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AIA Engineering: Exceptional quarter - Views on News from Equitymaster

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AIA Engineering: Exceptional quarter
Feb 4, 2014

AIA Engineering has announced the third quarter results of financial year 2013-2014 (3QFY14). While the topline grew by around 26.5% YoY bottomline grew 24.7% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top-line increases by 26.5% YoY in 3QFY14. Top line growth was boosted by favorable impact of rupee (average realization was Rs 60 to the US$) and better product mix to a certain extent. Realizations stood at Rs 120 per kg for the quarter.
  • Total sales volumes during the quarter were 42,000 tons. Mining volumes stood at 25,500 tons.
  • Operating profits increased by 45.4% YoY during the quarter with margins showing an improvement of 300 bps.
  • Net profits grew 24.7% YoY due to strong performance at the operating level aided by 187.1% YoY increase in other income. The net profits were adversely impacted by Rs 311 m paid to Megatteaux International Ltd towards a patent settlement case. Adjusting for that, profits were up 83.3% YoY.
  • Forex loss during the quarter was under Rs 30 m.

Consolidated performance snapshot
(Rs m) 3QFY13 3QFY14 Change 9MFY13 9MFY14 Change
Income from operations 4,160 5,262 26.5% 12,938 15,034 16.2%
Expenditure 3,333 4,060 21.8% 10,756 11,665 8.5%
Operating profit (EBDITA) 827 1,203 45.4% 2,183 3,369 54.4%
Operating profit margin (%) 19.9% 22.9%   16.9% 22.4%  
Other income 45 128 187.1% 156 215 37.6%
Finance cost 11 4 -59.5% 39 40 1.0%
Depreciation 87 93 7.0% 257 273 6.3%
Profit before tax 774 1,233 59.4% 2,043 3,271 60.1%
Exceptional items  - 311 NA  - 311 NA
Tax 239 258 7.8% 565 901 59.5%
Profit after tax/(loss) 534 664 24.3% 1,478 2,059 39.3%
Minority Interest 3 2 -51.3% 7 5 -24.6%
Profit after tax and minoity interest 531 662 24.7% 1,471 2,054 39.6%
Net profit margin (%) 12.8% 12.6%   11.4% 13.7%  
No. of shares (m)         94.3  
Basic earnings per share (Rs)         21.8  
P/E ratio (x) *         18.5  
*On a trailing 12 month basis

What has driven performance in 3QFY14?
  • Net sales increased 26.5% YoY during the quarter. The company registered total volumes of 42,000 tons during the quarter. The average realization for the quarter stood at Rs 120 per kg, up from Rs 110 per kg in the previous quarter. The realizations were up significantly due to better product mix and currency advantage.

  • Operating profits increased 45.4% YoY primarily due to strong performance at the top line level. Operating margins were up by 300 bps YoY to 22.9% during the quarter. Management commentary indicated that the low teen era (16-17% EBITDA margins) has been a thing of past and in future margins may remain in early twenties.

  • Net profits grew 24.7% YoY due to strong performance at the operating level and 187.1% YoY rise in other income. However, adjusting for exceptional items, relating to one time patent infringement payment of Rs 311 m, profits grew by 83.3% YoY.
What to expect?

At the current price of Rs 528, the stock is trading at a multiple of 18.5x its trailing twelve month earnings. As per management, the brown field expansion plan is expected to add a capacity of 50-60K MTPA and will get commissioned by the end of this month. With new capacity coming in, volumes are likely to increase by 20-30K MTPA from next year. Considering that the company has lined up huge expansion plans and there was a significant margin improvement during the quarter (a sign that long term average will be in the range of 22-23% as guided by the management) we are likely to revise our estimates and target price upwards. Until then, we maintain our HOLD view on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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