AIA Engineering - Strong underlying fundamentals - ICICI Securities

AIA Engineering (AIAE) is one of the few domestic companies that recouped quickly with relaxation of the Covid-induced lockdown. Global mining market leadership in high-chrome mill internals has been a key focus area for the company. To tap into the price competitive iron ore market, the company is embarking on transformation as a total mill solutions provider with mill lining capability. Factoring-in the capping of export incentives under MEIS at Rs20mn for Q3FY21, we cut FY21E earnings marginally by 0.2%, however, expecting healthy growth recovery, we raise FY22E earnings by 8%. Given the medium to long-term growth drivers and continuation of mill liner capex plans despite the Covid-related slowdown, we maintain BUY on the stock with a revised target price of Rs2,043 (previously: Rs1,890).

- Uncertainty of global growth due to Covid pandemic: Company is still gauging the overall impact of pandemic on global economies and will wait to provide any future guidance. We believe the recent increase in Covid cases in Latin America, wildfire in Amazon, etc. will impact near-term demand. However, we expect demand to stabilise by FY22E.

- Mill lining capex plans unchanged; grinding media postponed by a year: Company has earmarked capex of Rs2.5bn for FY21, of which Rs1.6bn will be for 50ktpa mill liner facility and remaining Rs900mn will be for maintenance and peripheral works for the plant. Rs300mn of capex has been done in Q1FY21 and Rs600mn during FY20 for the same purpose (deadline remains unchanged at Mar'21). Due to weak near-term demand, grinding media capacity addition has been deferred to FY22 from Mar'21 earlier.

- Pickup in mining volumes partially offset decline in non-mining business: In FY20, overall volumes grew 0.8% YoY to 267,229te wherein mining volumes were up 4% YoY at 177,274MT. Non-mining volumes were impacted due to lockdown and declined 5.3% YoY at 89,955MT. Realisations, which are a combination of four factors - raw material prices, product mix, currency impact and competitive intensity - declined 3.3% YoY to Rs108,200/MT.

- 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. Maintain BUY with a revised target price of Rs2,043 (previously: Rs1,890).

Shares of AIA ENGINEERING LTD. was last trading in BSE at Rs.1744.05 as compared to the previous close of Rs. 1736.35. The total number of shares traded during the day was 209 in over 96 trades.

The stock hit an intraday high of Rs. 1764.75 and intraday low of 1701. The net turnover during the day was Rs. 365609.

Source : Equity Bulls

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