AIA Engineering Ltd

Message

   AIA Engineering Ltd.
I am not allowed to start a new thread but I am looking at AIA Engineering and I wonder if other people have looked into the company before. I am noting my findings below. I request the administrator to make this post its own thread If it generates enough interest.

AIA is involved in manufacturing of impact, abrasion and wear resistant, high chrome mill internal products. The products are used as consumables in the process of Grinding/Crushing in the mills in the Cement Industry, Mining Industry and Utility Industry.

Reasons to like AIA : 

High Entry Barrier: Customers are reluctant to experiment with newer source of supply as regards mill internals as a snag in the grinding process would lead to stoppage in the production. 
Pricing Power: Company got hurt from increase in raw material (ferro chrome) prices few years back. It has now gone into variable price contract with its customers to pass on any spikes in raw material costs. 

Diversified Customer Base: Top customer does not account for more than 10% of sales.

Recurring Revenue Stream: More than 70% of the business comes from replacement demand which is not linked to economic cycle.

Owner Management: 65% holding by promoter.
Consistent growth in revenue. Revenue has grown at 30% CAGR since 2001. 
Net income margin has shown consistent growth. 
Company has paid down it's debt to the extent that Debt/Equity is very small (2.2%). 
Company actually increased its revenue and EPS in FY 08 and FY 09. It's a big achievement considering that financial crisis didn't leave anything untouched. 
Almost 50% of the revenue is from exports. Company has started to hedge currency risk.

The demand for AIA’s products stems primarily from the switch in the user industries’ preference to high-chrome mill internals against the conventional forged ones. 

AIA is also looking to increase the share of its revenues from the mining sector. Mining sector demand is expected to be about 2.4 mn MT as compared to demand from Cement which is 0.3 mn MT. Cement makes up almost 61% of revenue base while mining is about 5%. This appears to hold promise, as the market potential in the mining sector is immense, while competition is limited. Besides, it also plans to tap global market in this space. Trends in order inflows from the mining sector, therefore, may bear a close watch in the coming quarters. Mining, Cement and Thermal Power sectors are expected to grow by 4-5% per annum. 

Concerns

Prior to FY08, company didn't earn higher growth in marginal operating income over marginal growth in total capital per share. 
Free cash flow to equity is negative. 

Higher Capex is to be blamed for the above two. 
Company doesn't pay much in Dividend. Payout ratio is 8%. It is not totally unexpected from a growing company.
Here are other financials:

2002
2003
2004
2005
2006
2007
2008
2009

  Return on Assets %
 13.9%
 13.7%
 16.5%
 15.6%
 15.1%
 13.4%
 12.5%

  Return on Capital %
 16.0%
 16.7%
 21.9%
 20.4%
 20.0%
 18.0%
 16.7%

  Return on Equity %
 22.0%
 20.7%
 29.9%
 31.0%
 29.0%
 24.6%
 24.2%

  Return on Common Equity %
 15.4%
 14.0%
 22.6%
 25.1%
 29.0%
 24.6%
 24.2%

  Total Debt/Equity
 13.5%
 25.0%
 35.7%
 63.4%
 17.7%
 3.4%
 2.2%

  Total Debt/Capital
 11.9%
 19.4%
 25.8%
 38.0%
 14.7%
 3.2%
 2.2%

  Net Income Margin %
 11.8%
 10.4%
 10.4%
 8.8%
 12.9%
 18.0%
 19.3%
 17.0%

Diluted EPS
0.958
1.92
2.828
3.332
7.187
10.437
14.18
18.406

 Stock is selling at Rs.235/-. P/E is 12.5, P/S is 2.11, P/B is 3

Edited by Insight - 22/Aug/2009 at 7:45pm