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AIA Engineering: Better product mix drives margins
Jun 6, 2013

AIA Engineering has announced the fourth quarter & full year results of financial year 2012-2013 (4QFY13). While the topline grew by around 0.6% YoY bottomline grew 21.6% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top-line increases by 0.6% YoY in 4QFY13. For the full year revenues increased by 23.6% YoY. Top line growth was boosted by favorable impact of rupee and better product mix. However, realizations were relatively flat at Rs 105 per kg for the quarter.
  • Operating profits increased by 9.9% YoY while margins improved by 170 bps YoY to 20.1% during the quarter. Margins improved on account of better product mix and currency improvement.
  • Net profits grew 21.6% YoY due to increase in other income and fall in tax rates on a YoY basis.
  • As of 4QFY13, order book stood at Rs 4.8 bn.
  • The board of directors has recommended a dividend of Rs 4 per equity share.
  • The consolidated debt/equity ratio of the company stood at 0.11x at the end of the year.


Consolidated performance snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Income from operations 4,546 4,575 0.6% 14,167 17,513 23.6%
Expenditure 3,709 3,655 -1.5% 11,434 14,411 26.0%
Operating profit (EBDITA) 837 920 9.9% 2,733 3,102 13.5%
Operating profit margin (%) 18.4% 20.1%   19.3% 17.7%  
Other income 35 57 61.4% 133 213 60.6%
Finance cost 11 16 44.9% 44 55 25.2%
Depreciation 79 88 11.9% 294 345 17.1%
Profit before tax 783 873 11.5% 2,527 2,916 15.4%
Tax 249 235 -5.6% 715 800 11.8%
Profit after tax/(loss) 534 638 19.5% 1,812 2,116 16.8%
Minority Interest 10 1 -92.0% 7 8 7.8%
Profit after tax and minoity interest 524 637 21.6% 1,805 2,108 16.8%
Net profit margin (%) 11.5% 13.9%   12.7% 12.0%  
No. of shares (m)         94.3  
Basic & diluted earnings per share (Rs)         22.4  
P/E ratio (x) *         14.0  
*On a trailing 12 month basis

What has driven performance in 4QFY13?
  • Net sales increased 0.6% YoY during the quarter. The company registered total volumes of 41,400 tons during the quarter. Out of the total sales volume, approximately 16,300 tons came from the mining sector. For the full year, total volumes were 161,000 tons. The average realization for the quarter stood at Rs 105 per kg, up from Rs 104 per kg in the previous quarter, due to change in product mix.

  • Operating profits increased 9.9% YoY primarily due better product mix and favorable currency impact. Operating margins stood at 20.1% during the quarter.

  • Net profits grew 21.6% YoY due to strong performance at the operating level, increase in other income and fall in tax rates. The net margins stood at 13.9% for the quarter compared to 11.5% in 4QFY12.

What to expect?
Over the last few quarters, sustainability in margins turned out to be a prime concern for the company. However, considering the favorable movement in rupee and better product mix the company reported 20% margins during the quarter. Management stated that these levels look sustainable over the future.

Going forward, in FY14, management expects volumes to be in the region of 180,000 tons. Also, management intends to increase the capacity from 200,000 tons to 300,000 tons. This will entail a capex of Rs 3.8 bn. Out of the total 100,000 tons of planned expansion, 60,000 tons will come from expanding the existing facility while the balance 40,000 tons will come from greenfield expansion. Considering that 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. 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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