Buy AIA Engineering; target of Rs 1910: ICICI Direct

ICICI Direct's research report on AIA Engineering

AIA Engineering reported revenues of Rs 715.2 crore, better than our estimate of Rs 680.1 crore registering strong growth of 25.5% on YoY The sales volume came in at 64211 MT registering growth of 15.3% while production volumes grew 23% to 69843 YoY. Mining segment sales volume grew 15% to 39726 MT YoY. Net realisation per tonne grew 8.0% YoY to Rs 107.6 per kg EBITDA came in at Rs 155.0 crore, higher than our estimate of Rs 152.4 crore. EBITDA margins came in at 21.7%, below our estimate of 22.4% and down 100 bps on a YoY basis on account of more than expected increase in raw material expenses and other expenses AIA reported PAT at Rs 104.2 crore vs. our estimate of Rs 105.9 crore registering a growth of 18.3% on YoY basis, however effective tax rate increased from 200bps to 33.5% YoY basis.

Outlook

Strong visibility ramps up of mining segment along with focus on hedging power cost indicates margin recovery from FY19E onwards. We expect revenues and PAT to grow at a CAGR of 20% and 16.8%, respectively, in FY18E-20E. We believe that AIA could benefit significantly from recent recovery in sales volumes in mining segment and recent technical collaboration. We revise our target price upward at 30x FY20E pegs fair value of Rs 1910/ share and maintain BUY rating.