AIA Engineering is operating in a high technology oriented niche engineering segment, involving design, development, manufacture and installment of impact, abrasion and wear resistant, high chrome mill internal products.
These are used as consumables in the grinding and crushing operation in the mills in the cement, mining and thermal power industry. All the three segments have excellent growth prospects.
It has consolidated capacity of 165000 (65000+50000+50000) TPA of high chrome mill internals as of May 2008. The first phase of the expansion of 50000 TPA was commissioned in June 2007 and the second phase of another 50000 TPA was commissioned in May 2008.
Despite sharp increases in raw material prices and sharp rupee-dollar movements, AIA has been able to effectively maintain its operating margins as it has been able to pass on the price hikes.
We maintain our earnings estimates for AIA and expect it to report an EPS of Rs.98.1 in FY09E.
The current market price of Rs1,577 discounts FY09E earnings at 16.1, which we believe is attractive considering the clear growth prospects for the company going forward due to capacity expansion and strong demand for the products of the company.
We have also done one year forward rolling band analysis for AIA which revealed that currently it is trading towards the lower end of the band of 10 - 25x one year forward earning estimates.