Broker's call

CD Equisearch

AIA Engg (Reduce)

CMP: ₹883.90

Target: ₹770

AIA Engineering reported 14 per cent fall in net sales (42,000 tonnes of quantity) in Q2FY16. Mining volumes were almost at par with Q1FY16 at about 23,000 tonnes (22,000 tonnes in the first quarter of FY16). The industry by and large is at a very difficult stage due to meltdown in commodity prices and as a result its customers, who are the mining companies, are going through their own internal adjustments to reconcile with a reality of a lower price regime.

From a strategic positioning perspective, a significant contribution in company’s growth is expected to come from the mining industry. However, as the company is focused on four major ores, the declining fortunes of one particular commodity do not significantly impact its growth prospects. During the last few years, it has steadily increased presence in the major mining groups across the globe with a stronger focus on major mining centres such as Australia, Africa, North America and Far East Asia. Due to recent correction in commodity prices and the recent slowdown in company’s sales volume we are lowering our current year’s earnings estimates by 6.7 per cent. Yet we expect that the company can do better in FY17 due large presence in global markets — 72 per cent of the sales come from the international markets. Considering dismal outlook of the mining industry and tepid earning growth in the next year, we recommend a reduce rating on the stock with a target price of ₹770 based on 16xFY17e earning estimates, over a period of 6-9 months.

COMMENT NOW