AIA Engineering - Q1FY21 - YES Securities

AIA Engineering (Q1FY21) - BUY (Target Rs1948, Upside 22%)

AIA reported promising set of result as Sales/EBITDA/PAT came in 17%/41%/110% ahead of our estimates. Net sales were down 21% yoy owing to 47% yoy drop in non-mining volumes & 6% fall in realizations which were function of unfavorable mix & decline in ferrochrome prices. Adjusted EBITDA margin (incl. FX gain of Rs380mn) was at 27.8%, up 290bps yoy due to favorable currency movements. Net cash position improved by Rs3bn qoq to Rs17.5bn due to improvement in working capital from Rs12bn to Rs9.7bn. Mgmt. is aiming for flat volume growth in the rest of 9MFY21.

We increase our FY21 earning estimate by 6% to factor in, i) Increase in volumes by 3% to 247k MT, ii) Realization cut of 2% & iii) Higher other income due to forex gain. We retain FY22 volume estimates at 296k MT assuming i) Increase in annual grinding media volumes by 20-25k MT on a normalized base of FY20, ii) 10k MT contribution from mill lining solutions. Though AIAE's client addition has largely skewed towards Gold & Copper segments during last 2-3 years, management continues to remain bullish on prospects of, i) Gold mining due to recent rally, ii) Copper mining due to electronics, smart products & digitalization, should aid in incremental mineral volume demand. We believe AIAE is better poised for long term growth with a successful diversification move to address product adjacencies through value added offerings like EEMS product solutions with increased throughput & power saving benefits for customers. We are building in ~70bps margin expansion over FY20-22 led by benefits of INR depreciation (~75% exports), launch of value added mill lining solutions & operating leverage play. We remain optimistic on the business prospects with strong adjusted ROE (ex-cash) of 28%, healthy FCF generation, prudent capital allocation & strong balance sheet. Retain 'BUY' with TP of Rs1948 at 28x FY22 EPS.

Shares of AIA ENGINEERING LTD. was last trading in BSE at Rs.1607 as compared to the previous close of Rs. 1660.1. The total number of shares traded during the day was 5456 in over 1557 trades.

The stock hit an intraday high of Rs. 1698.45 and intraday low of 1588. The net turnover during the day was Rs. 8954313.

Source : Equity Bulls

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