AIA Engineering (AIAE IN, INR 364, Hold)
In the conference call organized by AIA Engineering (AIA) to discuss Q4FY12 results, management has guided for FY13 volume of ~160k MT-170K MT, with the mining segment touching 80k MT. However, we believe margin pressure will continue due to the company’s aggressive pricing policy to gain foothold in the mining segment. The company reported a top line of INR4.5bn with total volume of 40K MT and average realisation of INR101.6 KG in Q4FY12. Overall, in FY12 the company registered total volume of 142K MT, 13% YoY growth (management guidance 140K MT), with average realization of INR94.8 per KG. Growth was primarily driven by the mining segment. We maintain ‘HOLD’.
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Volume robust, but margin under pressure
AIA reported total volume of 142k MT in FY12, up 13% YoY, with average realization of INR94.8 per KG. In Q4FY12, the company sold 40k MT with average realization a tad higher at INR101.6 per KG aided by depreciating rupee. Overall volume growth was driven by the mining segment, which touched 64k MT compared to 7K MT in FY09 (45% of total volume compared to 7% in FY09). Management expects FY13 volume to hover around 160k-170k MT, with mining segment’s volume touching 80K MT. However, the company disappointed on EBDITA with FY12 margin at 19.3% (22.2% in FY11). We believe margin will remain under pressure for a few more quarters due to sluggish demand in cement and AIA’s aggressive pricing policy in the mining segment.
Capex on track
Management has guided that the INR2,800mn capex is on track. The company has already completed capex of INR1,060mn in FY12 and expects the balance to be spent over the next two years for brown field/green field projects. With this, AIA’s capacity will be enhanced 50% to 300k MT by FY14 end.
Outlook and valuations: Fairly valued; maintain ‘HOLD’
Though we like AIA’s niche business model, we believe the company continues to face pressure due to its aggressive pricing policy in the mining segment, forex hedging of receivables (to impact two-three more quarters) and USD-based discounts (due to USD strengthening against most currencies). At 17.2x FY13E and 14.9x FY14E, we maintain ‘HOLD/Sector Underperformer’.
Regards,
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