Buy AIA Engineering; target of Rs 1639: Edelweiss

Edelweiss' research report on AIA Engineering

Gross margin plummeted 474bps QoQ to 66.9% on surge in ferro chrome prices and appreciation of INR. We believe, sustained high raw material prices will pressurise margin in the near term as it will take a couple of quarters to pass on the price hike. However, ferro chrome prices have dipped sharply in May and likely to normalise in the near future.

Outlook

Uptick in the mining sector as commodity prices rise and mere 10-12% penetration of high chrome grinding media will drive 20% volume growth (FY17-19E). We have assumed capacity utilisation of 65% in FY19, entailing scope for further volume spurt. At CMP, the stock trades at 20.5x FY19E EPS. We maintain ‘BUY’, based on 25x FY19E.