Buy AIA Engineering; target of Rs 1890: ICICI Direct

ICICI Direct's research report on AIA Engineering

AIA Engineering reported revenues of Rs 726.4 crore (below our estimate of Rs 757.5 crore), posting strong growth of 27% YoY. Sales volumes were at 59235 MT, up 15.3% YoY while production volumes grew 34.4% to 74619MT YoY. Net realisation per tonne grew 9.3% YoY to Rs 118.2 per kg owning to foreign exchange gains EBITDA came in at Rs 165.2 crore, above our estimate of Rs158.3 crore. However, EBITDA margins came in at 22.7% with an improvement of 70 bps YoY (above our estimate of 20.9%) on account of lower-than-expected increase in raw material expenses and employee expenses PAT came in at Rs 129.2 crore vs. our estimate of Rs 124.4 crore posting growth of 11.5% YoY aided by better operating performance during the quarter. The other income was at Rs 28.9 crore vs. estimate of Rs 42 crore. Effective tax rate came in at 24.2% vs. 16.9% in Q3FY18.

Outlook

We expect overall revenues and PAT to grow at a CAGR of 19.0% and 16.1%, respectively, in FY18E-21E. We believe that AIA could benefit significantly from expected incremental sales volumes contribution from mining segment, technical collaboration with EEMS and recovery in non-mining segment. We revise our target price to Rs 1890/share (30x FY20E EPS) with BUY rating.