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AIAE’s consolidated sales in Q3FY24 fell 5% YoY to Rs11.7bn, 9% below our estimate. Mining volumes grew 21% YoY to 53,395 MT on a low base, and has remained at similar levels in past 3 quarters. Other segment (cement + power) volumes fell 24% YoY to 20,745 MT. Realization fell 9% YoY to Rs154,669/MT amid varied product mix of alloys. On a very high base, EBITDA margin fell 320ps YoY to 26.6%, above our estimate of 25.3%, translating to EBITDA/KG of Rs42, down 18% YoY. PAT fell 21% YoY to Rs2.8bn, however, it was 3% above our/consensus estimate of Rs2.7bn each, led by higher than expected other income at Rs831mn. For FY24E, AIAE expects volumes of 300,000 MT (9M at 225,911 MT, up 4% YoY), an addition of only 10,000 MT YoY vs. earlier guidance of 25,000 MT, as shift from forged media to high chrome media is facing delays by customers. FY25E is likely to see atleast 25,000-30,000 MT addition, with an upside bias as very important mines with extra-ordinary sales opportunities are in the process of being developed. Long term growth opportunity of high chrome media penetration (0.5mn MT converted out of 2.5mn MT industry size) and scale-up of mill liners remains intact. Factoring the lower volumes, our EPS for FY24E/25E/26E gets cut by 6%/6%/1%. Post recent run-up in stock price, we downgrade the rating to ADD with a revised target price of Rs4,210 (Rs4,360earlier) based on unchanged P/E of 32x H1FY26E EPS.

Structural shift to high chrome intact; FY24 volume growth guidance curtailed

Total volumes grew 4% YoY to 74,140MT in Q3 and 4% YoY to 225,911 MT in 9MFY24. Segment wise, mining volumes grew 10% YoY to 158,744MT while non-mining volumes fell 9% YoY to 67,167MT in 9MFY24. Amidst delay in conversion rate from forged to high chrome media, FY24 volumes are likely at 300,000 MT (+3% YoY), with non-mining share at 80,000-90,000MT. With Rs5bn capex planned, AIAE’s capacity will enhance to 540,000 MT by FY25 from 440,000 MT currently. To enhance mill liner offering, AIAE bought 30% stake in Australian firm MPS for Rs430mn. The firm is an expert in composite mill liners and is purely into designing. Mill liner addressable opportunity is at 300,000MT while AIAE’s current capacity is at 70,000 MT (incl. new 50,000 MT plant) and is poised for a volume of 30,000 MT in FY24.

Realization faltered due to product mix change; to sustain at Rs150/kg-Rs160/kg

Realization in Q3FY24 was Rs154,669/MT, down 9% YoY, and was mainly due to shift in product mix of alloys (which ranges from 11%-30% chrome content). Going ahead, AIAE expects realization in range of Rs150/kg-Rs160/kg. While Q3 didn’t see any impact of Red Sea issue, but Q4 could see rise in freight cost. AIAE would absorb it in near term as it gets pass through to the clients with a lag.

Downgrade to ADD with a revised target price of Rs4,210

AIAE’s technological leadership in high chrome mill internals, strong growth opportunity in mining sector and superior financial metrics are key business moats. However, considering the recent run-up in stock price, we downgrade the rating to ADD with a target price of Rs4,210 based on 32x H1FY26E EPS. Short term volume softness is a key overhang. 

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