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COMPANY REPORT

AIA Engineering - ADD


Volume growth momentum to continue

AIA Engineering’s (AIAE) Q3FY19 sales grew by a robust 27% yoy on CMP (Rs) 1,659 12-mts Target (Rs) 1,822 Upside 10%
the account of 15.3%/10.2% growth in volumes/realizations Stock data (As on Feb 8, 2019) Sector: Industrials
respectively. Mining segment volume was up 24% yoy while non- Sensex: 36,374 Stock performance
mining segment volume broadly remained flat yoy. Total sales volume 52 Week h/l (Rs) 1,887/1,325 120 AIA Engg Sensex
110
for Q3 stood at 59,235 MT (Mining/Non-mining: 68%/32%). AIAE Market cap (Rs bn) 156
100
registered highest ever quarterly production of 74,619 MT in Q3FY19, Enterprise value (Rs bn) 149
90
implying production/sales volume ratio of 126%. This was also at an 6m Avg t/o (Rs mn): 101 80
all-time high due to some delay in delivery of confirmed orders. AIAE FV (Rs): 2 Jan-18 May-18 Sep-18 Jan-19
Div yield (%): 0.5
likely to continue strong volume growth momentum in coming
Bloomberg code: AIAE IN Shareholding pattern (As of Dec’18 end)
quarters as well, thereby reducing the increased gap between
Promoter 58.5%
production and dispatches which should normalize the BSE code: 532683
FII+DII 35.4%
production/sales ratio. 3Q net realization came at Rs123.6/Kg, up NSE code: AIAENG Others 6.1%
10.2% yoy and up 2% qoq as company continued to derive benefits of
INR depreciation. EBITDA margin expanded by 57bps yoy in Q3FY19 Exhibit 1: Result table (Consolidated)
mainly due to stabilization in the commodity prices. We believe (Rs mn) Q3FY19 Q2FY19 % qoq Q3FY18 % yoy
realizations may sustain in the range of Rs120-125/Kg over a medium Total sales 7,264 7,406 (1.9) 5,722 27.0
term with steady RM prices and favorable currency dynamics. EBITDA 1,652 1,478 11.8 1,269 30.2
EBITDAM (%) 22.7 20.0 278bps 22.2 57bps
We think, AIAE’s proposition of lower reagent consumption and higher Depreciation (216) (181) 19.6 (179) 20.7
recovery is augurs well for copper & gold. Hence, it has continued to Interest (20) (17) 19.4 (11) 86.8
derive strong traction in the gold segment with its top-3 customers Other income 289 482 (40.0) 321 (10.0)
being gold miners. It should also get benefits from recent surge in PBT 1,705 1,762 (3.2) 1,400 21.8
precious metal prices like gold. We believe AIAE is now better poised Tax (413) (547) (24.5) (235) 75.9
for long term growth with a successful diversification move to address Minority Interest (3) (5) (44.5) (4) (27.9)
product adjacencies through additional offerings like EEMS product Adjusted PAT 1,290 1,210 6.6 1,162 11.0
solutions and throughput benefits for customers. We model in 20% Exceptional item 0 0 0
earnings CAGR over FY19-20E and assign ADD rating with TP of Reported PAT 1,290 1,210 6.6 1,162 11.0
Rs1,822 at 28x FY20E EPS. Source: Company, YSL

February 11, 2019


Research Analyst: Umesh Raut  umesh.raut@yessecuritiesltd.in
Head of Research: Amar Ambani  amar.ambani@yessecuritiesltd.in (For important information about YES SECURITIES (INDIA) LTD. and other disclosures, refer to the end of this material.)
AIA Engineering

Exhibit 2: Result table (Standalone) started market development activity relating to the mining liners based
(Rs mn) Q3FY19 Q2FY19 % qoq Q3FY18 % yoy on the technical know-how and inputs obtained from EEMS and the
Total sales 6,964 7,176 (3.0) 5,039 38.2 initial results are quite encouraging. EEMS has special knowledge of
EBITDA 1,340 1,426 (6.0) 1,048 27.9 optimizing energy efficiency and output of grinding equipment
EBITDAM (%) 19.2 19.9 -62.5bps 20.8 -155.4bps (“Know How”) like AG/SAG/Ball Mills in wet & dry grinding
Depreciation (213) (178) 19.7 (176) 21.1 industries through re-designing of mill internals viz. head & shell liners,
Interest (19) (16) 21.1 (10) 84.5 grate liners, pulp lifters. AIAE has bagged a significant contract from a
Other income 329 430 (23.4) 277 18.8 gold miner to develop a complete circuit solution, which will help the
PBT 1,438 1,662 (13.5) 1,139 26.2 latter improve gold production and cut power cost. The company will
Tax (411) (576) (28.7) (235) 75.1 supply both mill liners and grinding media, and it believes that its
Adjusted PAT 1,027 1,086 (5.4) 905 13.5 design and associated services will distinguish it from other
Exceptional item 0 0 0 competitors.
Reported PAT 1,027 1,086 (5.4) 905 13.5
PATM (%) 14.7 15.1 -38.6bps 18.0 -321bps
Strategy is to penetrate further in mining market
EPS (Rs) 11 12 (5.4) 10 13.5
Source: Company, YSL Management believes High Chrome Mill Internals (HCMI) will
continue to gain market share (current: 20%) in the mining segment.
Exhibit 3: Cost analysis (Consolidated) Management is seeing an increase in capex by gold and copper clients
As a % of net sales Q3FY19 Q2FY19 bps qoq Q3FY18 bps yoy
where it has recently made inroads via addition of Barrick Gold and
COGS 34.9 41.5 (665.5) 36.9 (197.2)
Newmont mining. It expects flattish growth in cement segment where
Employee cost 4.4 4.2 25.9 5.0 (59.9)
it is said to have maintained market share.
Other expenses 37.9 34.3 360.8 35.9 199.8
Total costs 77.3 80.0 (278.8) 77.8 (57.3)
CAPEX pipeline over next 1-2 years
Source: Company, YSL
AIAE has current installed capacity of 3,40,000TPA. It has incurred
Strong value-added solutions via EEMS tie-up to improve capex of Rs1.56bn during 9MFY19. GIDC Kerala, Phase-II Greenfield
processing throughput for customers expected to be commissioned in two phases. The 1st phase will add
50,000TPA capacity by June-2019 while the 2nd phase will add another
Technical collaboration with EEMS to supply the entire circuit solution 50,000TPA capacity in 12-15 months thereafter; taking installed capacity
for a gold miner could be a successful diversification move to address to 4,40,000 TPA. It has also planned to set up manufacturing plant of
product adjacencies. Post entering into technical collaboration mining liner with capex of Rs2.5bn which will add liner capacity of
agreement with EE Mill Solutions LLP, USA (EEMS), the company has
50,000MT per year & to be commissioned in F.Y. 2019-2020.

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AIA Engineering

Exhibit 4: Mining volume growth momentum to continue Exhibit 6: INR depreciation benefits visible in Q3 EBITDA/Kg
Mining (in MT) yoy growth (%) EBITDA/kg (Rs) yoy growth (%)
45000 60 40 20
16 16
40000 49 50 35 13
11 10
35000 39 40
30
30 2 3
30000 27 0
24 24 25 -2
19 18 20
25000 15
20 -9 -9 -9 -10
10 10 -10

40,084
40,007
39,726
6

37,591
20000 35,854 3 -14

34
34,659

34
2

33,803

33
0

32
32,346
31,858

-1

31
15

31
30
29,580
29,187
28,594

-19

28
27
15000 -20
-21

25
25
24,094

24
-10

24
-10
23,500

24
23,000

21
10
10000 -20 -30
5000 5 -32
-30 -30
0 -40 0 -40
Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19 Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19

Source: Company, YSL Source: Company, YSL

Exhibit 5: Quarterly non-mining segment volume trend Exhibit 7: Consol. revenue growth was at 27% yoy in Q3FY19
Cement & others (in MT) yoy growth (%) Revenue (Rs bn) YoY (%)
35000 25 8 7.4 7.4 40
7.2 7.3
20 20 7 6.5
30000 30
5.9 5.9 32.5
15 15 6 5.7 5.6 5.7
5.5 5.3 27.0
25000
11 10 4.9 4.9 24.7 20
9 4.8
9 5
6 19.7 19.8
20000 6 5
4 3 4 14.9 10
1 2
0 1 0 10.8
28,784
28,710

15000 8.5 9.4


24,908

24,485

3 5.6
22,047

21,688
21,500

-5 0
20,792

20,449
20,144

20,111

19,151
19,046
19,000

18,385

10000
-8 2
-10 -2.1 -3.0
-4.1
-10
5000 -14 1
-15
-12.1
0 -20 0 -14.7 -20
Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19 Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19

Source: Company, YSL Source: Company, YSL

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AIA Engineering

Exhibit 8: Consol. EBITDAM improved 57bps yoy in Q3FY19 Exhibit 10: Consolidated financial summary
Y/e 31 Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E
EBIDTA (Rs bn) EBIDTAM (%)
2 35 Revenues 22,460 25,031 30,387 35,857 42,311
1.8 29.4 30.1 28.9 29.7 30.1 29.3 yoy growth (%) 7.0 11.4 21.4 18.0 18.0
27.2 30
1.6 24.7 EBITDA 6,346 5,721 6,956 8,371 9,943
23.3 22.7 25
1.4 22.2 22.4 21.8 EBITDAM (%) 28.3 22.9 22.9 23.3 23.5
20.1 20.0
1.2
20
Adjusted PAT 4,568 4,434 5,149 6,139 7,296
1 yoy growth (%) 0.0 (2.9) 16.1 19.2 18.8
1.7
15
1.7

1.7

1.7
0.8
1.6
1.6

1.6
1.5
1.5

1.5
1.4

1.4

1.3
EPS (Rs) 48.4 47.0 54.6 65.1 77.4

1.3
0.6 10

1.1
0.4 P/E (x) 34.3 35.3 30.4 25.5 21.4
5 P/BV (x) 5.8 5.2 4.6 4.0 3.5
0.2
EV/EBITDA (x) 24.4 26.1 20.9 16.4 13.2
0 0
Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19 Net D/E (x) (0.4) (0.4) (0.4) (0.3) (0.3)
Source: Company, YSL ROE (%) 17.7 15.0 15.7 16.8 17.2
ROCE (%) 17.4 15.2 16.0 17.1 17.4
Exhibit 9: Consol. adjusted PAT grew 17.8% yoy in Q3FY19 Source: Company, YSL

Ad.PAT (Rs bn) Ad.PATM (%)


1.6 22.7 22.8 25
21.2
1.4 20.2 20.4 20.3 20.5
19.1 18.9
17.8 17.8 20
1.2
16.3
15.4 15.5
14.7
1
15

0.8
1.5
1.3

1.3

10
1.2
1.2

0.6
1.2
1.2
1.1
1.1

1.1

1.1
0.9

0.9

0.9

0.9

0.4
5
0.2

0 0
Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19

Source: Company, YSL

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RECOMMENDATION PARAMETERS FOR FUNDAMENTAL REPORTS

Analysts assign ratings to the stocks according to the expected upside/downside relative to the current market price and the estimated target price. Depending on the expected
returns, the recommendations are categorized as mentioned below. The performance horizon is 12 to 18 months unless specified and the target price is defined as the analysts’
valuation for a stock. No benchmark is applicable to the ratings mentioned in this report.

BUY > 15%


ADD 5% to 15%
HOLD -15% to +5%
SELL > - 15%
NOT RATED
UNDER REVIEW
POSITIVE: Positive is rating given to stocks we like but yet to be formally included in our coverage universe.
NEGATIVE: Negative is rating given to stocks yet to be formally included in our coverage universe, but we find valuations expensive vis-a-vis fundamentals.
NEUTRAL: Neutral rating is given to stocks that are not under our formal coverage yet, but we find current valuation fairly representing fundamentals.

ABOUT YES SECURITIES (INDIA) LIMITED

YES SECURITIES (INDIA) LIMITED (‘‘YSL’’) was incorporated on 14th March 2013 as a wholly owned subsidiary of YES BANK LIMITED. YSL does not have any other
associates. YSL is a SEBI registered stock broker holding membership of NSE and BSE. YSL is also a SEBI registered Category I Merchant Banker, Investment Adviser and a
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DISCLAIMER DISCLOSURE OF INTEREST
Investments in securities market are subject to market risks, read all the related documents carefully before Name of the Research Analyst : Umesh Raut
investing.
The analyst hereby certifies that opinion expressed in this research report accurately reflect his or her
The information and opinions in this report have been prepared by YSL and are subject to change without personal opinion about the subject securities and no part of his or her compensation was, is or will be
any notice. The report and information contained herein are strictly confidential and meant solely for the directly or indirectly related to the specific recommendation and opinion expressed in this research report.
intended recipient and may not be altered in any way, transmitted to, copied or redistributed, in part or in
whole, to any other person or to the media or reproduced in any form, without prior written consent of Sr. No. Particulars Yes/No
YSL.
Research Analyst or his/her relative’s financial interest in the subject
1 No
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sources believed to be reliable and have not been independently verified and no guarantee, representation Research Analyst or his/her relative or YSL’s actual/beneficial ownership of 1%
of warranty, express or implied, is made as to their accuracy, completeness, authenticity or validity. No 2 or more securities of the subject company(ies) at the end of the month No
information or opinions expressed constitute an offer, or an invitation to make an offer, to buy or sell any immediately preceding the date of publication of the Research Report
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YES SECURITIES (INDIA) LIMITED CIN: U74992MH2013PLC240971 | SEBI Single Registration No.: NSE & BSE:
Registered Office: Unit No. 602 A, 6th Floor, Tower 1 & 2, Indiabulls Finance Centre, INZ000185632 | MERCHANT BANKER: INM000012227 | RESEARCH ANALYST:
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