Analyst Corner: Valuations of AIA Engineering will remain rich – IDFC Securities

By: |
February 12, 2019 2:27 AM

The production is based on orders received from the customers and hence management is confident that sales despatches would pick up over the next 2-3 quarters, driving an uptick in sales and normalised inventories.

Valuations of AIA Engineering will remain rich – IDFC Securities

Production for 3Q19 and 9M19 is higher than sales by 15k/32k (vs historical trends of 2-5k) as there have been delays in offtake by customers. The production is based on orders received from the customers and hence management is confident that sales despatches would pick up over the next 2-3 quarters, driving an uptick in sales and normalised inventories. (1) AIAE has cut its FY19 incremental volume guidance to 20-25 kilo tonnes (from 40-50) due to customer delays in volume offtake. However, it maintains volume guidance of incremental 40-50 kilo tonnes each year led by market share gains in the mining segment (2) Vale’s production cut of 40-50 mtpa unlikely to have an impact as AIA has not yet seen any slowdown; we note that Vale contributes to 6% of FY19E volumes (3) EEMS collaboration continues to yield gains and AIA expects to deliver its first order for a gold mine in Q121. (4) FY19/20E capex of `230 crore/`500 crore for expansion to 490 kilo tonnes (Rs 156 crore YTD capex) (5) 4 Wind Mills (2.1 MW each) installed at Rs 52 crore, while balance 4 have been ordered and will lower power costs in FY21 (6) Capacity expansion: 50k in 4Q19, another 50k & 50k mining liner by 1Q21.

Read Also| In Asia’s high-yield bond battle, Indonesia set to gain upper hand over India once again

AIA has seen market-share gains in 3 mt grinding media business in mining with its ‘total solutions’ approach. The EEMS collaboration is likely to strengthen AIA’s competitive strength and value proposition further and drive faster conversion in mining segment. While near-term volumes are being impacted by slower offtake, we believe the strong value proposition will continue to drive volumes. Accordingly, we estimate 14% volume CAGR would translate into 17% earnings CAGR over FY18-FY20E as margins to see 140 bps expansion to 23.3% on enhanced pricing & cost efficiencies. We believe valuations will remain rich at 26.5x FY20E earnings, considering the long-term structural growth drivers (likely upside on volumes, margins) & oligopolistic nature of the industry.

Outperformer. Management reduced its volume guidance of incremental volumes in FY19 from 40-50K to 20-25K due to delays in pickup of volumes from customer end.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Indigo Paints grey market premium surges over 50% ahead of IPO; should you subscribe?
2Reliance Industries share price down 17% since September; is it attractive enough to buy now?
3Home First Finance IPO: 3rd IPO of 2021 opens Jan 21; check issue price, grey market premium, other details