Largest high-chrome casting producer:
AIAE is the second largest high-chrome casting producer (by capacity) in the world. The company’s Greenfield plant at GIDC Kerala is expected to be commissioned in two phases. The first phase will add 50,000 TPA capacity in F.Y. 2018-19 while the second phase will add another 50,000 TPA capacity in F.Y. 2019-20. This will take the installed capacity to 4,40,000 TPA, with a total capex of Rs. 350 crores. This capacity expansion will result in the company emerging as the Number One high-chrome manufacturer in the world.
60% of the revenues from mining segment:
AIAE caters primarily to the iron ore, platinum, gold and copper mines. 75% of its revenue comes from exports to over 120 countries. The company exports grinding media to key mining markets like Africa, South America and South Asia. Its total production in Q4FY18 was 66375 MT, out of which 57% i.e. 37591 MT was consumed by the mining segment. Similarly, in Q3FY18, 62.93% of the total sales of 51392 MT i.e. 32346 MT came from the mining segment. Due to global slowdown in the mining segment, the company witnessed a low volume growth over the last 3 quarters. However, we expect an increase in demand within the next few quarters.
AIAE saw a sharp rise in operating margins from the 20-24% range during FY12-14 to 29% in FY17 on the back of depreciation of the Indian Rupee. However, the management acknowledges that these gains are temporary in nature and will be passed on to customers gradually as it adopts a predatory pricing approach to acquire new customers. The net sales jumped by 8.87% on a YoY basis to Rs. 2445.13 crores, with its PAT Margin at 18.13% as on FY18. Also, its order book as on 1st April 2018 stood at Rs. 744 crores.
With improving prices of metals in the recent past, AIAE has been targeting metal groups of gold and copper. It is also looking at improvement in traditional iron ore and platinum, leading to stability for miners and acceleration of conversion process from traditional to ferro chrome grinding media, in turn leading to improved growth outlook for AIAE.
AIA Engineering (AIAE), incorporated as Magotteaux (India) in 1991, is a joint venture enterprise with Magotteaux International Belgium. AIAE, an ISO 9001 certified company, specializes in the design, development, manufacture, installation and servicing of high chromium wear, corrosion and abrasion resistant castings used in the cement, mining and thermal power generation industries. The company not only services the replacement demand of these industries, but also fulfils the Original Equipment Manufacturer (OEM) requirement for new capacities added.
The company’s product portfolio consists of high chrome grinding media, vertical mill spares, diaphragms and mining liners. In the future, the company plans to set up a chrome mill internals unit at a suitable location. The company is also mulling certain backward integration opportunities including setting up of a captive power plant and a ferro chromium plant of a suitable size.
|DESCRIPTION||Mar-16||Mar-17||Mar-18||Mar-19 E||Mar-20 E|
|Gross Profit Margin (%)||65.93||67.64||60.56||60.00||60.00|
|Power & Fuel Cost||211.16||242.53||252.14||268.96||295.86|
|% Of Sales||10.06||10.80||10.31||10.00||10.00|
|% Of Sales||4.88||4.75||4.63||4.60||4.50|
|% Of Sales||13.38||15.17||13.67||14.00||14.00|
|General & Admin Expenses||53.99||63.81||76.35||86.07||91.72|
|% Of Sales||2.57||2.84||3.12||3.20||3.10|
|Selling & Distribution Exp||111.11||118.46||149.34||161.38||177.52|
|% of Sales||5.30||5.27||6.11||6.00||6.00|
|% Of Sales||0.54||0.37||0.65||0.50||0.50|
|Profit Before Taxation & Exceptional Items||640.86||662.04||584.99||634.65||707.93|
|Exceptional Income / Expenses||0.00||0.00||0.00||0.00||0.00|
|Profit After Tax||456.80||457.21||443.60||456.95||495.55|
For AIAE, volume growth in the mining segment has revived strongly since last year and a strong global mining outlook reiterates the confidence on the same. Led by improving volume visibility in long term contracts, low penetration (10-12%) and strong opportunity in global gold and copper mining, and with margin recovery to follow makes AIAE a preferable stock to own. It’s currently trading at 31.8x of its expected earnings of FY20. We recommend ‘Buy’ for a target price of Rs. 2,010.