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Steady operational performance, reasonable volumes

AIA Engineering reported consolidated revenues at | 860.2 crore (in line with our estimate of | 859.6 crore), up marginally by 0.4% YoY owing to decline of 3.3% in volumes YoY. Realisations grew 6% to | 107.1/kg YoY. EBITDA came in at | 169.2 crore, down 8.4% YoY (vs. our estimate of | 190.8 crore). EBITDA margins fell 190 bps YoY to 19.7% (below our estimate of 22.2%) impacted by commodity prices. PAT came in at | 133.1 crore (below our estimate of | 158.6 crore), declining 6.5% YoY partly impacted by lower other income, which declined 20.4% YoY to | 23.2 crore.

Mining volumes expected to pick up from H2FY22E…

During the quarter, sales volume came in reasonable at 79377 MT, down 3.3% YoY. Mining segment volumes declined 9.9% to 49642 MT while cement & others segment volumes came in at 29735 MT, up 10% YoY aided by pent up demand in cement sector across geographies. Mining segment is further expected to pick up as economic activities and global travel activities are expected to normalise by Q3FY22E across the world including India while non-mining segment is also seeing good traction with revival in infrastructure, utilities. However, due to international travel restrictions developments of new mines still suffering and better demand expected in H2FY22E. Also, Canada Boarder Service Agency (CBA) has initiated investigation in December 2020 with respect to alleged dumping on AIA, which could have an impact on sale volumes of ~12000 MT in H1FY22.

Mill lining capacity expected to be added by FY22E...

Mill lining capacity addition of 50000 MT is expected to be completed by December 2021. AIA has done capex of | 118 crore FY21 and is likely to do ~| 210 crore capex in FY22E. Majority includes payables towards mill liners capex, addition of 5.4 MW wind turbine and general capex. AIA has paused the capex of | 250 crore towards grinding media expansion, as of now. Majority of sales for Q4FY21E came from existing customers as addition of new customers is still facing challenges amid global travel restrictions hindering meetings & finalisations amid pandemic. We build in volume of 273080 MT, 309400 MT for FY22E, FY23E, respectively.

Valuation & Outlook

Despite challenging conditions, AIA reported reasonable volumes in Q4FY21. However, new customer engagement and acquisition are expected to pick up as the travel situation is expected to normalise in H2FY22E and will allow AIA to gain incremental volume growth in coming years despite likely short term challenges due CBA investigation on anti-dumping. AIA’s strong balance sheet, decent cash balance and efficient working capital management are expected to support long term growth. We expect overall revenues, EBITDA to grow at 6.5%, 6.2%, respectively, in FY20-23E. We revise our target price to | 2200/ share (earlier | 2350), 31x FY23E EPS and maintain our BUY rating.

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