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Steady operational performance, decent volumes

AIA Engineering reported consolidated revenues at | 698.7 crore (below our estimate of | 765 crore), merely up 0.7% YoY owing to lower realisation YoY, which declined 5.3% to | 105.4 per kg. EBITDA came in at | 172.3 crore, almost flat YoY (vs. our estimate of | 169 crore). EBITDA margins declined marginally by 20 bps YoY to 24.7% (above our estimate of 22.1%). PAT came in at | 156.1 crore (above our estimate of | 125.5 crore), down marginally by 0.2%, YoY owing to tax adjustment in base quarter, higher other income and adjusting for reversal of exceptional item of | 3.7 crore towards closure of its subsidiary, Welcast Steels (WSL). Other income grew 7.5% to | 49.4 crore on a YoY basis.

Further pick-up in mining volumes expected in H2FY22E…

During the quarter, sales volume came in at a reasonable 65173 MT in Q3FY21, up 8.1% YoY led by mining segment volumes, which grew 5.4% to 43397 MT. Cement & others segment volumes came in at 21776 MT, up 14%, YoY. Mining segment is further expected to pick up as economic activities and global travel activities are expected to normalise by Q1FY22E across the world including India while non-mining segment is also seeing good traction with revival in infrastructure, utilities spends across the world. Operations across all facilities, including India, have almost normalised. However, due to international travel restrictions developments of new mines still suffering and better demand expected in H2FY22E.

Expansion of mill lining on track, to be added by Q1FY22E...

Mill lining capacity addition of 50000 MT is to be completed by June 2021. AIA has done capex of | 88 crore 9MFY21 and is likely to do ~| 140 crore capex in Q4FY21E. Majority includes payables towards mill liners capex and addition of wind turbine. AIA to very soon revisit timelines on capex of | 250 crore towards grinding media expansion. Majority of sales for Q3FY21E came from existing customers as addition of new customers still facing challenges amid global travel restrictions hindering meetings & finalisations. However, enquiries from developmental customers are gradually picking up and are likely to show positive signs from Q2FY22E onwards. We build in volume of 257609 MT, 288522 MT for FY21E, FY22E, respectively.

Valuation & Outlook

Despite challenging conditions, AIA reported reasonable volumes in Q3FY21. However, new customer engagement and acquisition are expected to pick-up as the travel situation is expected to normalise in H1FY22 and will allow AIA to gain incremental volume growth in coming years while gradual volume ramp-up with repeat customers would aid medium term growth. AIA’s strong balance sheet, decent cash balance and efficient working capital management are expected to support long term growth. We introduce FY23E and expect overall revenues, EBITDA to grow at 8.3%, 8.1%, respectively, in FY20-23E. We revise our target price to | 2350/ share (earlier | 1785), 32x FY23E EPS. We change our rating from HOLD to BUY.

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