AIA Engineering - Research Reports

AIA Engineering - BUY

Ø AIA, 2nd largest high chrome mill internals player in the world after Magotteaux International, Belgium, has put up commendable performance for Q4 FY 2008. Consolidated Net Sales grew @ 33.4% to Rs. 203.60 crore.

OPM% improved considerably to 23.6% (20.6%) mainly because of sharp reduction in other expenditures to 26.5% (40.5%) of sales nullifying substantial increase in material cost to 46.4% (36.2%) of sales. Further aided by 184.8% jump in other income of Rs. 13.69 crore, PBT shot up by 70.6% to Rs. 56.81 crore and PAT (after minority interest) zoomed by 89.8% to Rs. 44.08 crore.

Ø For FY 2008, net sales grew @ 32.1% to Rs.691.18 crore led by 28.4% volume growth and 2.9% value growth.

OPM% declined slightly to 23.7% since material cost shot up to 47% (42.6%) of sales. Nevertheless, better product mix with improved focus on value added high chrome mill internals and increased production volumes resulted into better operational efficiencies, almost negating impact of sharp rise in material cost. Further aided by 93.2% jump in other income of Rs. 31.65 crore, PBT rose by 38.5% to Rs. 180.23 crore and PAT after minority interest spurted up by 41.3% to Rs. 133.27 crore.

Ø AIA manufacturers mill internals in high chrome metallurgy. These products find application in crushing and grinding operations in cement (61% of sales), utilities (30% of sales), and mining (9% of turnover) plants, where they are used to crush/grind clinker, coal and mineral ore, espectively. High chrome metallurgy offers lower wear rate than the conventionally used parts of manganese steel, nihard iron, hyper steel, and forgings. The company offers complete solutions in grinding to optimise the productivity of grinding mills.

Ø Demand for AIA’s products is likely to be driven by switch in user industries’ preference towards high chrome mill internals against conventional forged one. Higher productivity, greater control over grinding process, lower power consumption and lower wear rates give high-chrome mills an edge over the conventional ones. Higher replacement and projected demand from user industries, given their capex plans, also point to strong demand.

Moreover, since nearly 70 per cent of the company’s business comes from replacement demand, revenues are also protected to some extent from a sharp downturn during a slowdown in the capital spending cycle.

Ø Company has significantly expanded capacity to keep up with the increasing demand scenario. Company has completed Phase I augmenting capacity to 167,000 tpa (115,000 tpa). Additional 100,000 tpa (in 2 SEZs in Ahmedabad) will be set up over next 12-15 months, taking total capacity to 267,000 tpa by end of CY 2009.

Ø Company is betting big on mining sector overseas. AIA is in active discussion with mining companies in Brazil, Africa, Australia, etc. It is set to commence regular supplies from Q3 FY 2009.

Ø AIA plans to enter into stone quarrying equipment market. It will be highly value added venture and company will mainly focus on stone crushing industry in Europe and North America. Initially, it aims to set to a small plant of 5,000 tpa capacity @ capex of Rs. 25 crore.

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