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AIA ENGINEERING LTD. (AIA)
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.340 FY13E P/E: 16.3X
q AIA reported Q3FY12 results in line with estimates on revenue front but
higher on profitability front.
q Margins improved sequentially due to the increase in volume and price
hike in the mining segment that the company has taken in 1HFY12.
Favourable product mix has also benefited the company in the quarter.
q We maintain our 'ACCUMULATE' rating on the company's stock given the
limited upside to our target price of Rs 340.
n The company produced record volumes of 39000 MT of mill internals in Q3FY12,
up 9% on YoY basis. The growth is on account of sale of ~17500 MT of mill
internals for the mining segment.
n The average realizations are up to Rs 97/Kg vis-à-vis Rs 92/kg. This was mainly
affected by the higher raw material prices. Company reported revenues of Rs.3.4
bn, up 14% YoY mainly driven by the exports which contributed 55% of total
revenues.
n The operating margins stood at 20.3% in the quarter vis-à-vis 22.4% last year
and 17.8% in Q2FY12. We highlight that the company has reported improved in
margin after several quarters of reducing trend.
n Margins improved sequentially due to the increase in volume and price hike in
the mining segment that the company has taken in 1HFY12. Favourable product
mix has also benefited the company in the quarter.
n Company has also strategies to offer lower entry price in mining from new client
acquisition perspective in mining segment. This is likely to entail lower realizations
for next three to four quarters
n We highlight that over the past few years, company has achieved incremental
revenue growth from the demand for mill internals from the mining sector. Company
has commendably gained market share in this space through FY08-12.
n In view of the significant growth in the mining segment, company has been looking
for expanding its offerings to various players in commodities like copper,
gold, platinum etc in addition to the iron ore players which currently forms a
major part of company's mill internal sales in mining industry.
n Management has stated that the company has added several clients in the current
year. However since majority of mines are likely to remain under trial runs in
the current year, meaningful business shall flow from FY13 onwards.
n Looking at the growing demand from the African region, company has set up a
30,000 MT capacity warehouse in the current year.
n Company reported EBIDTA at Rs 705 mn up 3% YoY. Raw material and employee
expense increased by by 9.8% and 27% YoY respectively. Company's
order book stands at Rs 4.79 bn at the end of the quarter.
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 502 mn for the quarter.
Looking to set up additional 1 lakh MT capacity
n Considering the pick up in demand for high chrome mill internals form the mining
segment, company has decided to ramp up its capacity to 3 lakh tonne by
FY13.
n It would entail a capex of Rs.2.8 bn through 3QFY13 adding 1 Lkh tonne of incremental
capacity for the company. 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.
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 our projections, we build 9% growth in revenues for FY12 driven by the mining
segment. We highlight that the company has taken certain pricing measures
in last two quarters which is likely to get reflected through FY13E.
n Company has been witnessing a rising trend in the ferro chrome prices in the last
few quarters. This has exerted pressure on company's operating margin.
n At current price, company's stock is trading at 16.3x P/E and 10x EV/EBITDA on
FY13E earnings
n In view of the limited upside from current levels to our DCF based price target of
Rs 340 we maintain 'ACCUMULATE' rating on the company's stock.
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.340 FY13E P/E: 16.3X
q AIA reported Q3FY12 results in line with estimates on revenue front but
higher on profitability front.
q Margins improved sequentially due to the increase in volume and price
hike in the mining segment that the company has taken in 1HFY12.
Favourable product mix has also benefited the company in the quarter.
q We maintain our 'ACCUMULATE' rating on the company's stock given the
limited upside to our target price of Rs 340.
n The company produced record volumes of 39000 MT of mill internals in Q3FY12,
up 9% on YoY basis. The growth is on account of sale of ~17500 MT of mill
internals for the mining segment.
n The average realizations are up to Rs 97/Kg vis-à-vis Rs 92/kg. This was mainly
affected by the higher raw material prices. Company reported revenues of Rs.3.4
bn, up 14% YoY mainly driven by the exports which contributed 55% of total
revenues.
n The operating margins stood at 20.3% in the quarter vis-à-vis 22.4% last year
and 17.8% in Q2FY12. We highlight that the company has reported improved in
margin after several quarters of reducing trend.
n Margins improved sequentially due to the increase in volume and price hike in
the mining segment that the company has taken in 1HFY12. Favourable product
mix has also benefited the company in the quarter.
n Company has also strategies to offer lower entry price in mining from new client
acquisition perspective in mining segment. This is likely to entail lower realizations
for next three to four quarters
n We highlight that over the past few years, company has achieved incremental
revenue growth from the demand for mill internals from the mining sector. Company
has commendably gained market share in this space through FY08-12.
n In view of the significant growth in the mining segment, company has been looking
for expanding its offerings to various players in commodities like copper,
gold, platinum etc in addition to the iron ore players which currently forms a
major part of company's mill internal sales in mining industry.
n Management has stated that the company has added several clients in the current
year. However since majority of mines are likely to remain under trial runs in
the current year, meaningful business shall flow from FY13 onwards.
n Looking at the growing demand from the African region, company has set up a
30,000 MT capacity warehouse in the current year.
n Company reported EBIDTA at Rs 705 mn up 3% YoY. Raw material and employee
expense increased by by 9.8% and 27% YoY respectively. Company's
order book stands at Rs 4.79 bn at the end of the quarter.
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 502 mn for the quarter.
Looking to set up additional 1 lakh MT capacity
n Considering the pick up in demand for high chrome mill internals form the mining
segment, company has decided to ramp up its capacity to 3 lakh tonne by
FY13.
n It would entail a capex of Rs.2.8 bn through 3QFY13 adding 1 Lkh tonne of incremental
capacity for the company. 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.
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 our projections, we build 9% growth in revenues for FY12 driven by the mining
segment. We highlight that the company has taken certain pricing measures
in last two quarters which is likely to get reflected through FY13E.
n Company has been witnessing a rising trend in the ferro chrome prices in the last
few quarters. This has exerted pressure on company's operating margin.
n At current price, company's stock is trading at 16.3x P/E and 10x EV/EBITDA on
FY13E earnings
n In view of the limited upside from current levels to our DCF based price target of
Rs 340 we maintain 'ACCUMULATE' rating on the company's stock.
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