Duopoly Gains

In March 2014, we recommended AIA Engineering, the world's second largest high chrome casting producer. AIA has a market share of 90 per cent of the domestic cement sector, around 70 per cent of the thermal utilities sector and 25 per cent share globally. AIA's mill internals are used in grinding operations in cement, power, mining and other industries.

The latest Q2 results saw volumes grow by 20 per cent (YOY). The main driver was the mining sector, which saw its volume grow by 41 per cent. This helped AIA post 16 per cent revenue growth in Q2FY15. EBITDA margins jumped 290 basis points (YOY) to 26.5 per cent. AIA had to cut prices in earlier years to gain foothold in the mining sector.

Outlook
The global demand for high chrome mill internals (HCMI) stands at 6 lakh tonnes per annum. According to ICICI Securities, in the mining sector HCMI has a market opportunity four times that of the current consumption. AIA is preparing for that demand by increasing its capacity from 2.6 lakh tonnes to 4.4 lakh tonnes by FY16. Upon completion, AIA will become the largest HCMI manufacturer in the world. It has a cash balance of ₹827 crore as at Q2FY15 and has a low debt/equity ratio of 0.1. Buy.

Gain of 98 per cent at market price of ₹1,112. Recommended in March 2014 at ₹563.