Sell AIA Engineering; target of Rs 315: PINC Research

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Sell AIA Engineering; target of Rs 315: PINC Research

PINC Research is bearish AIA Engineering and has recommended sell rating on the stock with a target of Rs 315 in its May 31, 2011 research report.

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PINC Research is bearish AIA Engineering and has recommended sell rating on the stock with a target of Rs 315 in its May 31, 2011 research report.

"AIA Engineering's (AIA) Q4FY11 results were below our expectations. Sales witnessed a 39% growth to Rs3.5bn, OPM was flat at 20.2% and PAT was up by 34% to Rs524mn (PINCe Rs604mn). Average realisations were down by ~10% sequentially to Rs87/kg mainly on account of higher share of revenue from the mining segment. Management has retained its volume guidance of 150-155k tons sales in FY12 but lowered the guidance on realisations. We have incorporated revised guidance of lower realisations in our estimates."

"In Q4FY11, sales in volume terms were higher by 42% YoY to 39,870MT (30,100MT in Q3FY11). Production was up by 24% YoY to 35,383MT (34,787MT in Q3FY11). Realisations, however, were lower by ~10% sequentially and ~2% on YoY basis to Rs87/kg. In FY11, total sales in volume terms were up by 22% to 125,817MT. Exports contributed 61% of sales in FY11. Company has made inroads in Chinese cement industry by selling 2,500MT of vertical mill parts in FY11. Management expects to sell 5,000MT in FY12 in the Chinese cement industry. Slowdown still persists in the markets like North America and Europe which form almost 50% of the export revenue. Management doesn't foresee any major growth from these markets. In FY11, net working capital days increased drastically to 159 days from 129 days. Working capital is expected to remain at current levels. Average realisations depend on commodity prices and product mix. We believe realisations to remain under pressure due to high share of revenue from mining segment. Company is augmenting its existing capacities by 100k tons to 300k tons with an investment of Rs2.5bn over the next 2 years."

"We incorporate lower realisation guidance in our estimates. Current order book of the company stands at Rs4.5bn. We expect sales and PAT to witness a CAGR of 16% from FY11-13E. At CMP of Rs370, we believe the stock is trading at an expensive valuation of 16.4x FY12E and 14.4x FY13E earnings. Rupee appreciation and volume growth remain key concerns going forward. We, therefore, downgrade the stock to 'SELL' from 'HOLD' with a target price of Rs 315 (14x FY12E)," says PINC Research report.

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