We recently spoke with the management of AIA Engineering Ltd and are positive about the growth prospects of the company.
We are introducing our FY10E estimates on higher earnings visibility due to visible demand for mill internals from the cement and the mining industry.
The company is expected report revenues of Rs10 billion, EBIDTA margin of 25.6% and PAT of Rs1.7 billion thereby translating into EPS of Rs.18.1 and CEPS of Rs.20.2. AIA is expected to sell 95000 MT of mill internals in FY09E at an average realization of Rs106 per kg.
Going forward for FY10E we expect AIA to sell 135000 MT (up 42.1%) of mill internals at an average realization of Rs90 per kg (down15%). The growth in volume is primarily due to foray into export of mill internals for the mining segment.
The drop in average realizations is primarily due to fall in prices of its key raw materials like ferro chrome and mild steel scrap which the company would pass on to its customers.
In FY10E we expect the company to report revenues of Rs12.1 billion (up 20.8%), EBIDTA margins of 25.1% (as against 25.6%) and PAT of Rs2 billion (up 19%). Accordingly we expect AIA to report EPS of Rs.21.5 and CEPS of Rs.24.0 in FY10E.
Over FY08 to FY10E the revenues are expected to grow at CAGR of 32.6% and PAT is expected to grow at CAGR of 23.2%.
We have valued AIA on DCF method of valuation with 13.6% WACC and 3.0% terminal growth rate. The price target remains unchanged at Rs200.