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Centrum Wealth
AIA Engg (Buy)
CMP: ₹1,270.80
Target: ₹1,490
AIA Engineering (AIAE), on a consolidated basis, for Q1FY17 reported weak numbers. Revenue and net profit declined by 8 per cent y-o-y to ₹500 crore and 1 per cent to ₹109 crore, respectively. Lower raw material cost (down 630 bps to 31.5 per cent of sales) resulted in EBITDA margin expansion of 217 bps to 29.4 per cent. Volume grew 5 per cent y-o-y to 47,572 tonne. Net realisations declined by 14 per cent y-o-y to ₹1.01 lakh a tonne. The management has maintained its incremental volume guidance of 1.20 lakh tonne over FY17-19.
AIAE is the only listed player in the high margin high chrome mill internals (HCMI) segment and is currently in the process of expanding its capacity. The opportunity in the HCMI segment is high, as the current penetration is low. We believe the benefits of the capacity expansion are likely to be seen from FY18 onwards. Given the 26 per cent price movement in the last one month and current valuation of 24.1x P/E on FY18E, we recommend buying the stock on dips. However, given the good quality business and strong financials, the stock can attract buying interest.
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