LKP Research's research report on AIA Engineering
AIA Engineering’s (AIAE) combined sales in Q4FY24 dropped by 9.7% YoY, totaling ₹11.5 bn, slightly below what was expected. This decrease was mainly due to lower prices per unit (₹158/kg compared to ₹170/kg in the same quarter last year) because of reduced raw material costs, as well as lower sales volume. Despite the decrease in sales, the gross margin increased by 160 basis points to 56.2%, and the EBITDA margin went up by 110 basis points to 25.9%, surpassing the expected margins. However, the net profit after taxes fell by 3% to Rs2.6 bn, which was in line with expectations. For the full fiscal year 2024, sales volume remained steady at 297,345MT, compared to 291,342 MT in the previous fiscal year, due to delayed production. AIAE plans to increase its annual sales volume by 30,000 to 40,000 metric tons over the medium term by tapping into conversion opportunities and targeting new customers. However, the process of converting customers to use their High Chrome media instead of forged media is taking longer than anticipated.
Outlook
Additionally AIA offers the possibility of incremental growth through acquisitions given its strong cash reserves (net cash ₹32.9bn as on Mar’24). Hence we maintain BUY and value the stock at 32x FY26E with a TP of ₹4,330.
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