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Thursday, October 8, 2009

AIA Engineering Ltd:Future growth prospects and outlook

Scripscan:AIA Engineering Ltd

Story:AIA Engineering Ltd (AIAEL)is a manufacturer of impact, abrasion and corrosion-resistant high chrome parts — which find application in the crushing and grinding operations in cement, coal-based power generation and mining industries.Exports form a significant part of the company's revenues.It has presence in the US, the UK and West Asia through its subsidiaries. Furthermore, it enjoys a decent visibility in the overseas market — Holcim, Lafarge and Cemex are among its clients.The company's focus on the export market is likely to drive revenues in the future, given the higher realisation from them.Cement continues to be the highest revenue contributor for the company.However, in the overseas market, cement contributed a huge margin of export revenuses. As a result of this, AIAEL plans to expand focus on global mining and the utility segment. Though the decision is a positive, it could take a couple of years before significant contribution starts pouring in from the segment. More than 70 per cent of the total revenues of AIAEL comes from replacements, which rules out the possibility of any significant drop in demand during times of recession in the capital spending cycle. Further, AIAEL's value-add services that improve its client's productivity and product quality have also helped it create a niche market.Additionally, its strategy of building in an escalation clause into most of its contracts is likely to reduce the risk of any increase in raw material prices. It has set up a 30 MW plant for captive consumption, which would save significant cost.The growth prospects of the company are robust, but the valuations appear pricey. Moreover, given that the benefits due to the enhanced capacities and the proposed backward integration would effectively accrue from this fiscal,investor can consider buying the stock at dips.

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