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Key Takeaways
A strong footprint in mining segment; Volume ramp up to drive margins
The AIA Engineering (AIAE) management stated that the global mining segment
has a huge untapped addressable market. The cement and mining segments use
traditionally forged grinding media which is now moving towards new technology of
high cast chrome driven by cost efficiency and better product reliability. Currently
the internal mill consumables market in the mining segment is estimated at 2mmt
and the management expects that out of this 1mmt will move from forged grinding
to high cast chrome media in 4-5 years, providing huge growth potential. AIAE and
Magotteaux are two major players in the high cast chrome media. AIAE expects
volumes of 40,000mt by FY12, 60,000mt by FY13 and 80,000mt by FY14.
However due to a location disadvantage, smaller volumes and entry pricing strategy,
margins are under pressure. Mill internals are consumables and uninterrupted supply
is of utmost importance for customers. Setting up warehouses across geographies
remains AIAE's biggest challenge. In the management's view margins in the next
few quarters will face headwinds due to pricing but the management expects margins
to improve as volumes catch up over the next few quarters.
Cement industry maturing, but margins healthy due to customer preference
The cement industry is showing signs of maturity as markets are flattening. Except
for a few pockets, the management sees limited growth opportunity in the sector.
New capacity in North America and Western Europe has saturated demand, which
is being driven mainly by replacement sales. In the domestic market demand from
new projects is good from new projects and strong from the replacement market.
Foray into new product areas, geographies; Promising growth opportunities
AIAE entered the crushing market, which is a promising area of growth. The
management expects the sector to contribute to revenue by 3QFY12.
AIAE entered vertical mill products in China, which is growing significantly. In FY11
the company sold about 2,500mt and in FY12 AIAE expects to meet the target of
5,000mt. The company expects volumes to grow to about 10-20mt over 3-4 years.
Valuation and view
AIAE has nearly tripled its manufacturing capacity over the past three years, from
65,000 tons a year in FY07. Production was stagnant in FY09 and FY10, before
rising 20% YoY. In the current environment of a global slowdown, the growth outlook
is uncertain. Success in the mining sector is critical for AIAE's long-term growth
sustainability. The stock trades at 16x FY12E consensus EPS of INR23. We do not
have a rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
A strong footprint in mining segment; Volume ramp up to drive margins
The AIA Engineering (AIAE) management stated that the global mining segment
has a huge untapped addressable market. The cement and mining segments use
traditionally forged grinding media which is now moving towards new technology of
high cast chrome driven by cost efficiency and better product reliability. Currently
the internal mill consumables market in the mining segment is estimated at 2mmt
and the management expects that out of this 1mmt will move from forged grinding
to high cast chrome media in 4-5 years, providing huge growth potential. AIAE and
Magotteaux are two major players in the high cast chrome media. AIAE expects
volumes of 40,000mt by FY12, 60,000mt by FY13 and 80,000mt by FY14.
However due to a location disadvantage, smaller volumes and entry pricing strategy,
margins are under pressure. Mill internals are consumables and uninterrupted supply
is of utmost importance for customers. Setting up warehouses across geographies
remains AIAE's biggest challenge. In the management's view margins in the next
few quarters will face headwinds due to pricing but the management expects margins
to improve as volumes catch up over the next few quarters.
Cement industry maturing, but margins healthy due to customer preference
The cement industry is showing signs of maturity as markets are flattening. Except
for a few pockets, the management sees limited growth opportunity in the sector.
New capacity in North America and Western Europe has saturated demand, which
is being driven mainly by replacement sales. In the domestic market demand from
new projects is good from new projects and strong from the replacement market.
Foray into new product areas, geographies; Promising growth opportunities
AIAE entered the crushing market, which is a promising area of growth. The
management expects the sector to contribute to revenue by 3QFY12.
AIAE entered vertical mill products in China, which is growing significantly. In FY11
the company sold about 2,500mt and in FY12 AIAE expects to meet the target of
5,000mt. The company expects volumes to grow to about 10-20mt over 3-4 years.
Valuation and view
AIAE has nearly tripled its manufacturing capacity over the past three years, from
65,000 tons a year in FY07. Production was stagnant in FY09 and FY10, before
rising 20% YoY. In the current environment of a global slowdown, the growth outlook
is uncertain. Success in the mining sector is critical for AIAE's long-term growth
sustainability. The stock trades at 16x FY12E consensus EPS of INR23. We do not
have a rating on the stock.
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