FY21/22 EPS up 12.3/11.8% given results and recovery in output; TP raised to Rs 1,890
AIA Engineering (AIAE) has reported healthy execution in Q4FY20, supporting the overall earnings and cashflows. Operations have reached ~75% of pre-Covid-19 levels and the management is confident regarding normalisation of demand. Though new client development has taken a back seat due to the travel ban, it is likely to pick up once the situation normalises.
Factoring in better-than-expected execution and relatively quicker recovery in production, we raise FY21e and FY22e earnings by 12.3% and 11.8%, respectively. Given the medium to long-term growth drivers and continuation of mill liner capex plans, we maintain Buy with a revised TP of Rs 1,890 (previously: Rs 1,521).
Uncertainty of global macro growth: The company is still gauging the overall impact on economies due to Covid-19 and will wait to provide any future guidance.
Has taken price cuts in line with raw material price reduction: FeCr prices have stabilised at lower levels since Mar’19. The company has adjusted its pricing to it, leading to lower gross margins. As it has hedged 60% of receipts at INR/USD of 73, currency depreciation resulted in marginal forex-related loss in Q4FY20.
Superior performance in tough environment: Despite the challenging environment, AIAE is continuing with its capex plans to fuel long-term growth, earmarking Rs 2.5 bn for FY21e. We believe volumes will normalise from FY22e.