AIA Engineering: Awaits better traction in mining volume

5 Mar 2024 , 10:18 AM

AIAE has seen steady traction from the key mining end markets globally, with a surprise jump in Brazil. Chile and Peru are yet to see meaningful volumes and a new Peru-based subsidiary should help. Realisations should largely remain stable considering the RM price movements; however, analysts of IIFL Capital Services expect Ebitda margins to normalise amid higher freight and push to grow volumes. AIAE and Magotteaux volumes have grown in tandem, but AIAE has closed the NSR gap and leads on margin with a large gap. 

Mining volume growth healthy even as Chile & Peru remain a gap: 

AIAE’s M9FY24 Mining segment volume is up 10% YoY (up 14,641 tonnes); the flattish 3.7% total volume growth was more a result of lower non-mining volumes on a high base. Analysis of export data of cast grinding media from India (healthy correspondence to AIAE volume) highlights that the key end markets (Australia, USA, Ghana, Mexico) have seen a healthy traction. Volume to Brazil has jumped (5x YoY in M9), despite anti-dumping duty; exports to Canada have remained stable. Chile (2,300t) and Peru (9t) continue to be big opportunities. Conversion of new customers in these geographies holds the key to the aspired 30-35kt annual incremental volume. 

Magotteaux lagging on realisation and margins: 

Magotteaux (direct competitor for high chrome cast media) has seen volume growth of 3% in 2022 and 12% in M923, with the overall volume growth largely in line with AIAE. However, AIAE has steadily narrowed the gap in terms of realisation and continues to lead with Ebitda margin of 24-27% vs 12-13% for Magotteaux. 

Realisations likely to remain stable; volume push can pressure margins: 

Ferro chrome prices have inched up in recent months, while those of melting scrap have corrected. Overall, this should translate into stable NSR. However, analysts of IIFL Capital Services expect margins to come under pressure vs elevated levels seen in M9YF24; led by jump in freight rates as well as push to grow volumes faster, which comes with new customer additions and competitive prices.