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AIA Engineering (AIAE) reported miss on revenue though PAT was ahead of estimates due to higher margins and higher other income. Net sales declined by 3% YoY to INR 12.9bn (JMFe: INR14bn) with volumes being flat YoY at 77,725MT. EBITDA grew by 23% YoY (JMFe: INR3.5bn) to INR3.8bn with EBITDA margin higher by 600bp YoY at 29.5% (JMFe: 25%) led by favourable mix and lower RM costs & freight rates. PAT grew 32%YoY at INR3.2bn (JMFe: INR 2.9bn). AIAE lowered its incremental volume guidance in FY24 to 10-15k MT from 30k MT (FY23: 291k MT) given slower pace of new customer conversion. The shortfall could be made up in FY25 leading to stronger volumes but there was no specific guidance on the same. EBITDA margins are likely to normalise to 22-24% range as the pass-through of cost savings happen in coming quarters. We estimate a modest 7.2% CAGR in EPS over FY23-26E though AIAE offers the optionality of incremental EPS/ROE growth through acquisitions and/or increased distributions. We maintain BUY with TP of INR3,910 (30x Sept’25E EPS).

* Flat volumes led to muted revenue growth: Net sales were down 3%YoY to INR12.9bn, as volume growth was flat YoY to 77,725. Mining volumes reported decline of 4% YoY, while non-mining volumes grew by 5% YoY, given decent demand from sectors like cement and power utilities. AIAE highlighted that though the demand environment remained stable, targeted conversion of customers (from forged to high chrome media) was delayed leading to lower volumes. Focus geographies like Africa, Brazil and Latin American countries remained unimpacted by recent geopolitical events.

* Elevated margins to normalise in coming quarters: EBITDA margin improved by 600bps YoY to 29.5% and EBITDA grew 23% YoY despite weak revenue growth. Margin improvement was led by lower RM & freight costs and a favourable sales mix (higher proportion of large castings). Going forward, the benefit of lower RM & freight is likely to get passed on to customers and the sales mix should also revert in favour of grinding media. As a result, EBITDA margins should moderate with guidance of 22-24%. Other income was up 94% YoY, due to higher treasury yields resulting in PAT growth of 32% YoY to INR 3.2bn.

* FY24 volume shortfall may be bridged in FY25; capacity expansion on track: AIA reduced the incremental volume guidance from 25-30k MT to 10-15k MT in FY24. It however indicated that this shortfall may be made up in FY25 though it would wait to give a specific outlook. Capacity expansion plan of INR5bn is on track which will increase capacity from 440k MT currently to 540k MT by FY25.

* Maintain BUY with TP of INR3,910: We estimate 9%/7% revenue/EPS CAGR over FY23- 26E. Notwithstanding a moderate earnings outlook, AIA offers the possibility of incremental growth through acquisitions given its strong cash reserves. Alternatively, it may consider returning cash to the investors as has been articulated by the management. We see both options being EPS/ROE accretive. Maintain BUY with TP of INR3,910, based on 30x Sept’25E EPS. Key risk: sharp rise in RM prices and incremental anti-dumping measures in target markets.

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CIN Number : L67120MH1986PLC038784