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AIA Engineering: Margins back on track - Views on News from Equitymaster
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AIA Engineering: Margins back on track
Feb 14, 2013

AIA Engineering has announced the third quarter results of financial year 2012-2013 (3QFY13). While the topline grew by around 20% YoY bottomline grew 5.6% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top-line increases by 20% YoY in 3QFY13. Top line growth was boosted by favorable impact of rupee and better product mix. However, realizations were relatively flat at Rs 104 per kg compared to Rs 103 per kg in the previous quarter.
  • Operating profits increased by 18.3% YoY while the margins fell marginally by 30 bps (0.3%) YoY to 19.9% during the quarter. Significant margin improvement compared to previous quarter (2QFY13 margin stood at 12.6%) was due to change in product mix and forex benefit.
  • Net profits grew 5.6% YoY due to strong performance at the operating level and increase in other income.
  • The current cash stands at Rs 3.35 bn.
  • As of 3QFY13, the order book stood at Rs 4.6 bn.

Consolidated performance snapshot
(Rs m) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
Income from operations 3,468 4,160 20.0% 9,621 12,938 34.5%
Expenditure 2,769 3,333 20.4% 7,728 10,756 39.2%
Operating profit (EBDITA) 699 827 18.3% 1,892 2,183 15.3%
Operating profit margin (%) 20.2% 19.9%   19.7% 16.9%  
Other income 28 45 61.9% 89 156 75.5%
Finance cost 11 11 4.3% 21 39 88.1%
Depreciation 75 87 15.7% 216 257 19.0%
Profit before tax 641 774 20.7% 1,745 2,043 17.1%
Tax 139 239 72.3% 467 565 21.0%
Profit after tax/(loss) 502 534 6.5% 1,278 1,478 15.7%
Minority Interest (1) 3   (2) 7  
Profit after tax and minoity interest 503 531 5.6% 1,280 1,471 14.9%
Net profit margin (%) 14.5% 12.8%   13.3% 11.4%  
No. of shares (m)         94.3  
Basic & diluted earnings per share (Rs)         15.6  
P/E ratio (x) *         15.1  
* On a 12-month trailing basis

What has driven performance in 3QFY13?
  • Net sales increased 20% YoY during the quarter due to better product mix. The company registered total volumes of 38,000 tons during the quarter. The volumes were slightly lower than the previous two quarters as 2,500 tons of inventory was in transit to one mining customer. Out of the total volumes approximately 16,500 tons came from the mining sector. The average realization for the quarter stood at Rs 104 per kg, up from Rs 103 per kg in the previous quarter, due to change in product mix.

  • Operating profits increased 18.3% YoY primarily due to strong top line growth. Operating margins stood at 19.9% during the quarter. There was a substantial improvement in the margins as compared to the last two quarters (2QFY13 and 1QFY13 margins stood at 12.6% and 18.3% respectively) due to change in product mix and favorable forex impact.

  • Net profits grew 5.6% YoY due to strong performance at the operating level and increase in other income. The net margins stood at 12.8% for the quarter compared to 14.5% in 3QFY12.

What to expect?
Over the last quarter, sustainability in margins turned out to be a prime concern for the company. However, eschewing all those concerns the company registered a strong bounce back with operating margins of 19.9% during the quarter. Favorable product mix and forex behavior enabled the company to post better margins.

Going forward, in FY14, management expects top line to be in the range of Rs 18.5-19 bn. Volumes are expected to be in the range of 180,000 to 190,000 tons. EBITDA margin is expected to be in the range of 20% provided the rupee stays at 55 odd levels to the dollar. As far as the capacity expansion plans are concerned, management expects total capacity to reach 260,000 tons by the end of December 2013 from about 200,000 tons now. While the company has lined up huge expansion plans and there are signs of margin revival as well we believe that most of the benefits are already priced in. As such, we maintain our HOLD view on the stock.

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