Niche Research report on AIA Engineering:

AIA Engineering (AIA) a niche player in the value-added high chrome mill internal segment, catering to global markets. AIA manufactures value added, impact, abrasion and corrosion resistant high chrome metallurgical products catering to the cement, mining and thermal power industries in the grinding & crushing operations. Products include grinding media, liners, diaphragms etc with focus on application and end to end solutions. While cement segment remains the core earnings driver to the revenues, focus on global mining segment provides immense opportunity, which would put AIA on high growth trajectory.

Building up to be a Global leader AIA has aggressively planned expansion to take its current production capacity from 65,000 tonnes to 2, 65,000 tonnes by December'2008 end. In the Phase I of its expansion, AIA has already commissioned a 50,000 tonnes capacity in Export Oriented Unit (EOU) in March'2007 at Moraiya, Ahmedabad and plans to commission another 50,000 tonnes capacity by October'2007 giving a huge increase in its scale of operations in FY07-08. In Phase II of its expansion, AIA has announced to commission an additional 1, 00,000 tonnes capacity plant in an SEZ by December'2008.

Cementing its Leadership Position AIA has 95% market share of mill internals for cement plants in the domestic market and nearly 20% market share of the global cement plant market outside China. With new capacity additions underway, coupled with a strong domestic and international repute, the market share is expected to increase. We believe, with robust capacity utilization, coupled with volume growth of 210% would drive revenue growth of 27% CAGR over FY06-09E and operating leverage to 39% CAGR over FY06-09E.

Outlook AIA with its aggressive expansion plans in the value-added high chrome metallurgy segment & having dominance in cement segment is now strongly focusing on the global mining industry to leverage its rich experience in the metallurgy, grinding & crushing operations. With the incremental capacities commissioning to deliver and buoyancy in the demand for mill internals from the OEM and replacement market in the cement segment is all set to help AIA to boost its revenues by 27% CAGR for next three years.

Valuations At the CMP of Rs 1190, AIA trades at a PEx of 24x and 15x on the diluted EPS of Rs 49 and Rs 68 for FY07E and FY08E respectively. AIA is currently trading at a EV/ EBITDA of 18x FY07E and 11x for FY08E, which has enough room for re-rating based on the rich product mix and strong fundamentals. Based on our DCF Valuation Model, we maintain a “BUY”on AIA with a target price of Rs 1370.