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AIA ENGINEERING LTD. (AIA)
PRICE: RS.301 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.340 FY13E P/E: 15.9X
q AIA reported Q2FY12 results in line with estimates on revenue front but
lower on profitability front.
q Margin pressure exists due to increasing input prices; currently company
is finding difficulty in passing on these increases to the end user
q We tweak FY12 margins estimates; maintain our 'Accumulate' rating on
the stock given the limited upside to our target price of Rs 340 (Rs 355
earlier).
n The company produced record volumes of 37500 MT of mill internals in Q2FY12,
up 9% on YoY basis. The growth is on account of sale of ~17800 MT of mill
internals for the mining segment.
n The average realizations are lower to Rs 91.5/Kg vis-à-vis Rs 96/kg. This was
mainly affected by the higher raw material prices.
n Company reported revenues of Rs.3.4 bn, up 32% YoY mainly driven by the
exports which contributed 55% of total revenues.
n The operating margins stood at 17.8% in the quarter vis-à-vis 24.1% last year.
The drop in margins is attributed to 1) Company has been witnessing rising trend
in its key raw material i.e. Ferro chrome which it has been failing to pass on to
its customers and 2) majority of grinding media sales has concentrated in the
quarter.
n Company has also strategies to offer lower entry price in mining from new client
acquisition perspective.
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 FY08-11.
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 is likely to add several clients in
FY12. 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 quarter.
n Company reported EBIDTA at Rs 612 mn down 2% YoY. Raw material and
employee expense are up by 16% and 34% YoY respectively. Company's order
book stands at Rs 4 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 384 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 the company has decided to set up additional 1 lakh MT capacity
around Ahmedabad.
n 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.
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 2HYFY12E.
n Company has been witnessing a rising trend in the ferro chrome prices in the last
few quarters. This has negatively affected the overall operating margins of the
company.
n We believe that company would continue to experience margin pressure over
FY12 and 1HFY13E due to increase in input prices and increase in marketing and
sales expenses.
n At current price, company's stock is trading at 15.9x P/E and 9.8x EV/EBITDA on
FY13E earnings
n We tweak earning estimates for FY12 and in view of the limited upside from
current levels to our DCF based price target of Rs 340 (Rs 355 earlier) 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)
PRICE: RS.301 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.340 FY13E P/E: 15.9X
q AIA reported Q2FY12 results in line with estimates on revenue front but
lower on profitability front.
q Margin pressure exists due to increasing input prices; currently company
is finding difficulty in passing on these increases to the end user
q We tweak FY12 margins estimates; maintain our 'Accumulate' rating on
the stock given the limited upside to our target price of Rs 340 (Rs 355
earlier).
n The company produced record volumes of 37500 MT of mill internals in Q2FY12,
up 9% on YoY basis. The growth is on account of sale of ~17800 MT of mill
internals for the mining segment.
n The average realizations are lower to Rs 91.5/Kg vis-à-vis Rs 96/kg. This was
mainly affected by the higher raw material prices.
n Company reported revenues of Rs.3.4 bn, up 32% YoY mainly driven by the
exports which contributed 55% of total revenues.
n The operating margins stood at 17.8% in the quarter vis-à-vis 24.1% last year.
The drop in margins is attributed to 1) Company has been witnessing rising trend
in its key raw material i.e. Ferro chrome which it has been failing to pass on to
its customers and 2) majority of grinding media sales has concentrated in the
quarter.
n Company has also strategies to offer lower entry price in mining from new client
acquisition perspective.
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 FY08-11.
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 is likely to add several clients in
FY12. 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 quarter.
n Company reported EBIDTA at Rs 612 mn down 2% YoY. Raw material and
employee expense are up by 16% and 34% YoY respectively. Company's order
book stands at Rs 4 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 384 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 the company has decided to set up additional 1 lakh MT capacity
around Ahmedabad.
n 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.
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 2HYFY12E.
n Company has been witnessing a rising trend in the ferro chrome prices in the last
few quarters. This has negatively affected the overall operating margins of the
company.
n We believe that company would continue to experience margin pressure over
FY12 and 1HFY13E due to increase in input prices and increase in marketing and
sales expenses.
n At current price, company's stock is trading at 15.9x P/E and 9.8x EV/EBITDA on
FY13E earnings
n We tweak earning estimates for FY12 and in view of the limited upside from
current levels to our DCF based price target of Rs 340 (Rs 355 earlier) we maintain
'ACCUMULATE' rating on the company's stock.
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