In my piece of 25th April 2014, I had raised the pertinent question “Why Are Prashant Jain, Kenneth Andrade & Other Stock Wizards Bullish On AIA Engg?”
I conducted an in-depth analysis of the stock and also pointed out that a confluence of ace stock pickers means that something good is cooking in the stock.
Then, on 7th May 2014, I drew attention to the fact that the redoubtable Vineeta Mahnot of Hem Securities had put a buy on AIA Engineering with the promise that it would be a multi-bagger. Vineeta Mahnot’s track record of finding winning stocks like Vaibhav Global, Tata Elxsi, Suven Life Sciences, Fiem Industries, Va-Tech Wabag etc tells you that you can’t ignore this charming stock picker.
I followed this up with a piece on 25th May 2014 when I pointed out that ICICI-Direct, HDFC Securities, Sharekhan and Prabhudas Liladhar had also come out with buy reports on AIA Engineering.
Now, I have to draw attention to the fact that Ekansh Mittal of Katalyst Wealth has also recommended a buy of AIA Engineering. We are already familiar with Ekansh Mittal’s awesome track record. In a crisp article, Ekansh has listed out nine points which according to him make AIA Engineering a winner stock:
(1) AIA manufactures HCMI which is largely an oligopolistic industry.
(2) AIA is the second largest company in the HCMI industry and is aiming to be the largest with 2.2x capacity expansion from FY 13 to FY 16.
(3) HCMI accounts for only about 20% of the overall grinding media requirement and this is despite their cost and efficiency benefits over conventional forged media.
(4) Mining industry is going through a phase of conversion in which ~1.2-1.5 MTPA grinding media requirement is expected to convert from conventional forged media to HCMI and thus HCMI players like AIA and Magotteaux will be key beneficiaries.
(5) The above mentioned conversion is likely to create an opportunity 4x the current size of requirement in mining industry and thus very good potential for continuous volume growth over the next few years.
(6) AIA has significant cost advantages over Magotteaux while the product and service quality is at par with Magotteaux, thus AIA is likely to benefit both from market share gains and overall increase in opportunity size.
(7) Strong and consistent operating performance of AIA in terms of growth, margins, return on equity, cash flow generation.
(8) Debt free with surplus cash to the tune of ~8% of the current market cap.
(9) Experienced promoters with their interests directly aligned with those of minority shareholders.
One more weighty opinion that you need to consider is from IDFC Institutional Securities which has issued a detailed research report on the stock. IDFC has given succinct reasons which read as follows:
“We expect AIA to continue making inroads into grinding media for mining, aided by its ‘total solutions’ approach and cost-effective products. Margins are likely to be in the range of 22-23% due to improvement in product mix and fewer free trials and discounts. However, we estimate a 150bp margin decline to 22.5% over FY14-16E due to ramp-up in capacity utilisation. Valuations of 19.7x FY16E earnings appear attractive given the oligopolistic nature of the industry and AIA’s long-term growth potential (16% earnings CAGR over FY14-17E). We reiterate our Outperformer rating on AIA.”
There you have it. Now, you have to carefully ponder over the data and decide whether you would like a chunk of AIA Engineering in your portfolio or not.