Sell AIA Engineering - PINC Result Review

AIA Engineering's (AIA) Q2FY11 results were below our expectations. Revenues grew by 16% YoY to Rs2.54bn against our estimate of Rs2.9bn. Fall in margins and realisation on YoY basis adversely affected the bottomline, which merely grew by 7% to Rs450mn. Rupee appreciation and volume growth remain a key risk in the long run. We believe current valuations are stretched beyond fair value. Hence, we downgrade the stock to Sell with a target price of Rs355 (14x FY12E).

VALUATIONS AND RECOMMENDATION

We expect the company to witness a volume CAGR of ~23% over FY10-FY12E. Sales are expected to witness a CAGR of 20% (FY10-FY12E). Though opportunity remains big, rupee appreciation is a key risk in the long term as the company expects majority of its revenues from overseas markets. Rising rupee will narrow down the price differential between company products and the conventional forged media currently been used by the mining companies overseas. This might prevent them to shift towards AIA's products which inturn would impact the margins adversely. Considering the above facts we believe that current valuations are stretched beyond fair value. Hence, we downgrade the stock to 'SELL' with a target price of Rs355. (14x FY12E).

Source : Equity Bulls

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