AIA Engineering (AIAENG) 1435

Transcription

1 Result Update Rating matrix Rating : Hold Target : 152 Target Period : 12 months Potential Upside : 5% What s changed? Target Unchanged EPS FY18E Chnaged from 49.8 to 47.7 EPS FY19E Introduced at 58.4 Rating Unchanged Quarterly performance Q3FY18 Q3FY17 YoY Q2FY18 QoQ Revenue EBITDA EBITDA bps bps PAT Key financials Crore FY17 FY18E FY19E FY2E Net Sales 2,246. 2, , ,178.7 EBITDA Net Profit EPS ( ) Valuation summary FY17 FY18E FY19E FY2E P/E Target P/E EV / EBITDA P/BV RoNW RoCE Stock data Particular Amount Market Capitalization Crore Total Debt (FY17) 115 crore Cash and Investments (FY17) 12 crore EV week H/L 165/71 Equity capital 18.9 Crore Face value 2 Price performance 1M 3M 6M 12M Cummins India (.) Greaves Cotton (1.1) VA Tech Wabag (1.1) AIA Engineering (2.7) (5.7) Research Analyst Chirag J Shah Shah.chirag@icicisecurities.com February 7, 218 AIA Engineering (AIAENG) 1435 Volumes muted but strong recovery in FY19E AIA Engineering reported disappointing set of Q3FY18 results. The disappointment was in terms of decline in volumes of consumables sold. Revenues declined by 3% YoY to crore vs. our estimate of 615 crore. Volumes for Q3FY18 declined by 9.6% YoY to tonnes vs estimates of 684 tonnes. On a segmental basis, mining and others segment declined by 9.8% and 9.3% YoY to and 1946 tonnes respectively. Realisations were up by 7.3% YoY to 17/tonne on account of better product mix. Absolute EBITDA came in at 126 crore which translated into EBITDA margins of 22.1% vs. estimate of 2.9%. Higher than expected other income on account of forex gain and lower tax outgo (indexation benefit on maturity of liquid investments led to higher than expected profit of 116 crore. Q3FY18 a one off for volumes, strong recovery from FY19E onwards. The mining volume decline of 9.8% YoY was below our expectation during Q3FY18. For FY18E, the company expects the volume to be in the range of tonnes. The real kicker will set in from FY19E onwards as strong client addition (long term contract with barrack gold of 18 tonnes and other ongoing negotiations) in the global mining space will add incremental volumes of at least 4-5 tonnes p.a. This will result in a volume of CAGR in excess of 15% over the FY18E-FY2E. We have built in volumes of and 33 tonnes for FY19E and FY2E wherein the share of mining volumes will be will reach 71% by FY2E. Capex delayed by 6 months on account of vendor issues but is likely to come by Q1FY2. AIA has already commissioned Phase 1 of the capex programme which has taken the capacity to 34 tonnes and Phase 2 is likely to get commissioned in two tranches. The first tranche of 5 tonnes of capacity will get commenced by Q1FY19E while remaining 5 tonnes will get commissioned in by Q1FYE. The cost of project has been escalated from 35 crore earlier to 5 crore. FY18E will se capex spend of 17 crore while 2 will be spent in FY19E and the remainder in FY2E. AIA has already spend 61 crore in H1FY18. Margins going through transition phase thereby impacting PAT in FY18E Better product mix and marginal price hikes led to expansion in gross margins and resultant beat in EBUTDA margins at 22%, which were ahead our estimates. Going ahead, with focus on increasing utilisation, penetrating new clients would manifest fall in realisations, which would put pressure on margins over next 3-4 quarters. Hence we have revised our margins to 22% in FY18 which will then gradually improve to 24% by FY19E and 24.1% for FY2E, respectively. Wait for better entry point. Maintain Hold Strong visibility ramp up of mining segment does indicate us that margin recovery will commence from FY19E onwards. We expect over revenues and PAT to grow at a CAGR of 19.1% and 2.7% respectively over FY18E-FY2. However, valuations at 26x FY2E pegs fair value of 152 and hence offers limited upside on the stock. We believe that AIA is a structural play n the global mill internals space and will be the key beneficiary of conversion of mill internals from forged media to high chrome media. Hence any correction in the stock should be used as a strong entry point into the stock from a 3-5 year perspective. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY18 Q3FY18E Q3FY17oY (Chg %) Q2FY18oQ (Chg %) Comments Sales Volume decline of 9.3% YoY was below estimates. Mining volumes grew 9.6% YoY. Realisations were up 9% YoY Other Income Raw Materials Expenses Employee Cost Other Expenditure EBITDA EBITDA Margin bps bps EBITDA margins were higher than our estimates on the back of QoQ expansion in gross margins Depreciation Interest PBT Taxes PAT PAT was higher on account of higher other income and lower tax outgo Key Metrics Volume (in tonnes) 51,392 58,938 56, , Mining segment volumes were below estimates Net Realisation ( /tonne) 18,264 98,1 1, , Realisations were ahead of our estimates Change in estimates FY19E FY2E ( Crore) Old New % Change Old New % Change Comments Revenue 2,79.6 2, , EBITDA EBITDA Margin bps Though margins may come down owing to marketing of new capacity, we have been conservative. Hence, we have cut our estimates for FY18 and FY19E PAT EPS ( ) Overall PAT for FY19E has been upgraded on account of better-than-expected growth in mining volumes, which will compensate for drop in margins Assumptions Current Earlier FY17 FY18E FY19E FY2E FY19E FY2E Overall Volumes (tonnes) 214, ,21 263,485 33,8 272,815 - Better prospects have led to volumes upgrade Mining Volumes (tonnes) 12, , ,374 19, ,159 - Higher penetration in gold and copper will drive mining growth Capacity 34, 39, 44, 44, 44, - Net Realisations 15,726 13,718 12,531 14,94 12, - Realisations likely to rise on back of better pricing terms with customer ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Q3FY18 a one off for volumes, strong recovery from FY19E onwards. The mining volume decline of 9.8% YoY was below our expectation during Q3FY18. For FY18E, the company expects the volume to be in the range of tonnes. The real kicker will set in from FY19E onwards as strong client addition (long term contract with barrack gold of 18 tonnes and other ongoing negotiations) in the global mining space will add incremental volumes of at least 4-5 tonnes p.a. This will result in a volume of CAGR in excess of 15% over the FY18E-FY2E. We have built in volumes of and 33 tonnes for FY19E and FY2E wherein the share of mining volumes will be will reach 71% by FY2E. Exhibit 1: Trend in revenues ( crore) 8 3 FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18EFY19EFY2E Revenues Growth in revenues Source: Company, ICICIdirect.com, Research Exhibit 2: Share of mining segment to rise to 67% by FY18E FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY2E Cement Mining Utilities Source: Company, ICICIdirect.com, Research Exhibit 3: Trend in volume growth (Tonnes) FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY2E Production Sales Growth in sales Source: Company, ICICIdirect.com, Research Exhibit 4: Trend in capacity (Lakh Tonnes) FY7 FY8 FY9 FY1 FY11 FY12 Source: Company, ICICIdirect.com, Research FY13 FY14E FY15 FY16 FY17 FY18E FY19E FY2E ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 5: Trend in realisation ( /tonne) FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY2E Exhibit 6: Volume growth will lead revenue CAGR for AIA over the next couple of years FY FY12 FY13 FY14 FY FY FY17. FY18E. FY19E. FY2E Growth in Sales Growth in volumes sold Growth in realisations Margins going through transition phase thereby impacting PAT in FY18E In order to make inroads into the mining segment, AIA had to take price cuts in order to win clients. The same was reflected in EBITDA margins, which fell from 23% in FY1 to 17.7% in FY13. However, given the successful entry of AIA in the mining segment, margins have started clawing back to historical levels of over 2%. The same is reiterated by the fact that FY14 EBITDA margins of AIA have been at 24%. Even in FY15-FY16, AIA consistently reported robust margins in the range of %, respectively. Aggressive marketing of new capacity, volatile input costs and product mix change led to margins of 2.2%, which was below our estimates. Going ahead, with focus on increasing utilisation, penetrating new clients would manifest fall in realisations, which would put pressure on margins over next 3-4 quarters. Hence we have revised our margins to 22% in FY18 which will then gradually improve to 23.9% by FY19E and 24.1% by FY2E, respectively. Exhibit 34: Exiting lower margin projects to help drive margins ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 7: Trend in EBITDA margins FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY2E PAT will rebound at a 2/.7% CAGR over FY18-FY2E AIA s FY18E PAT would witness decline by 5% YoY to 393 crore given margins will compress in FY18E for seeding of the new capacity. However with strong pick up in volumes and resurrection of margins from FY9E onwards, AIA s PAT would grow by 18.3% CAGR to 45 and 551 crore in FY19E and FY2Erespectively. Exhibit 8: PAT to rise on the back of strong volume and margins ( crore) FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY2E PAT PAT Margins (RHS) ICICI Securities Ltd Retail Equity Research Page 5

6 Capex delayed by 6 months on account of vendor issues but is likely to come by Q1FY2. AIA has already commissioned Phase 1 of the capex programme which has taken the capacity to 34 tonnes and Phase 2 is likely to get commissioned in two tranches. The first tranche of 5 tonnes of capacity will get commenced by Q1FY19E while remaining 5 tonnes will get commissioned in by Q1FYE. The cost of project has been escalated from 35 crore earlier to 5 crore. FY18E will se capex spend of 17 crore while 2 will be spent in FY19E and the remainder in FY2E. AIA has already spend 61 crore in H1FY18. We expect AIA s CFO to average at 43 crore over FY18E-FY2E. The first phase of the capex programme i.e. 8 tonnes has come onstream by Q3FY16 wherein the company has spent 22 crore. The cash balance as of Q3FY18 stood at 115 crore (gross cash levels). Exhibit 9: Trend in cash flows ( crore) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY2E Outlook and Valuation Strong visibility ramp up of mining segment does indicate us that margin recovery will commence from FY19E onwards. We expect over revenues and PAT to grow at a CAGR of 16.7% and 18.3% respectively over FY18E- FY2. However, valuations at 26x FY2E pegs fair value of 152 and hence offers limited upside on the stock. We believe that AIA is a structural play n the global mill internals space and will be the key beneficiary of conversion of mill internals from forged media to high chrome media. Hence any correction in the stock should be used as a strong entry point into the stock from a 3-5 year perspective ICICI Securities Ltd Retail Equity Research Page 6

7 es ( ) Recommendation History vs. Consensus 1,8 1,6 1,4 1,2 1, Jan-15 Apr-15 Jun-15 Sep-15 Nov-15 Feb-16 Apr-16 Jun-16 Sep-16 Nov-16 Feb-17 Apr-17 Jul-17 Sep-17 Nov Feb-18 Series1 Idirect target Consensus Target Mean % Consensus with Buy Company snapshot Date Event Mar-12 Though AIA witnesses traction in mining volumes at the cost of pricing as an entry strategy, consequently, EBITDA margins took a plunge from 26% in FY11 to 22.8% in FY12 Sep-12 AIA suffers its worst ever margins of 12% in Q3FY13 as the mining share had risen to 5% in overall volumes Dec-13 AIA's financial performance witnesses turnaround as of 9MFY14. It clawes back to its normalised margin range of 22-23%, coupled with more than 5% share of mining volumes Jan-14 AIA announces aggressive capex plans of 6 crore for setting up a greenfield capacity of 18 tonnes. AIA plans to have a capacity of 44 tonnes by FY16E. On commissioning the same, AIA would be the world's largest player in the HCMI segment by FY16E Apr-14 AIA commissions 6 tonnes of brownfield capacity, thereby taking the total capacity to 26 tonnes Jan-14 AIA announces aggressive capex plans of 6 crore for setting up a greenfield capacity of 18 tonnes. AIA plans to have a capacity of 44 tonnes by FY16E. On commissioning the same, AIA would be the world's largest player in the HCMI segment by FY16E Apr-14 AIA commissions 6 tonnes of brownfield capacity, thereby taking the total capacity to 26 tonnes Mar-15 AIA recorded volume growth of 5.8% YoY to 1865 tonnes of HCMI whereas the revneues and PAT stood at crore and 413 crore respectively. Mar-16 AIA recorded flattish volume growth YoY at 1858 tonnes of HCMI whereas the revneues and PAT stood at 21 crore and 417 crore respectively. Mar-17 AIA recorded volume growth of 5.8% YoY to 1865 tonnes of HCMI whereas the revneues and PAT stood at and 413 crore respectively. Source: Bloomberg, Company, ICICIdirect.com Research Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Shah (Bhadresh K) 3-Sep Nalanda Capital Pte Ltd 3-Sep Matthews International Capital Management, L.L.C. 3-Sep HDFC Asset Management Co., Ltd. 31-Dec PineBridge Investments Asset Management Company (Ind 3-Sep Goldman Sachs Asset Management International 31-Dec L&T Investment Management Limited 31-Dec ICICI Prudential Asset Management Co. Ltd. 31-Dec Jwalamukhi Investment Holdings 3-Sep The Vanguard Group, Inc. 31-Dec Shareholding Pattern (in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Promoter FII DII Others Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares L&T Investment Management Limited M +.59M UTI Asset Management Co. Ltd M -.15M HDFC Asset Management Co., Ltd M +.38M Grandeur Peak Global Advisors, LLC -2.1M -.1M Invesco Asset Management (India) Private Limited +.36M +.2M Axis Asset Management Company Limited -2.17M -.1M Schroder Investment Management (Singapore) Ltd. +.27M +.1M Goldman Sachs Asset Management (Singapore) Pte. Ltd M -.9M Taurus Asset Management Co. Ltd. +.25M +.1M PineBridge Investments Asset Management Company (India) Pri -1.64M -.8M Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 7

8 Financial summary Profit and loss statement Crore (Year-end March) FY17 FY18E FY19E FY2E Total operating Income 2,246. 2, , ,178.7 Growth Raw Material Expenses ,131.6 Employee Expenses Other expenses ,127.5 Total Operating Expenditure 1, ,822. 2,49.9 2,411.9 EBITDA Growth Depreciation Interest Other Income PBT Others.... Total Tax PAT Growth EPS ( ) Cash flow statement Crore (Year-end March) FY17 FY18E FY19E FY2E Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Others CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others.... CF from investing activities Issue/(Buy back) of Equity.... Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec. premium.... Others CF from financing activities Net Cash flow Opening Cash Closing Cash Balance sheet Crore (Year-end March) FY17 FY18E FY19E FY2E Liabilities Equity Capital Reserve and Surplus 1, , ,46.3 2,775.6 Total Shareholders funds 1, , , ,794.5 Total Debt Deferred Tax Liability Minority Interest / Others.... Total Liabilities 2,95.8 2, , ,5.9 Assets Gross Block , , ,296.8 Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Investments ,58.6 1, ,358.6 Inventory Debtors Loans and Advances Other Current Assets Cash Total Current Assets 1, , , ,987.1 Creditors Provisions Total Current Liabilities Net Current Assets 1, , , ,682.2 Others Assets.... Application of Funds 2,95.8 2, , ,5.9 Key ratios (Year-end March) FY17 FY18E FY19E FY2E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 8

9 ICICIdirect.com coverage universe (Capital Goods) CMP M Cap ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E L&T (LARTOU) 134 1,7 Buy Bhel (BHEL) 9 81 Hold AIA Engineering 145 1,52 Hold Thermax (THERMA) 12 1,5 Buy KEC International (KECIN) Buy Kalpataru Power(KPP) 42 6 Buy Greaves Cotton (GREAVE) Hold Bharat Electronics (BHAELE) Buy Engineers India (ENGIND) Hold VaTech Wabag (VATWAB) Buy SKF (SKFIND) 172 2,225 Buy Timken India (TATTIM) Buy NRB Bearing (NRBBEA) Buy Grindwell Norton (GRINOR) Hold EPS ( ) P/E (x) RoCE RoE ICICI Securities Ltd Retail Equity Research Page 9

10 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 1

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