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AIA Engineering: Robust performance - Views on News from Equitymaster
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AIA Engineering: Robust performance
Aug 21, 2013

AIA Engineering has announced the first quarter results of financial year 2013-2014 (1QFY14). While the topline grew by around 10.9% YoY bottomline grew 21.7% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top-line increases by 10.9% YoY in 1QFY14. Top line growth was boosted by favorable impact of rupee and better product mix to a certain extent. Realizations were relatively flat at Rs 103 per kg for the quarter. Total sales volumes during the quarter stood at 44,000 tons compared to 40,000 tons in 1QFY13.
  • Operating profits increased by 28.0% YoY while margins improved by 280 bps YoY to 21.1% during the quarter. Margins improved on account of better product mix and currency movements.
  • Net profits grew 21.7% YoY due to strong performance at the operating level.
  • Total borrowings at the end of the quarter were Rs 1.75 bn.

Consolidated performance snapshot
(Rs m) 1QFY13 1QFY14 Change
Income from operations 4,375 4,854 10.9%
Expenditure 3,574 3,829 7.1%
Operating profit (EBDITA) 802 1,026 28.0%
Operating profit margin (%) 18.3% 21.1%  
Other income 65 53 -18.1%
Finance cost 16 16 0.8%
Depreciation 84 89 5.3%
Profit before tax 767 975 27.1%
Tax 226 317 40.1%
Profit after tax/(loss) 540 657 21.7%
Minority Interest 2 2 2.3%
Profit after tax and minoity interest 538 655 21.7%
Net profit margin (%) 12.3% 13.5%  
No. of shares (m)   94.3  
Basic earnings per share (Rs)   6.9  
P/E ratio (x) *   14.0  
*On a trailing 12 month basis

What has driven performance in 1QFY14?
  • Net sales increased 10.9% YoY during the quarter. The company registered total volumes of 44,000 tons during the quarter. The average realization for the quarter stood at Rs 103 per kg, down from Rs 105 per kg in the previous quarter.

  • Operating profits increased 28.0% YoY primarily due to the better product mix and favorable impact of the currency. Operating margins stood at 21.1% during the quarter.

  • Net profits grew 21.7% YoY due to strong performance at the operating level. The net margins stood at 13.5% for the quarter compared to 12.3% in 1QFY13.
What to expect?
At the current price of Rs 330, the stock is trading at a multiple of 14 times it trailing twelve month earnings. The expansion plans pertaining to a capex spend of Rs 3.8 bn are pretty much in place. The brownfield expansion of 60,000 tons at Moraiya is expected to complete by January 2014. As for the greenfield expansion of about 40,000 tons, the actual work is about to start soon. The volume guidance of 180,000 tons for FY14 remains pretty much intact.

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. Further, pricing competitiveness is likely to erode volume advantage. Also, the current margin revival is because of rupee depreciation. In short, there is a question whether the current performance is sustainable or not.

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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