>AIA Engineering Ltd. (HEM SECURITIES)

COMPANY OVERVIEW: AIA Engineering Limited specializes in design, development, manufacture, installation and servicing of high chromium wear, corrosion and abrasion resistant parts used in cement, mining and thermal power generation industries. The company has no competitors in India and has few globally. This ensures a near monopolistic status for the company. Even nearly 70 per cent of the company’s business comes fromreplacement demand which give the company a better picture in terms of future revenue. The company profit margins are on a cost plus basis, due to which profits could decline when input costs fall.

INDUSTRY SNAPSHOT: The industry offers high chromium wear, corrosion and abrasion resistant parts used in diversified industry. It is a highly fragmented industry where it is characterized by few small and some large players who normally manufacture according to the customers specifications and requirements. Majority of the products manufactured are required due to replacement of products which gets wear and tears while daily operational activities. The major contributor of revenue to this industry is through replacement sales.

Recommendation
AIA Engineering Limited has a scalable business model, good growth visibility, high operating margin and limited competition. The company has registered a continuous robust growth rate over past few years. As discussed with the management, the Company has a strong order book position of around INR 415 Crores which provides a strong visibility to their revenues. The company is trading at a low PE of around 5.5X. We expect the company to outperform in the future and we reiterate “BUY” on the stock with a target of INR 178.00.

Highlights/Recent Updates
Special Economic Zones (SEZ) project getting delayed Currently the company has a capacity to manufacture 65,000 tonnes per annum (tpa) of high chrome grinding media, liners, vertical mill spares and mining liners. The new plant in SEZ near Ahmedabad is getting delay due to approval where the company had planned to increase the manufacturing capacity to 1,65,000 tonnes per annum (tpa). To meet the increase in demand, the company has now planned to ramp up capacity in their existing plants. By this the company can increase the production to 2,00,000 tonnes per annum (tpa) by March 2011.

Stock Split at 5 for 1
The company has split the share of face value INR 10.00 to INR 2.00. The total outstanding share after the split stands at 9,39,83,940.

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