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Anand Rathi
AIA Engineering (Buy)
CMP: ₹1,800
Target: ₹2,218
Key takeaways: a) AIA Engineering has deepened its penetration and brand recall over the last five years due to technological advancement and better servicing than peers. At present, there is a clear demarcation of market exposure with AIA Engineering’s greater concentration on mining juniors (miners with two or three mining operations in remote locations). Forthcoming prospects are likely to provide healthy demand growth for AIAE. Mining liners are also likely to offer strong prospects in coming years.
b) Higher entry barriers and technological superiority make the grinding media market less vulnerable to competitive pressure. Price pass-throughs are easy, but only once or twice in a year to avoid volatility. This strengthens our expectation of profitability improving from ₹28 a kg to about ₹32 due to commodity cost pass-through in the next two years.
Valuations: Volume growth and margin expansion would lead to a healthy, 15 per cent, revenue CAGR over FY18-21. With traction from developing countries and expansion by major miners, growth prospects seem appealing. Increasing low-grade, higher-volume ores can further increase growth prospects by 1-1.5 lakh ,00,000-1,50,000 tonnes. We expect a 21 per cent earnings CAGR over FY18-21.
Risks: Volatile currency movements, raw-material prices.
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