AIA Engineering - Healthy execution amidst headwinds - ICICI Securities

AIA Engineering (AIAE) has reported better-than-expected earnings in Q1FY21, supported by mining volumes, which grew 1% YoY and 94% YoY increase in other income, which was largely due to Rs380mn in FX gains. The mill lining facility commencement schedule remains unchanged at Mar'21. Though the new client development has taken a back seat due to travel ban, it is likely to pick up once travel situation normalises. Given medium to long-term growth drivers and continuation of mill liner capex plans, we maintain BUY with an unchanged target price of Rs1,890.

- Uncertainty of global macro growth due to Covid-19 pandemic: The company is still gauging the overall impact of global economies due to the pandemic and will wait to provide any future guidance. We believe the recent increase in Covid-19 cases from Latin American geographies will impact the overall growth. However, most mines are in rural and semi-urban markets.

- Pickup in mining volumes partially compensated for decline in non-mining: Overall volumes declined 16.4% YoY at 53,177MT wherein mining volumes were up 1% YoY at 41,055MT. Non-mining volumes were impacted due to lockdown and declined 47% YoY at 12,122MT. Realisations, which has been a combination of four factors - raw material prices, product mix, currency impact and competitive intensity, declined 5.3% YoY to Rs109,130/MT.

- Mill lining capex plans unchanged, grinding media postponed by a year: Management has earmarked Rs2.5bn worth of capex in FY21E, of which, Rs1.6bn will be for 50ktpa mill liner facility and remaining Rs900mn will be related to maintenance and peripheral capex for plant. Rs300mn of capex has already been done in Q1FY21 and facility commencement schedule remains unchanged at Mar'21. Given Covid-19 related issues, the grinding media capacity addition remains delayed to FY22 from Mar'21 earlier.

- Superior performance in tough environment, maintain BUY: Despite the overall challenging environment, AIAE is continuing with its capex plans to fuel long-term growth. We believe volumes will normalise from FY22E and maintain BUY with an unchanged target price of Rs1,890.

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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