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Short-term bumpy; growth awaited

We recently interacted with Mr. Kunal Shah, Executive Director at ss(AIAE). Key highlights: i) Volume loss owing to competition concerns in Canada and South Africa would be mitigated by other geographies. ii) Gold and copper remain a big part of the strategy with further potential improvement in demand. iii) Mill liners’ capacity is expected to be commissioned by end-FY22 and ramp up over FY23.

Recouping of volumes is likely to remain gradual as shipping costs remain elevated. While volume loss due to duties remains exacerbated over the near term, recoup could be stretched as volume conversion takes time. Maintain ‘HOLD’ with a TP of INR2,002, valuing the stock at 30x FY23E EPS, at the average of last three years.

Short-term hiccups but damage under control

AIAE lost 25% of combined volumes following imposition of duties of 22% and 15%, respectively, in Canada and South Africa this year, with high shipping costs exacerbating the issue. However, management is seeing an improvement in other geographies, particularly in Africa and Australia, and cement is also seeing a pick-up with an uptick in capex. Hence, management anticipates volume loss from duties to be offset by strong demand in other areas and the compelling value proposition it offers to mills.

Long-term drivers intact

Over long term, demand from gold and copper remains robust with higher requirement in renewables, EVs and smartphones, while gold remains the only proxy to the US dollar. Thus, metals are anticipated to remain in a structural bull run. AIAE offers greater gold/copper recovery benefits to these mills via down-process. Furthermore, with the addition of mill liners’ to its portfolio, AIAE will widen its wallet share and value addition across customers. This should enable reduced power costs and increased throughput as solutions to customers. With an annual global replacement demand of ~2.5mn-plus MT with ~20% converted to ferrochrome and 300K MT market in mill liners, AIAE is well placed.

Outlook and valuation: Volume growth awaited; maintain ‘HOLD’

With integration of mill linings to its product portfolio, AIAE has positioned itself as a comprehensive solutions provider. Given robust commodities prices, the opportunity for AIAE continues to improve; however, high shipping costs and import duties in a few countries somewhat dampen near-term prospects despite the company’s solid offering.

At this juncture, we await risk-reward to turn favorable. Maintain ‘HOLD’ with a TP of INR2,002, valuing the stock at 30x FY23E EPS, at the average of its three-year band.

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