CMP Rs 970 (FV2) Analyst : Janak Shah (M.B.A. Finance)
Market Cap Rs 9191 crs Date: 25th September 2015
Target : Rs 1250 Time frame : 1 year target
Stock Rating : Long term multibagger
About the Company:
The company came in existence since 1979 at Ahmedabad. Promoted by Mr Bhadresh Shah who is the driving force behind AIA and the man responsible to take it to the next level of making it the largest HCMI player in the world by next year overtaking its arch rival and one time partner Magotteaux. It is right now the second largest High chrome mill internals player in the world and next year, it will become the largest. VEGA industries is a wholly owned subsidiary of AIA engineering. It has sales and services in 75 countries. The company is publicly traded on BSE and NSE.
AIA engineering is mainly into the manufacturing of High Chromium wear resistant parts for grinding and crushing equipment. They include Grinding Media, Liners, Diaphram, Rollers and Table liners, Hammers and Dipping tubes to name a few. It caters to Cement and Mining Industry as end users. AIA is expanding its capacity from 260000 MT to 4,40,000 MT to become the largest in the world. Magotteaux has a capacity of 3,50,000 MT and they are not expanding right now. Aia has plant locations in Ahmedabad, Trichy, Bangalore and Nagpur. By 2015-16, the capacity of AIA will rise to 350000 MT and by 2016-17, the capacity will be at 4,40,000 MT.
The company has a debt of just 160 crores and the cash flow of the company is robust. The company has seen excellent growth in the last decade and this expansion will ensure it becomes the biggest in the world and also will remain almost debt free after the full expansion.
For the year ended 2014, the company saw sales of Rs 2016 crores and net profit stood at Rs 324 crores. EPS stood at Rs 34.45 per share.
For the year ended 2015, the company saw sales of 2183 crores and Net profit was at Rs 430.9 crores. The EPS was seen at Rs 45.69 per share on a consolidated basis.
For the year ending 2016, the company can report EPS of nearly Rs 55 per share and 2017 EPS can go as high as Rs 70 per share. The year 2017-18 will be a golden year for the company as the full expanded capacity will be give great profits.
Promoters hold about 61.65% while FII’s hold 21% , DII’s hold 6.31% and the public holding is 11.04 %. Some of prominent investors are Nalanda Capital, Mathews India Fund, HDFC Mutual fund, IDFC Mutual fund and Royce Fund.
Comparisions to Peers:
The company cannot be compared to any other listed company. It is a unique company with almost nil debt and excellent expansions coming into production soon without adding debt.
AIA operates in an oligopolistic industry. From being second largest in the world, it will become the largest in the world by FY 16-17. AiA has cost advantages over Magotteaux while the service & quality is better than the rival. AIA has averaged revenue growth of 30% and ROE 20% for the last one decade. The products are of low cost but are essential for clients as a plant shutdown will incur more costs. The customers stick to AIA rather going for cheaper grinding alternatives. AiA is targeting the replacement market in a big way. Also it is interesting to note that in this scenario where they supply to 4 verticles, cement is the only one vertical doing slightly well. One can imagine that when mining, power start doing well, the profits will be huge. The management at the recently conducted AGM has guided that the margins are expected to go down slightly as there is a meltdown in the commodities market and the end user is also asking for price cuts, this will be compensated by higher sales. The company is constantly focusing to replace the forging companies to high chrome mill internals. This would surely take time to convince the end user but the long term benefits will be huge. The huge advantage is that the promoter Mr Bhadresh Shah enjoys excellent reputation in term of honesty and integrity due to which Fii’s and Dii’s have shown great interest in the company. This is just the start what we feel and big things would happen in this company in the next 5 years. Out of the 7000 odd listed companies this is one company which has almost nil debt, huge expansion plans, honest and able promoter, would be the largest in the world soon. These are enough to give this stock a PE of 30 in the longer run.
The share which is quoting at Rs 970 has the potential to cross the 1100 mark in the medium term and can also cross the 1250/- mark in 1 year. In the long run it will be a multibagger.
( Disclosure: The analyst has holdings in the company as on date of issue being published) The analyst is a sebi certified research analyst. Registration No: INH000001717