Hold AIA Engineering - PINC Result Review

AIA Engineering's (AIA) results were below our expectations. The revenue increased marginally by 7% YoY to Rs.2.42bn mainly on account of lower realizations and slower off take from the cement industry. OPM declined by 425bps to 22.7% due to higher raw material cost and lower realization. Consequently, Net profits increased by 2% to Rs.400mn. Export constitute 63% of total revenue witnessing a growth of 28% (YoY basis).

VALUATIONS AND RECOMMENDATION

We expect the company to witness a volume CAGR of ~23% in FY10-FY12E. Sales are expected to witness a CAGR of 20% (FY10-FY12E). Historically, company has demonstrated its ability to pass on the hike in raw material prices (but with a lag effect). Therefore, margins are expected to remain stable going forward. Though we remain positive on the long term prospects of the company but at this point, we believe that the rich valuations do not justify further upside. Hence, we maintain our 'HOLD' recommendation with a revised target price of Rs.355 (14xFY12E).

Source : Equity Bulls

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