, up 22% on YoY
basis and it sold 28405 MT in Q3FY10, up 22.8% on YoY basis. The growth is on
account of sale of ~11700 MT vis-a-via 11000 MT in Q2FY11 of mill internals for
the mining segment.
n The average realizations are up to Rs 97/Kg vis-à-vis Rs 86/kg. This was mainly
driven by the higher raw material prices.
n Company reported revenues of Rs.2.9 bn, up 16% YoY mainly driven by the
exports which contributed 55% of total revenues.
n The operating margins fell sharply on YoY basis to 19.4% primarily due to rise in
the prices of its key raw material i.e. Ferro chrome which the company was unable
to pass on to its customers.
n However the company has taken price increases and this is likely to get visible
from Q1FY12E as from historical perspective we highlight that there is always a
lag of a quarter in this.
n Company reported EBIDTA at Rs 569 mn down 14.4% YoY and 1.8% on sequential
basis on account of increased input cost and sales mix skewed toward
mining that enjoys lesser margins vis-à-vis cement and power segments.
n Company continues to maintain its leadership position in the industry. Its strong
debt free balance sheet accounted for low financial charges that resulted in the
PAT of Rs 463 for the quarter.
n At the end of Q3FY11, AIA has net cash and liquid investments worth Rs.3.2 bn
thereby translating into cash of Rs.34 per share.
n As of Q3FY10 the company has an order book of Rs.4.4 bn. This comprises of
more then 95% of replacement orders with over 60% of exports.
Looking to set up additional 1 lakh MT capacity
n Considering the pick up in demand for high chrome mill internals from the mining
segment the company has decided to set up additional 1 lakh MT capacity
around Ahmedabad.
n Company has started acquiring land in the Changodhar / Odhav area near
Ahmedabad. It would entail a capex of Rs.2.5 bn and it is expected to be operational
by October 2012.
n We opine that this is positive in the long term as it would lead to the next phase
of growth for the company going forward in its core cash generating business.
Financials
We tweak our earning estimates for the company for FY11-12E on account of 1)
marginal decline on estimated volumes in FY11-12E 2) increase in realization to factor
in input price inflation 3) slightly lower operating margins in 1HYFY12E.
Valuation and Recommendation
n We continue to remain positive on the long term growth prospects of AIA due to
strong business model with quality products, rising operating margins and expanding
markets of mill internals for the mining segment.
n In view of the above changes effected us on company's estimates for FY11E and
FY12E, we arrive at a on year DCF based target price of Rs 370 on company's
stock.
n We upgrade our recommendation on company's stock to 'ACCUMULATE' from
'Reduce' in view of the 1) recent correction in the stock price 2) limited upside to
our target price of Rs 370.
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