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AIA Engineering: Significant margin improvement - Views on News from Equitymaster

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AIA Engineering: Significant margin improvement
Nov 8, 2013

AIA Engineering has announced the second quarter results of financial year 2013-2014 (2QFY14). While the topline grew by around 11.7% YoY bottomline grew 83.4% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Top-line increases by 11.7% YoY in 2QFY14. Top line growth was boosted by favorable impact of rupee and better product mix to a certain extent. Realizations stood at Rs 110 per kg for the quarter.
  • Total sales volumes during the quarter were 42,000 tons. The overall volumes were slightly lower as 1500 tons of production was lost due to plant shutdown. Mining volumes stood at 23,600 tons.
  • Operating profits doubled during the quarter with margins at 22.9%.
  • Net profits grew 83.4% YoY due to strong performance at the operating level.
  • The debt to equity ratio stood at 0.08 times at the end of the quarter.
  • Forex loss during the quarter was Rs 150 m.

Consolidated performance snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Income from operations 4,403 4,918 11.7% 8,778 9,772 11.3%
Expenditure 3,849 3,790 -1.5% 7,423 7,605 2.5%
Operating profit (EBDITA) 554 1,127 103.5% 1,356 2,167 59.8%
Operating profit margin (%) 12.6% 22.9%   15.4% 22.2%  
Other income 47 47 0.9% 112 87 -22.1%
Finance cost 13 19 53.7% 28 35 24.5%
Depreciation 86 91 6.8% 170 180 6.0%
Profit before tax 502 1,064 111.7% 1,269 2,038 60.6%
Tax 99 326 228.4% 326 643 97.4%
Profit after tax/(loss) 403 738 83.0% 944 1,395 47.9%
Minority Interest 2 2 -5.8% 4 4 -1.7%
Profit after tax and minoity interest 401 736 83.4% 940 1,391 48.1%
Net profit margin (%) 9.1% 15.0%   10.7% 14.2%  
No. of shares (m)         94.3  
Basic earnings per share (Rs)         14.8  
P/E ratio (x) *         15.7  
*On a trailing 12 month basis

What has driven performance in 2QFY14?
  • Net sales increased by 11.7% 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 110 per kg, up from Rs 103 per kg in the previous quarter. Mining volumes were at 23,600 tons during the quarter. Until 1HFY14, mining volumes have been in the region of 45-46K tons. For the full year management expects mining volume to be in the region of 95,000 tons.

  • Operating profits increased 103.5% YoY primarily due better product mix and favorable currency impact. Operating margins stood at 22.9% during the quarter.

  • Net profits grew by 83.4% YoY due to strong performance at the operating level. The net margins stood at 15.0% for the quarter compared to 9.1% in 2QFY13.
What to expect?
At the current price of Rs 427, the stock is trading at a multiple of 15.7x it trailing twelve month earnings. The expansion plans pertaining to a capex spend of Rs 3.7 bn are pretty much in place. The brownfield expansion of 60,000 tons at Moraiya will result in an outflow of Rs 1.2 bn. As for the greenfield expansion of about 40,000 tons, the total outflow will be Rs 2.5 bn. 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 was a significant margin improvement during the quarter (a sign that long term average will be in the range of 22-23% as per the management's guidance) 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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Sep 24, 2018 03:37 PM

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