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Another Disappointing Quarter
AIA Engineering's (AIA) Q3FY11 results were below our
expectations. Revenues grew by 15% YoY to Rs2.93bn against
our estimate of Rs3.1bn. Higher RM cost (which could not be
passed on fully) adversely affected margins which fell by 540bps
at operating level. Realisations however, improved to Rs97/kg vs
Rs86/kg (YoY basis). Management has further reduced its volume
guidance for FY11 and FY12 by ~4-5%. Rupee appreciation and
volume growth remain key risks in the long run. At current price
we believe the stock is fairly valued and therefore, recommend a
HOLD with a target price of Rs355 (14xFY12E).
Improved realisations; flat volumes
Realisations increased by 13% to Rs97/kg on YoY basis. Production
was higher at 3,4787MT (vs 28405 in Q3FY10). Sales in volume
terms improved by mere 2% to 30,100MT vs 29,513MT. Sales to
overseas mining industry were healthy at 11,700 MT.
Margins contract
OPM contracted by 540bps to 22.4% mainly due to higher raw
material cost which could not be passed on to the customers
completely. Margins are expected to return to normal levels once
the rise in material cost is passed on completely to customers.
Outlook
The management further reduced its volume guidance to 120k-
125k MT (earlier 125k - 130k MT) for FY11 and to 150k-155k MT for
FY12 (from 160k MT) .Good traction of orders from overseas mining
companies remains a key trigger going forward. Management
has also sighted concerns of increasing competition and higher
working capital going forward.
VALUATIONS AND RECOMMENDATION
We further downgrade our volume estimates for FY12 by 3% and
expect a CAGR of ~21% over FY10-FY12E. However, on account of
higher commodity prices which eventually would be passed on to
the customer, we have increased our estimates for average
realisations by 9% for FY12. Resultantly revenue is expected to
witness a CAGR of 22.5% (FY10-FY12E). Rupee appreciation and
volume growth remain key risks in the long run. At current price we
believe the stock is fairly valued and therefore, recommend a HOLD
with a target price of Rs355 (14xFY12E).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Another Disappointing Quarter
AIA Engineering's (AIA) Q3FY11 results were below our
expectations. Revenues grew by 15% YoY to Rs2.93bn against
our estimate of Rs3.1bn. Higher RM cost (which could not be
passed on fully) adversely affected margins which fell by 540bps
at operating level. Realisations however, improved to Rs97/kg vs
Rs86/kg (YoY basis). Management has further reduced its volume
guidance for FY11 and FY12 by ~4-5%. Rupee appreciation and
volume growth remain key risks in the long run. At current price
we believe the stock is fairly valued and therefore, recommend a
HOLD with a target price of Rs355 (14xFY12E).
Improved realisations; flat volumes
Realisations increased by 13% to Rs97/kg on YoY basis. Production
was higher at 3,4787MT (vs 28405 in Q3FY10). Sales in volume
terms improved by mere 2% to 30,100MT vs 29,513MT. Sales to
overseas mining industry were healthy at 11,700 MT.
Margins contract
OPM contracted by 540bps to 22.4% mainly due to higher raw
material cost which could not be passed on to the customers
completely. Margins are expected to return to normal levels once
the rise in material cost is passed on completely to customers.
Outlook
The management further reduced its volume guidance to 120k-
125k MT (earlier 125k - 130k MT) for FY11 and to 150k-155k MT for
FY12 (from 160k MT) .Good traction of orders from overseas mining
companies remains a key trigger going forward. Management
has also sighted concerns of increasing competition and higher
working capital going forward.
VALUATIONS AND RECOMMENDATION
We further downgrade our volume estimates for FY12 by 3% and
expect a CAGR of ~21% over FY10-FY12E. However, on account of
higher commodity prices which eventually would be passed on to
the customer, we have increased our estimates for average
realisations by 9% for FY12. Resultantly revenue is expected to
witness a CAGR of 22.5% (FY10-FY12E). Rupee appreciation and
volume growth remain key risks in the long run. At current price we
believe the stock is fairly valued and therefore, recommend a HOLD
with a target price of Rs355 (14xFY12E).
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