Buy AIA Engineering; target of Rs 4230: LKP Research

LKP Research's research report on AIA Engineering

AIA Engineering Limited (AIAE) reported a 9% YoY decline in consolidated sales, totaling ₹10.7 bn, which was below consensus expectations. This drop was primarily due to an 11% fall in volumes to 65.8 KT, though realizations saw a positive uptick, rising 3% YoY (9MFY25: 186.7 KT, down 17% YoY). Contributing factors included a slowdown in demand from certain mining clients—reflecting both systemic and cyclical trends—inventory de-stocking by major customers, and rising freight costs (easing gradually) amid ongoing shipping challenges. The transition from forged media to high chrome grinding media has been delayed as a result of these issues. On the margin front, gross margins improved by 40 bps YoY to 59.3%, and EBITDA margins remained nearly unchanged at 26.5% (-7bps YoY). As a result, PAT dropped 7% YoY to ₹2.6 bn, further impacted by a 19% YoY decline in other income, falling short of estimates. Management also revealed a strategic shift to manufacturing outside India, driven by recent logistics challenges. This includes plans to set up 100 KTpa of high chrome grinding media (50 KTpa each in China and Ghana), with a total capex of USD50 mn, rolled out in phases.

Outlook

Consequently, we are maintaining our BUY rating with a revised target price of ₹4,230 (30x FY27E EPS), reflecting the current near-term challenges.