What’s Driving Investor Interest in AIA Engineering(NSE : AIAENG) ? Stock UP 60% in 6 Months.

Founded in 1978, AIA Engineering (AIAE) specializes in the design, development, manufacture, installation and service of high chrome wear, corrosion and abrasive media, liners and diaphragms, collectively known as mill internals used in cement, mining and thermal energy production industry.

AIAE is the second largest producer of hi-chrome castings in the world. AIA has one manufacturing facility in India and ten overseas marketing entities and its products are sold in more than 120 countries worldwide. As of FY22, the company had a production capacity of 390,000 TPA, which will expand to 440,000 TPA in FY23 and further by 80,000 TPA by the end of FY24.

AIA Engineering (AIAE) is a one-stop shop for grinding mill internals that has built strong relationships with major copper and gold mining companies. The gradual shift towards chrome-based interiors due to their inherent advantages is expected to bring volumes to the company.

AIAE provides customers with optimized solutions through technical evaluation of their requirements, thereby providing specifically designed solutions in the ideal metallurgy for the application and offering process optimization services worldwide.

The total demand for consumable wear parts in the mining sector is estimated at 2.5-3 million MT per annum, with the high chromium segment accounting for less than 20% of the market, with the rest being conventional products such as forged abrasive media. As a result, there is a large potential conversion opportunity that can support the growth of high chromium mill internals.

The pursuit of new mining customers and higher share of wallet with existing customers is expected to accelerate as the travel situation has begun to normalize and will allow AIA to capture further volume growth in the coming years.

The company’s order book stood at Rs 502 cr in Q4FY22 (vs Rs 682 cr as in Q3FY22). The company estimates capital expenditure of Rs 300 cr, which includes mill lining project, grinding media expansion project and hybrid power project of 6.30 MW wind power and 5.67 MW solar power besides capex in FY23.

Key major players in copper and gold mining are planning high capital expenditures, which should further help fuel market growth. Major copper mining players such as Codelco, Anglo American, BHP and Glencore have healthy investment programs and new capacity additions, leading to strong demand for abrasive media.

Global demand for copper, a key component in the production of electric vehicles (EVs) and consumer electronics, will exceed supply by more than six million tonnes by 2030, Rystad Energy reports. 

A deficit of this magnitude would have far-reaching implications for the energy transition, as there is currently no substitute for copper in electrical applications. Significant investment in copper mining is required to avoid a blackout. This could be a setback for companies like AIAE.

AIAE continues to maintain market share and continues to invest in new alloys, designs and process improvements, ensuring it continues to be the preferred supplier to cement companies worldwide.

AIA expands its capacity every few years to meet the need for growing demand. The company has almost completed setting up a 50,000 Mt capacity Mill Liners manufacturing facility, expected to be commissioned in June 2022.

It further plans to add 80,000 MT of capacity at an estimated cost of Rs 200 crore and be commissioned by the end of FY2024, taking the total capacity to 520,000 TPA. Energy being one of the important cost items, AIA is looking to invest 90 cr in windmills. All capital expenditure is expected to be financed through internal accruals.

AIA has developed capabilities to address multiple determinants such as high chromium ball size, cost, permeability, yield and other mine-specific geological attributes. AIA management noted that it has transformed from a pure cost leader to a value-added market supplier. They also said that supply contracts are tied only to volumes and not to prices, as these are adjusted on a quarterly or quarterly basis.

Operations are capital intensive, marked by large inventories and debtors. AIA must maintain high inventory and inventory requirements in multiple geographies. In addition, borrowers are slightly high due to extended credit cycles to foreign clients.

It has also undertaken an expansion of brownfield capacity from 390,000 tonnes to 440,000 tonnes to meet increased requirements going forward. Technical cooperation with EEMS would enable the company to satisfy the entire mining and grinding market. There is great potential for growth at AIAE.