Anand Rathi
AIA Engineering (Buy)
CMP: ₹1,800
Target: ₹2,218
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.