Buy AIA Engineering - GEPL Capital

Capacity Expansion: Set to double it's capacity by FY16

AIAE has raised capacity from 65,000 MT in FY05 to 2,00,000 MT in FY13 and aims to reach to 4,40,000 MT by FY16, as the company is set to add 1,80,000 MT in JIDC Gujarat, which would be catering to the mining segment. Out of this additional capacity ~50000 MT would be liner capacity & rest would be grinding media. Once the company achieves the capacity of 4,40,000 MT it will become the largest player globally. Also, the total greenfield capacity would be fully operational by Dec 2016 . Key international clients for AIAE are global cement companies such as Cemex, Holcim, and Heidelberg.

Mining segment expected to grow further

The mining segment is seeing a strong growth in demand for AIAE's products. Mining sales have risen ~30% in FY13 in volume terms while overall volumes have risen by 8%. Within the mining segment. AIAE will focus more on gold & copper mines as they see robust opportunity with companies switching from forged media to high chrome mill internals. The company further expects to increase it's market share from existing as well as new customers. It has made it's headway with few of the largest mining companies across the globe including Anglo Platinum, Rio Tinto, Vale, Arcelor Mittal, and BHP Billiton.

Strong player with sustainable demand

The company is known as the second largest Hi-Chrome casting producer in the world, hence it is one of the largest suppliers of hi chrome & grinding media. Grinding media is used as consumables in crushing & grinding of mineral ores, grinding of cement clinker & other crushing operations. Usage of large mining companies suggests that grinding media suppliers have a continued involvement at customer sites to maintain consistent quality of supplies & to ensure that there are no further shutdowns due to non availability of grinding media.

Valuation

At CMP of Rs. 483 the stock is trading at 14.2x & 11.02x it's FY15E & FY16E EPS which we believe is attractive. We attach an exit P/E multiple of 12x it's FY16E EPS of Rs. 44 per share. Based on our valuation we arrive at the target price of Rs. 543 with a BUY rating & a potential upside of 12%.

Source : Equity Bulls

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