AIA Engineering. Believe in the best; Huge untapped market opportunity available. Target CMP. Rating. Rs Rs BUY

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Believe in the best; Huge untapped market opportunity available Our analysis of the commentary from global mining majors, especially in copper and gold ores (consumes 8% of grinding media), suggests that the grinding media demand scenario is not as bad as expected initially due to global mining slowdown. We expect grinding media industry and AIAE s volumes to only improve from the current levels given (1) Mining output of copper/copper ore by global majors remains intact despite fall in prices (2) Consistent decline in ore grades should lead to more grinding media requirement (3) AIAE is yet to foray into key copper markets like Chile and Peru (4) Primary grinding media could positively surprise AIAE s overall volumes over the next 1-2 years. We remain conservative and expect AIAE s volumes to clock a CAGR of ~11% FY16-FY18E. We believe AIAE is a stable multi year growth story and is part of Spark s 2 Core Portfolio Midcaps for 22. Maintain with a target price of /- Global Copper and Gold majors production remain intact - Copper and Gold ores/customers constitutes ~8% of the overall mining grinding media industry. Based on our analysis of commentary from the top global mining majors in these ores, we understand that the large players have not cut production and unlikely to do it in the future inspite of the fall in commodity prices. Given these players are likely to be the target customers of AIAE, we believe the risk of addressable grinding media market shrinking going forward is unlikely. Also a consistent fall in ore grades should translate into more mining/grinding media requirement for the same end product output. AIAE is yet to foray into core mining markets - Latin American countries Chile and Peru are the major producers of copper ores and constitute ~85% of the South American volumes of MolyCop (largest forged media) player. Based on our channel interactions, while AIAE has presence in the Brazilian market, it is yet to have any significant presence in Chile and Peru. A foray into these markets and any incremental volumes would be additional positive for AIAE. AIAE better positioned than competitors due to cost advantage AIAE has significant cost advantages over MolyCop and Magotteaux owing to its low cost of operations due to its centralized manufacturing. On the other hand, MolyCop and Magotteaux have 1 and 19 manufacturing facilities respectively spread across the globe increasing its cost of operations. Lower operating cost and employee costs (5% of FY16E revenue for AIAE vs. ~12% of revenue for its competitors) should provide AIAE pricing advantage and better margins. Also, sharp fall in freight costs (as high as ~5% y-o-y) should benefit AIAE in the medium term. Primary grinding media could provide a positive surprise AIAE is currently focusing on introducing primary grinding media (grinding media >5 inches in diameter) which is estimated to be ~1-1.5mn MT of the overall mining grinding media market of ~3mn MT which is currently using forged products. A breakthrough in this segment (which so far has been dominated by forged media players) is likely to boost the volume growth potential for AIAE. EBITDA margin benefited by falling scrap prices, steady state margin to be slightly lower - AIAE s EBITDA margin has registered significant margin expansion ~28.7% in FY16E (vs. 26.8% in FY15) on the back of fall in scarp prices. While the margin expansion could potentially sustain at these levels, we remain conservative and expect margins to be ~26% in FY17E and FY18E. Financial summary (Consolidated) Date March 17, 216 Market Data SENSEX 24682 Nifty 7499 Bloomberg Shares o/s Market Cap Company Update Stock performance (%) 1m 3m 12m AIAE 22% 6% -3% Sensex 6% -3% -13% CG Index 5% -12% -29% Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) RoE(%) FY15 21,836 5,848 4,39 45.7 19.7 22.5 FY16E 21,458 6,158 4,26 42.7 21. 18. FY17E 24,363 6,359 4,35 42.8 21. 15.8 FY18E 27,838 7,321 4,634 49.1 18.3 16.1 AIAE IN 94mn Rs. 84.7bn 52-wk High-Low Rs. 1,364-7 3m Avg. Daily Vol Rs. 55mn Index member BSE 2 Latest shareholding (%) Promoters 61.7 Institutions 32. Public 6.4 VIJAYARAGHAVAN SWAMINATHAN raghavan@sparkcapital.in +91 44 4344 22 RAVI SWAMINATHAN ravi@sparkcapital.in +91 44 4344 58 Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Page 1

Copper majors have kept up production inspite of fall in commodity prices Top copper assets are owned by a few major global miners Operation Country Mine Owner Material mined per day kt Escondida Chile BHP Billiton 13 Collahuasi Chile Anglo, Glencore 75 El Teniente Chile CODELCO 137 KGHM Operatons Poland KGHM 88 Los Brances Chile Anglo American 397 Los Pelambres Chile Antofagasta 4 Morenci USA Morenci 816 Antamina Peru BHP, Glencore 532 Chuquicamata Chile CODELCO NA Radomiro Tomic Chile CODELCO NA Source: Industry, Spark Capital Research Copper production trend has remained firm ( Metric Tonnes Copper) World Copper Mine Production World Copper Mine Capacity 211 212 213 214 214 215 215 Jan- v Aug Sep Oct v 1656 16767 1824 18499 16872 17451 1593 1592 1651 1613 1947 19923 2699 2158 1977 2677 1935 188 195 1895 Inspite of the fall in commodity prices, the large players are not cutting copper production barring Glencore and Freeport who have cut production temporarily Date Company News News Link Jan-16 Anglo American Dec-15 BHP Billiton Oct-15 CODELCO Oct-15 Rio Tinto Dec-15 Glencore Anglo American Says Fourth-Quarter Copper Production Rises 23% BHP Billiton to slash copper production costs, increase output Codelco vows not to cut copper output even if prices keep falling Rio Tinto vows to not cut copper output despite falling prices Glencore Looks to Lower Copper Production Costs as Prices Slump Source: Mining.com, Online news articles, reports, Spark Capital Research Copper & Gold constitutes ~8% of overall grinding media market Grinding media Ore-wise share (%) Other Minerals (Iron Ore, Platinum,etc) 2% Copper 65% Click here Click here Click here Click here Click here Oct-15 Freeport Freeport cuts US copper production Click here Mine Capacity Utilization (%) 82.7 84.2 88.1 86 85.3 84.4 82.3 84.7 84.7 85.1 Gold 15% Source:ICSG, Spark Capital Research Source: MolyCop, Industry, Spark Capital Research Page 2

1985 1988 1991 1994 1997 2 23 26 29 212 215 218 221 224 Mt AIA Engineering Copper and Gold production/demand to remain unaffected, Only Iron ore takes a hit Long term demand for copper is expected to remain firm Strip ratio of Copper ore has been falling consistently, implying higher mining/ grinding media demand 29 27 25 23 21 19 17 15 CY15e CY16e CY17e CY18e CY19e CY2e CY21e CY22e CY23e CY24e CY25e 1.%.95%.9%.85%.8%.75%.7%.65%.6%.55% Copper Ore Strip ratio (%) Primary demand Primary supply Source: BHP Billiton Dec 15 Presentation, Spark Capital Research Source: CODELCO presentation, Spark Capital Research Gold production has remained broadly stable Only Iron ore has seen a impact in production Rank Country 214 215 E Change YOY 1 China 447.8 456.5 2% 2 Australia 274 277 1% 3 Russia 262.2 256.7-2% 4 USA 29.2 213.8 2% 5 Peru 173 173.3 % 6 Canada 151.2 152.1 1% 7 South Africa 163.7 148.9-9% 8 Indonesia 116.4 133.6 15% 9 Mexico 117.8 123.4 5% 1 Ghana 17.4 94.5-12% Rest of World 196.7 196.3 % Global Total 3119.4 3126.2 % 35 34 33 32 31 3 29 28 27 Global Iron Production (mn MT) CY11 CY12 CY13 CY14 CY15 Global Iron Production (mn MT) Source: GFMS, Spark Capital Research Source: Bloomberg, Spark Capital Research Page 3

AIAE has been ahead of MolyCop and Magotteaux in volume growth and margin; Major markets still to be tapped by AIAE AIAE has had better volume growth than competitors over the long term All players have seen healthy margin expansion, AIAE continues to enjoy better margins in mn MT FY12 FY13 FY14 FY15 9MFY16*# MolyCop (USD mn) Magotteaux (USD mn) AIAE (Rs. Mn) MolyCop 1.6 1.14 1.9 1.13.54 Magotteaux NA.32.32.33.32 AIAE.14.16.18.19.13 Company 9MFY15 9MFY16 YoY Growth (%) 1HFY15 1HFY16 CY15 CY16 9MFY15 9MFY16 Revenue 766 755 776 692 15,788 15,84 EBITDA 95 19 69 8 4,273 4,38 MolyCop*.58.54-6.9% Magotteaux#.33.32-1.8% EBITDA Margin (%) 12% 14% 9% 12% 27% 29% AIA Engineering.14.13-3.6% PAT NA NA 26 29 3,186 2,898 ; * - MolyCop Half Yearly Data, # - Magotteaux Annual Data AIAE is not present in large markets like Chile and Peru, Magotteaux and MolyCop have sizeable presence in these key countries Magotteaux - Grinding Media Volume share (%) Europe 26% Others 4% rth America 27% Chile 15% Brazil 11% Asia 18% Source: MolyCop, Magotteaux, Spark Capital Research Moly-Cop rth America Grinding Media Sales Volume 3% USA 24% 38% Canada Mexico Other 35% Moly-CopSouth America Grinding Media Sales Volume 9% 5% 2% Chile 28% 56% Peru Brazil Argentina Other AIAE has registered healthy volume growth of 1% CAGR over the past four years vis-à-vis Molycop and Magotteaux s flat volumes over the past 3-4 years. This is inspite of the fact that AIAE is not even present in the key mining markets (Chile and Peru) where Magttoeaux and MolyCop have large presence in these markets. We believe an entry into these countries could provide sizeable volume growth opportunity as large mining customers could potentially provide incremental volumes of as high as 1-5k MT per annum. Page 4

AIAE continue to have cost advantages over its peers Magotteaux has 19 manufacturing location with many of them in high cost destinations Similarly, MolyCop also a few high cost location among its 1 manufacturing facilities Source: Magotteaux, Spark Capital Research Freight rates down > 5% in the past 12 months benefiting AIAE 3 25 2 15 1 Wold Container Frieght Index (USD per 2 feet container) Source: MolyCop, Spark Capital Research Parameter AIA Engineering Magotteaux & MolyCop Business Model Cost Advantage Employee Cost Hub and spoke model - with centralized manufacturing Cost of operations/overhead cost lower Low employee cost ~4% of sales Decentralized model - 19 manufacturing facilities located near customers Freight cost lower Relatively higher employee cost ~12% of sales 5 23-6-211 23-6-212 23-6-213 23-6-214 23-6-215 Source: Bloomberg, Spark Capital Research Manufacturing capacity utilization AIAE is currently operating at ~55% capacity utilization (assuming 34k MT). Headroom to accommodate growth is high Magotteaux and Molycop operate at ~8-85% utilization. Molycop setting up facilities of ~4k MT in Peru and Canada. Magotteaux is setting up a facility in Thailand Page 5

Primary grinding media could be an additional growth driver Primary/SAG Mills are larger sized grinding media Grinding media - Primary/Secondary Market Size - 3mn Primary/Secondary Grinding media market Split* - 3mn Primary Grinding Media (SAG Mill) 4% Secondary Grinding Media (Ball Mill) 6% Source: Industry, Spark Capital Research; * - Estimate MolyCop has a strong presence in primary grinding media Moly-Cop NG For High Impact Milling Moly-Cop NG SAG balls are engineered to sustain high impact SAG milling operations Full scale SAG mill trial Estimated 26.1% reduction in ball consumption against the alternative supplier Moly-Cop NG to be available in the Americas from the second half of 215 AIAE is working on introducing high chrome based SAG mill/primary grinding media for the mining market. SAG mills are grinding media of > 5 inches in diameter and are used in primary crushing process (crushing of coarser ores) So far, SAG mill market has been dominated by forged media players, especially MolyCop. But high chrome grinding media players, especially AIAE is expected to have made considerable advancement in these products Primary grinding media constitutes ~1-1.5mn MT of the 3mn MT mining grinding media market. We believe any breakthrough in this product should support volume growth for AIAE Source: MolyCop, Spark Capital Research Page 6

Financial Analysis Volumes should recover from FY17E onwards EBITDA margin has sustained at higher levels because of 2,5, 2,, 1,5, 1,, 5, AIAE Volume Breakup (in MT) FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E 3 28 26 24 22 2 18 16 14 12 1 AIA Engineering - EBITDA Margin (%) FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E Mining n-mining EBITDA Margin (%) lower scrap rates 6 Steel Scrap rate - USD/ton 5 4 3 2 1 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Source: Bloomberg, Spark Capital Research and fall in ferrochrome prices 2.2 Ferro Chrome Prices (USD/lb) 2.15 2.1 2.5 2 1.95 1.9 1.85 1.8 1.75 1.7 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Source: Bloomberg, Spark Capital Research, Page 7

Financial Analysis RoEs are lower due to the heavy capex for the Greenfield facility 25. 2. 15. 1. 5.. AIAE - RoE (%) 22.6 22.5 16. 18. 15.8 16.1 FY13 FY14 FY15 FY16E FY17E FY18E 4, 3,5 3, 2,5 2, 1,5 1, 5 AIAE - Capex (Rs. Mn) 3,5 1,793 2, 2, 1,178 691 FY13 FY14 FY15 FY16E FY17E FY18E RoE (%) Capex (Rs. Mn) Cash flow metrics should remain strong inspite of capex 6, AIAE - Cash flow (Rs. mn) 5, 4, 3, 2, 1, FY13 FY14 FY15 FY16E FY17E FY18E OCF (Rs. Mn) FCF (Rs.mn) and net cash position strong at ~Rs. 1bn by FY18E (~13% of current market cap) 12, 1, 8, 6, 4, 2,, AIAE - Net Cash Position (Rs. Mn) FY13 FY14 FY15 FY16E FY17E FY18E Net Cash (Rs. Mn) Page 8

Financial Summary Abridged Financial Statements (Consolidated) Key metrics Rs. mn FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E Profit & Loss Grow th ratios Revenues 21,836 21,458 24,363 27,838 Sales 5.% -1.7% 13.5% 14.3% EBITDA 5,848 6,158 6,359 7,321 EBITDA 16.4% 5.3% 3.3% 15.1% Other Income 832 582 641 75 PAT 2.7% -6.6%.2% 14.8% Depreciation 697 736 981 1,121 Margin ratios EBIT 5,983 6,4 6,18 6,95 EBITDA 26.8% 28.7% 26.1% 26.3% Interest 39 4 4 4 PAT 19.7% 18.8% 16.6% 16.6% PBT 5,943 5,964 5,978 6,865 Performance ratios PAT 4,39 4,26 4,35 4,634 RoE 22.5% 18.% 15.8% 16.1% Balance Sheet RoCE 21.5% 17.2% 15.2% 15.5% Net Worth 2,836 23,923 27,18 3,571 RoA 19.6% 17.6% 14.9% 15.7% Deferred Tax 246 246 246 246 Fixed asset turnover (x) 2.6 2. 1.7 1.7 Total debt 641 1, 1, 1, Total asset turnover (x).9.7.7.8 Total Netw orth and liabilities 21,81 25,247 28,341 31,894 Financial stability ratios Gross Fixed assets 8,52 1,52 14,2 16,2 Net Debt to Equity (x) (.1) (.1) (.1) (.1) Net fixed assets 5,514 6,778 9,297 1,175 Current ratio (x) 3.6 4. 3.8 4.1 CWIP 465 465 465 465 Inventory and debtor days 188 188 19 19 Investments 6,369 6,369 6,369 6,369 Creditor days 37 39 38 38 Inventories 4,596 4,73 5,34 6,12 Working capital days 151 149 152 152 Sundry Debtors 3,938 4,292 4,873 5,568 Interest cover (x) 152.2 15.1 15.5 172.6 Cash and bank balances 1,868 4,512 3,884 5,245 Valuation metrics Loans and advances 2,738 2,49 2,468 2,817 Fully Diluted Shares (mn) 94.3 94.3 94.3 94.3 Current liabilities 3,686 3,92 4,354 4,846 Market cap (Rs.mn) 84,7 84,7 84,7 84,7 Net current assets 9,453 11,635 12,211 14,885 EPS (Rs.) 45.7 42.7 42.8 49.1 Total assets 21,81 25,247 28,34 31,894 P/E (x) 19.7 21. 21. 18.3 Cash Flow s EV (Rs.mn) 83,473 81,188 81,815 8,455 Cash flow s from Operations 3,55 5,264 3,854 4,481 EV/ EBITDA (x) 14.3 13.2 12.9 11. Cash flow s from Investing -2,555-2, -3,5-2, BV/ share (Rs.) 221. 253.7 286.5 324.2 Cash flow s from Financing (832) (62) (981) (1,121) Price to BV (x) 4.1 3.5 3.1 2.8 Page 9

Spark Disclaimer Rs. AIA Engineering 3 Year Price and History 14 12 1 8 6 4 2 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Price Report Date Price Reco. 1/Feb/16 793 1,76 Buy 3/v/15 943 1,173 Buy 4/Aug/15 1,18 1,289 Buy 18/Jun/15 97 1,27 Buy 21/May/15 1,14 1,27 Buy 9/Feb/15 1,74 1,176 Buy 11/v/14 99 942 Reduce 5/Aug/14 77 697 Sell 21/May/14 674 59 Sell 28/Jan/14 55 535 Add 18/Dec/13 466 537 Buy 5/v/13 441 58 Buy 14/Aug/13 315 382 Buy Report Date Price Reco. 21/Jun/13 32 371 Buy 3/Jun/13 313 361 Buy 13/Feb/13 32 331 Reduce Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time. Absolute Interpretation Stock expected to provide positive returns of >15% over a 1-year horizon ADD Stock expected to provide positive returns of >5% <15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% -1% over a 1-year horizon SELL Stock expected to fall >1% over a 1-year horizon Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure advisory services. This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. thing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital, its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Page 1

Disclaimer (Cont d) This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report. Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report: Disclosure of Interest Statement Analyst financial interest in the company Group/directors ownership of the subject company covered Investment banking relationship with the company covered Spark Capital s ownership/any other financial interest in the company covered Associates of Spark Capital s ownership more than 1% in the company covered Any other material conflict of interest at the time of publishing the research report Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months: Managing/co-managing public offering of securities Investment banking/merchant banking/brokerage services Products or services other than those above In connection with research report Whether Research Analyst has served as an officer, director or employee of the subject company covered Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; Yes/ Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst s personal views about any and all of the subject securities or issuers; and no part of the research analyst s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report. Additional Disclaimer for US Institutional Investors This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material concerning investment to you under relevant legislation and regulations. Page 11