AIA Engineering Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Engineering - Industrial Equipments

Company

AIA Engineering Ltd

Reco Price
Rs. 1438.00
Price Target (1 Years)
Rs. 1726.00
Upside
20.03%

Date

February 15, 2017
Sensex
28155.56
CNX Nifty
8724.70

Exchange

Code

NSE
AIAENG
BSE
532683

Shift from forged media to HCMI backed by expansion are the drivers of the future growth for the company.

Forged media moving towards HCMI:
Current global consumption of High Chrome Mill Internals (HCMI), which is equally utilized in the cement and the mining space, is ~0.6 Million Tonnes Per Annum (MTPA). With an almost 80% penetration for HCMI in cement space, the mining segment provides next leg up for HCMI players. It is estimated that at least 1.2 MTPA mining segment volumes for mill internals is set to be converted from forged media into HCMI, going ahead. Hence, we believe that this will create an opportunity which will be 4x of that of the current HCMI consumption of 0.3 MTPA for players in mining. With significant cost savings achieved (~30-40%) through lower wear rate, increased productivity & lower power consumption, HCMIs are making inroads into the mining sector. Hence, scalable opportunity in the mining segment, resurrection of operating margins to historical levels and aspirations to become the largest player globally makes AIA Engineering Ltd. (AIA) an interesting play in the oligopolistic HCMI industry. Mining sector end-users are increasingly opting for conversion to high-chrome grinding capacities, given that these offer less than half the wear rate of forged capacities and also consume fewer inputs, leading to cost savings.

Aggressive capex plans:
Currently, AIA’s total capacity is 0.26 MTPA, which was effective after the commencement of Moraiya Brownfield Expansion in FY15. However, the company has planned on adding another 0.18 MTPA (Greenfield) to take the total tally to 0.44 MTPA, by commissioning the GIDC Kerala project and augmenting the capacity in its Trichy facility. The capex plan which is based for Trichy and GIDC Kerala, is set to take place in two phases:

Phase 1: Commissioned in Q3FY16 and comprised around 45% of total incremental capacity, and resulted in capex of Rs. 178 crores.

Phase 2: Commissioned in FY17 and resulted in capex of Rs. 350 crores, out of which Rs. 164 crores was set to flow in FY17 and the remaining Rs. 186 crores in FY18.

AIA Engineering earns a relatively higher EBITDA/Tonne:
Compared to its largest global peer, AIA shows better operating metrics. Despite lower blended realizations, over the past four quarters, the company earned a higher EBITDA/Tonne than most companies in its space, primarily due to a leaner cost structure. AIA’s derived annual operating Cost/Tonne (total revenue less reported EBITDA) is 15-22% lower than its largest competitor, while its EBITDA/Tonne is 140% higher. Furthermore, the company is debt free and is therefore under no compulsion to sell products at a steep discount in order to service debt.

Stock Data

CMP (Rs)
1450.55
Face value (Rs)
2
52 Week Range (Rs)
1442.00 - 701.90
Market cap (Rs Crores)
13669.85
Price To Book Value (x)
5.15
P/E Ratio (x)
28.78
EV/EBIDTA (x)
18.38

One Year indexed Stock Performance

AIA Engineering LtdSensex
AIA Engineering Ltd
Return (%)
1m
6m
12m
36m
Absolute
7.18
19.27
97.69
161.60
Sensex
3.18
0.32
19.54
37.59

Shareholders

(in %)
31-Dec
Promoter
61.65
Public
38.35
Others
0.00
Total
100

+91 22 6639 3000
research@stockaxis.com

 

Industry

The global HCMI industry has a total capacity of 0.6 MTPA and is dominated by two players i.e. Magotteaux (Belgium) and AIA (India) with combined capacity of above 0.5 MTPA, thereby virtually making it a duopoly/oligopolistic market. However, post AIA Engineering’s expansion, it would be the dominant player in world in terms of capacity. Although, mill internals form just 1.5-2% of the production costs in cement and around 10% in mining, the criticality of internals is very high since product failure could result in hampering production.

Profile

AIA Engineering Ltd. (AIA) was incorporated as Magotteaux (India) Pvt Ltd. in 1991 as a JV with Magotteaux International S.A., Belgium. With multiple restructurings, the company was renamed as AIA Engineering Ltd. in 2005. AIA also had a technical collaboration with Southwestern Corporation (SWC), USA. The company manufactures impact abrasion and wear resistant high-chrome mill internal products and specializes in designing, developing, manufacturing, installation and servicing of high chromium wear, corrosion and abrasion resistant castings. The company caters to the replacement as well as new demand from the above industries. Mining majors like Rio Tinto, BHP Billiton are among the clients for AIA. AIA’s plants are located in Ahmedabad and Nagpur with capacity of close to 2.6 Lakh Tonnes/Annually as on FY16.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Share of Associates
  • Consolidated Net Profit
  • Adjusted EPS
  • 2080.08
  • 18.77%
  • 1574.61
  • 505.47
  • 24.30%
  • 33.41
  • 538.88
  • 9.69
  • 529.19
  • 38.14
  • 491.05
  • -31.11
  • 134.22
  • 325.72
  • -0.75
  • 324.97
  • 34.45
  • 2183.64
  • 4.98%
  • 1596.48
  • 587.16
  • 26.89%
  • 84.49
  • 671.65
  • 7.56
  • 664.09
  • 69.75
  • 594.34
  • 0
  • 163.41
  • 430.93
  • 0.01
  • 430.94
  • 45.68
  • 2098.39
  • -3.90%
  • 1483.62
  • 614.77
  • 29.30%
  • 59.13
  • 673.9
  • 8.29
  • 665.61
  • 66.99
  • 598.62
  • 0
  • 174.5
  • 424.12
  • 0.09
  • 424.21
  • 44.97
  • 2203.31
  • 5.00%
  • 1544.52
  • 658.79
  • 29.90%
  • 71
  • 729.79
  • 8.29
  • 721.50
  • 91.3
  • 630.20
  • 0
  • 182.76
  • 447.44
  • 0.05
  • 447.49
  • 47.44
  • 2533.81
  • 15%
  • 1773.66
  • 760.14
  • 30.00%
  • 95.8
  • 855.94
  • 8.29
  • 847.65
  • 103
  • 744.65
  • 0
  • 223.40
  • 521.26
  • 0.05
  • 521.31
  • 55.26
Source: Stockaxis Research, Company Data

Valuation

AIA engineering Ltd has a strong business model, with a 25% of global market share and an additional demand from mining sector. This is set to boost the topline growth. At a CMP of Rs. 1438, the stock is trading at a multiple of 26x FY18E. With a de-leveraged balance sheet and an additional capacity coming on stream in FY18, the stock is attractively valued and with target price of Rs. 1726.

 

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