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IDFC Securities
AIA Engineering (Ourperformer)
CMP: ₹934.40
Target: ₹1,060
We expect a 21 per cent volume CAGR for AIA Engineering AIA over FY14-17E led by 33 per cent volume CAGR for its mining segment. Growth in mining is being led by clients shifting from forged to high chrome grinding media given cost advantages, better corrosive strength and higher efficiency. The addressable market of chrome grinding media for mining is estimated at around 15 lakh tonnes (AIA’s FY14 mining volume — 96,000 tonnes), which will ensure sustainable growth for AIA in the medium-term. We expect AIA to continue making inroads into grinding media for mining, aided by its ‘total solutions’ approach and cost-effective products. Margins are likely to be in the range of 22-23 per cent due to improvement in product mix and fewer free trials and discounts. However, we estimate a 150 bp margin decline to 22.5 per cent over FY14-16E due to ramp up in capacity utilisation. Valuations of 19.7x FY16E earnings appear attractive given the oligopolistic nature of the industry and AIA’s long-term growth potential (16 per cent earnings CAGR over FY14-17E).
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