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Performance broadly in-line; customer conversion key to watch

AIA Engineering (AIAE) reported number broadly in-line with estimates. Revenue was down 9.7% YoY to INR 11.5bn, due to lower realisation, (on account of pass-on of low RM cost) which declined to INR 158/kg vs INR 170/KG in 4QFY24 and lower volume. EBITDA declined 5.8% YoY to INR 2.97bn. Other income grew 20% YoY to INR 765mn, which include treasury income of INR 720mn. PAT declined 2.9% YoY to INR 2.6bn. FY24 volumes were flat at 2,97,345 MT (vs 2,91,342 MT in FY23), due to delayed conversion. Management targets incremental volume of 30,000 MT for FY25 and would continue to focus on new customer conversion (from forged media to High Chrome media), though it is taking longer than expected time. AIAE has trimmed down its capacity addition target (brown field expansion) to 36,000 MT vs 80,000 MT guided earlier, while it is on track for debottlenecking exercise, which will further increase capacity by 20,000 MT. Post this, capacity is likely to be 4,96,000 MT

* Lower volumes and realisation impacted revenue: Revenue declined 9.7% YoY to INR 11.5bn, (JMFe of INR12.2bn). Volume declined 2.8% YoY to 71,433 MT, due to decline in mining segment volume (down 6.9% YoY to 44,932 MT), while it grew for nonmining segment (up 4.9% YoY to 26,501 MT). Realisations declined 7% YoY to INR 158/kg. EBITDA declined 5.8% YoY to INR 3bn (JMFe INR 3bn), while EBITDA margins expanded 110bps YoY, mainly due to gross margins expansion (160bps YoY to 56.2%) and lower power & fuel cost (6.4% vs 8.2% YoY). PAT declined 3% YoY to INR 2.6bn, (JMFe of INR 2.7bn), aided by higher other income (up 20% YoY at INR 765mn).

* Delayed conversion impacted volumes: Though the demand environment remained stable, targeted conversion of customers (from forged to high chrome media- market size 2.5 MT) is witnessing delay impacting volume growth. Management expect additional volume of 30,000 MT for FY25, which will be driven by mill liner, increased volume from Canada, backed with healthy demand scenario for mining industry.

* Trimmed its capacity addition target: Company had faced some delay in shipment of equipment from Europe for capacity addition. Additionally it has also trimmed its initial brown-field capacity expansion target of 80,000MT to 36,000 MT factoring in excess current capacity. However as it is plug and play module, it can easily ramp up capacity in 5-6 months time. The upcoming 36,000 MT is likely to operational by 3QFY25. It is also undertaking debottlenecking exercise of its non-grinding media which will enhance capacity by 20,000 MT. Post expansion installed capacity will be 4,96,000MT.

* Maintain BUY with revised TP of INR4,260: We estimate revenue and EPS CAGR of 10% and 5% respectively over FY24-26E, factoring in volume CAGR of 9.7%. Additionally AIA offers the possibility of incremental growth through acquisitions given its strong cash reserves (net cash INR 32.9bn as on Mar’24). Maintain BUY with revised TP of INR 4,260 based on 32x FY26E. Key Risk- delay in new customer conversion and volatility in RM prices & freight cost.

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SEBI Registration Number is INM000010361