Higher offtake led to strong Q4 sales growth to 80,033 tons. Customers added over the last 2-3 years would lead to further growth in the coming years.
On FY19 sales touching 265,174 tonne, AIA has achieved its guided volumes of 35,000 tpa. We believe that with customers added, it will achieve its FY20 and FY21 volume guidance as well. Input cost pass through and operating leverage will lead to higher margins in the next three years. Hence, we believe that EBITDA/kg is likely to rise to Rs 28 by FY21. Thus, we retain our Buy, with a target price of Rs 2,153 (27x FY21e earnings), earlier Rs 2,218. Higher offtake led to strong Q4 sales growth to 80,033 tons. Customers added over the last 2-3 years would lead to further growth in the coming years. Also, technical collaboration with EE Mill Solutions would lead to additional sales of 5,000 tons from Q2 FY20 and a further 10,000-15,000 tons by FY21/22. Management has guided about an additional 35,000-40,000 tons in FY20. However, we have considered 30,000 tons in FY20, and 20,000 in FY21.
AIA is focusing on widening its market through adding customers by offering discounts in the first year. Greater efficiency and lower consumption of grinding media would help it roll back discounts from the second year onwards. Hence, we believe that it will reach its long-term average EBITDA/kg of $400 by FY21 (now $300) through input costs passed through and repeat orders from new customers. Its expanded capacity in the margin-accretive mining liners would also add to its profitability. With traction coming from mining customers added, we expect sales of 300,000 tonne by FY20. With capex plans on track, an additional 50,000 tonne will be commissioned in Jun’20, the remaining 50,000 tonne by Dec’20. Working capital would continue at current levels due to higher inventory required. With strong sales volume growth and improving profitability, prospects are promising. We expect 21% earnings CAGR over FY19-21. Risks: Volatile currency movements, raw-material prices.
Management spoke of an additional 35,000-40,000 tonne in FY20. Currency fluctuation and the change in the product mix led to margins declining. Realisations, though, did not shrink. Management said it was more focused on deeper penetration than higher margins.