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AIA Engineering Rating: buy- Correction in stock price is overdone

With this, we count on Ebitda margins to regularly normalise in H2FY22F, additional pushed by the pass-through of uncooked materials prices.

Freight and uncooked materials prices witnessed a pointy uptick because the begin of Dec-20; consequently the share price has declined ~17% vs NIFTY’s rise of 0.8% in the final 30 days. In our view, present costs issue in headwinds – such because the challenges the company might face in passing via larger freight prices – adequately.

Freight charges have began to reasonable: The decline in freight charges is in line with our expectations. With this, we count on Ebitda margins to regularly normalise in H2FY22F, additional pushed by the pass-through of uncooked materials prices.



Our deep dive on mill liners suggests long-term worth accretion based mostly on merchandise worth proposition: Research papers and patents of EE Mill Liners (unlisted), AIAE’s expertise associate for mill liners, suggests financial savings of >20% on energy prices and an increase in yields on shorter mill downtime. These advantages have been pushed by patented mill circuit optimisation expertise relatively than via the usage of mill liners per se. The advantages permit AIAE’s entry into mines, permitting the cross-selling of merchandise similar to grinding media.

Elevated ore costs might result in world mining capability enlargement: The prevailing excessive metallic costs make 10-15% of marginal mining capability economically viable. These marginal-cost mines have a tendency to profit extra from the rise in yields and value financial savings provided by AIAE’s merchandise, driving an additional enhance of ferrochrome as grinding media.

Upgrade to Buy: Our estimates are unchanged, and we proceed to worth AIAE at 28x FY23F EPS of Rs 79.7 to reach at a TP of Rs 2,230, implying ~23% upside, and improve to Buy. Slower-than-expected moderation in freight charges is a key threat.

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