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AIA Engineering (AIAE) reported number broadly inline with estimates. During the quarter revenue and margins were impacted due to product mix and price pass through of the declining raw material prices. Revenue declined 4.7% YoY to INR 11.7bn, owing to lower realisation, which declined to INR 155/kg in 3QFY24 vs INR 169/KG in 3QFY23. EBITDA declined 14.9% YoY to INR 3.1bn with EBITDA margin contracting 320bps YoY to 26.6%. Other income declined 29.5% YoY (on high base) to INR 831mn resulting in PAT decline of 20.7% YoY to INR 2.8bn. Volume grew 3.8% YoY to 74,140 MT, driven by mining segment (up 20.6% YoY). Management maintained its incremental volume guidance of 10k MT in FY24 given slower pace of new customer conversion and incremental volume of 25k-30k MT for FY25. Company is on track for its capacity expansion plan by 80,000MT by end of FY25 and debottlenecking exercise, which will further increase capacity by 20,000 MT (current capacity 440k MT). We transfer coverage to Deepak Agarwal. We expect revenue/EPS CAGR of 7.5% and 7.1% over FY23-26E, factoring in volume CAGR of 8.1%. Maintain BUY with revised TP of INR 4,400 based on 32x FY26E (30x Sep’25E earlier).

*Lower realization impacted revenues: Net sales declined 4.7% YoY to INR 11.7bn, broadly in line with JMFe of INR11.9bn, likely due to lower realization (INR 155/kg vs INR 169/kg last year). Volumes grew 3.8% YoY, to 74,140MT, driven by strong growth in mining segment (up 20.6% YoY to 53,395MT). While volumes declined for non-mining segment down 23.6% YoY to 20,745MT. EBITDA declined 15% YoY to INR 3.1bn. EBITDA margins contracted 320bps YoY to 26.6%, impacted due to product mix. Other income were down 30% YoY to INR 3.1bn (on high base), resulting in PAT decline of 20.7% YoY to INR 2.8bn. Margins are likely to get impacted in near term owing to expected freight cost, arising due to disturbance in Red Sea. Management maintained its sustainable margins guidance of 22%-24%.

* Delay in target conversion to impact volumes in near term: 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. Incremental volume in FY24 to be 10k MT (c.291k MT in FY23) and FY25 likely to witness incremental volume of 25-30k MT.

* Capex on track: Company has capex commitment of INR 5bn by FY25, including INR 2bn for grinding media plant, INR 2bn for various debottlenecking exercise which will increase installed capacity from 440k MT currently to 540k MT..

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SEBI Registration Number is INM000010361