AIA Engineering (AIAENG) : Eyeing No.1 Position

Initiating Coverage
March 4, 2014
Rating Matrix
Rating : Buy
AIA Engineering (AIAENG)
Target : | 617
| 560
Target Period
Potential Upside
:
:
12 months
10%
Eyeing No.1 position…
Scalable opportunity in the mining segment, resurrection of operating
YoY Growth (%) margins back to historical levels and aspirations to become the largest
YoY Growth FY13 FY14E FY15E FY16E
player globally make AIA Engineering (AIA) an interesting play in the
Net Sales 23.6 15.0 15.2 19.6
oligopolistic high chrome mill internals (HCMI) industry. After penetrating
EBITDA 13.8 44.4 17.4 19.0
Net Profit 17.3 41.8 7.7 15.5
the cement market well, AIA has shifted its focus to the relatively large
EPS 17.3 41.8 7.7 15.5 mining segment and made significant inroads into the same (share has
risen from 18% in FY10 to 54% in 9MFY14). This traction will enable AIA to
Current & target multiple post revenue CAGR of 17% with margins reviving to historical levels of 22-
FY13 FY14E FY15E FY16E 23% over FY13-16E. Consequently, PAT CAGR of 21% and strong cash
P/E (x) 24.6 17.3 16.1 13.9 flows will fund the aggressive capex plans of AIA. Hence, initiate with BUY.
Target P/E (x) 27.2 19.1 17.8 15.4
Big conversion opportunity knocking for HCMI players globally…
EV/EBITDA (x) 15.8 10.9 9.5 8.0
Mcap/Sales (x) 2.9 2.6 2.2 1.9
Current global consumption of high chrome mill internals, which is equally
RoE (%) 14.8 18.0 16.8 16.9 applied in the cement and the mining space, is at ~6,00,000 tonnes per
RoCE (%) 17.3 21.9 21.1 21.4 annum (TPA). With almost 80% penetration achieved for HCMI in cement
space, the mining segment provides next leg up for HCMI players. It is
Stock Data estimated that at least 1.2 MTPA mining segment volumes for mill internals
Bloomberg/Reuters Code AIAE.IN/AIA.BO can be converted from forged media into HCMI, going ahead. Hence, we
Sensex 20200 believe this will create an opportunity 4x that of current HCMI consumption
Average Volume 79117
of 3,00,000 TPA for HCMI players in mining. With significant cost savings
Market Cap (| crore) 5152.0
achieved (~30-40%) through lower wear rate, increased productivity &
52 Week H/L 582/200
Equity Capital (| crore) 18.9
lower power consumption, HCMIs are making inroads into mining sector.
Face Value (|) 2 …as AIA eyeing No.1 position by FY16E with aggressive capex programme
Promoters Stake (%) 61.7 Successful penetration in the mining segment (58% volume CAGR over
FII Holding (%) 26.6 FY10-13) and presence of strong conversion opportunity (80% of the 1.5-2
DII Holding (%) 5.6 MT global opportunity per annum from forged media to HCMI still remains
unexploited) has prompted AIA to undertake an aggressive capacity
Comparative return matrix (%) expansion plan. From a capacity of 2,60,000 tonnes in FY14E (60,000 tonne
1M 3M 6M 12M
brownfield capacity is expected to be added in Q4FY14E), AIA plans to add
AIA Engineering 15.6 33.9 70.0 71.8
another 1,80,000 tonnes of greenfield capacity in Gujarat by FY16E. This will
Cummins India -3.9 9.1 11.5 -11.3
SKF India -1.8 4.7 38.4 15.5
make AIA the largest HCMI player globally as the current capacity of
Thermax -9.3 -0.5 7.3 9.0 200,000 tonnes (9MFY14) will grow 2.1x to 440,000 tonnes by FY16E. AIA
will then overtake the current market leader Magotteaux (Belgium).
Price movement Strong performance deserves rerating in valuations, going ahead
600 7000 Strong volume growth and recovery of margins will drive a strong 21% PAT
550 6500 CAGR for AIA over FY13-16E in an environment wherein engineering
500 6000
5500 companies are facing visibility challenges. Given the asset light balance
450 5000 sheet, manageable capex levels (under | 650 crore in FY14-15E), which is
400 4500
(|)
350 4000 largely funded by internal cash flows (CFO to average | 230 crore over
300 3500 FY13-16E) and manageable debt, we expect AIA to command at least 10%
3000
250 2500 premium to its historical averages over FY10-12. Hence, we arrive at a
200 2000 target price of | 617/share.
Aug-13
Apr-13
Feb-14
Feb-13
Jun-13
Dec-13
Oct-13
Exhibit 1: Key financials

(Year-end March) FY12 FY13 FY14E FY15E FY16E
AIA Nifty (RHS) Net Sales (| crore) 1,416.7 1,751.3 2,014.4 2,320.4 2,774.0
EBITDA (| crore) 272.6 310.2 448.0 526.0 625.8
Net Profit (| crore) 179.7 210.8 299.0 322.0 372.0
Analyst’s name EPS (|) 19.1 22.4 31.7 34.1 39.4
P/E (x) 28.9 24.6 17.3 16.1 13.9
Chirag J Shah
shah.chirag@icicisecurites.com EV / EBITDA 18.2 15.8 10.9 9.5 8.0
RoE (%) 14.5 14.8 18.0 16.8 16.9
RoCE (% ) 18.8 17.3 21.9 21.1 21.4
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research

Shareholding pattern (Q3FY14) Company background
Share Holding Pattern Holdings (%) AIA Engineering (AIA), established in 1979, is India’s largest manufacturer
Promoters 61.9 and supplier of corrosion and abrasion resistant high chrome mill internals
Institutional Investors 32.2 (HCMIs), which are used as wear parts in crushing (or grinding) operations
Others 5.9 in cement, mining and thermal power plants (or mills). AIA’s product
portfolio includes tube mill internals (such as grinding media, shell liners
and diaphragm), HRCS castings and crusher parts for cement, mining and
thermal power plants (see appendix for detailed presentation). The
Institutional holding trend (%) company manufactures mill internals through its listed subsidiary, Welcast
Steel Ltd (market capitalisation: | 19 crore), in which AIA holds a 75%
30 26.8 27.0 26.6
25.2 equity stake (acquired in FY05). Further, AIA expanded its client list by
25 acquiring Paramount Centrispun Castings (PCCL) in February 2008, as the
20 latter supplied HCMI to ACC, Gujarat Ambuja Cement, Kudremukh Iron Ore
15
(%)
7.8 Company, Hindustan Zinc, Bharat Aluminium Company, Lafarge, etc.

10 6.4 6.2 5.6
5 The company caters to HCMI demand of original equipment manufacturers
0 (OEMs) and replacement market, with the latter accounting for over 80% of
Q4FY13 Q1FY14 Q2FY14 Q3FY14 volume sales in the cement sector. AIA supplies mill internals in the
F II D II international markets through its wholly-owned marketing subsidiary, Vega
Industries Ltd, which has offices in the US, the UK, Canada, Philippines,
Australia and the Middle East.
As on FY13, AIA’s total manufacturing capacity stood at 200,000 metric
tonnes (MT) and it is planning to raise capacity to 4,40,000 MT by FY16E.
This includes both brownfield (60,000 MT) and greenfield expansions
(1,80,000 MT). This will help make AIA the biggest player in HCMI segment,
a position currently held by Belgium based Magotteaux (current capacity of
3,50,000 MT).
In FY13, AIA’s consolidated revenues increased ~24% to | 1751 crore on

the back of 13.4% volume growth and 9% YoY growth in realisations. AIA’s
strategy of penetrating the mining segment seems to be paying off as 50%
of volume or 75,000 MT in FY13 came in from this segment vs. 18500
tonnes in FY10.
Exhibit 2: Company milestone
Incorpora ted a s
Ahm e da ba d
Induction Alloys to C olla bora tion with L a unche s IP O to C a pa city e nha nce d by
m a nufa cture S le gten for re design E nds a gre e m e nt
ra ise |150 crore 50000 tonne s to
ca stings alloys of line rs and othe r with Magotte aux
165000 tonne s
m ill inte rnals
1978 1985 1988 1991 2000 2003 2006 2007 2009 2010-2011
C om m e nce d production of Joint venture with Acquisition of C a pacity e nha nce d Afte r com m a nding
H igh C hrom e Me dia Ma gotte a ux 100% sta ke in by 50000 tonne s to lion's share in ce m e nt
Inte rna tiona l V e ga, U K 115000 tonne s space , AIA fora ys into
S A, B e lgium . supply of H C MI to the
m ining se gm e nt.
ICICI Securities Ltd | Retail Equity Research Page 2

Exhibit 3: Business structure of AIA Engineering
AIA Engineering
Manufacturing Marketing units

subsidiaries
Welcast Steels DCPL foundries Vega Vega Industries Vega Industries Vega Industries Vega Industries
Ltd Pvt. Ltd. Industries(Middle Ltd (U.K.) Ltd (U.S.A) Ltd (RSA) Ltd (China)
East) F.Z.E.
A liste d e ntity AIA holds 100%
whe re in AIA holds e quity 100% subsidia ry
100% subsidia ry 100% subsidia ry 100% subsidia ry 100% subsidia ry of
75% e quity V e ga Middle E a st
of AIA of V e ga U .K . V e ga Middle E a st V e ga Middle E a st
Ma nufa cture s Ma nufa cture s
grinding m e dia grindingmmeedia
grinding dia D ire ct sa le s to D ire ct sa le s to D ire ct sa le s to
D ire ct sa le s in D ire ct sa le s in
Asia (e x India ), E urope a n re gion N orth Am e rica a nd
S outh Africa C hina
Africa (e x-R S A), pa rt of C e ntra l
S outh Am e rica Am e rica
Exhibit 4: Trend in capacity addition and production over FY08-13 Exhibit 5: Trend in sales and PAT over FY08-13
210000 2000 230
190000 1800 210
170000 1600 190
150000 1400 170
(|crore )
130000
(| crore )
(tonne s)
1200 150
110000
1000 130
90000
800 110
70000
600 90
50000
30000 400 70
10000 200 50
F Y 08 F Y 09 F Y 10 F Y 11 F Y 12 F Y 13 F Y 08 F Y 09 F Y 10 F Y 11 F Y 12 F Y 13
C a pa city P roduction R e ve nue s P AT
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research
Exhibit 6: List of acquisition done in the past by AIA Engineering

C om pa ny Y ear C urre nt sha re holding (% ) Am ount (| crore )
P a ra m ount C e ntrispun C a stings 1991 100 1.7
R e cla m a tion We lding L td. 1993 100 1.6
G ra y C a st F oundry 2004 100 0.4
C e ntrica st E nte rprise s P vt. L td. 2004 100 0.3
We lca st S te e ls L td. 2005 75 12.9
D C P L F oundrie s L td. 2012 70 0.0
P olple x Mine ra l P vt. L td. 2013 50 0.0

Investment Rationale
Current global consumption of high chrome mill internals is at ~6,00,000
tonnes per annum (TPA), equally applied in the cement and the mining
space. With almost 80% penetration achieved for HCMI in the cement
space, mining segment provides the next leg up for the HCMI players. It is
estimated that at least 1.2 million tonnes per annum (MTPA) mining
segment volumes for mill internal can be converted from forged media into
HCMI, going ahead. Hence, we believe this will create an opportunity 4x
that of the current HCMI consumption of 300,000 TPA for HCMI players in
mining. With significant cost savings achieved (~30-40%) through lower
wear rate, increased productivity and lower power consumption, HCMIs are
increasingly making inroads into mining sector. This presents a strong
scalable opportunity for existing HCMI players like Magotteaux and AIA.
Hence, scalable opportunity in the mining segment, resurrection of
operating margins to historical levels and aspirations to become the largest
player globally make AIA Engineering (AIA) an interesting play in the
oligopolistic high chrome mill internals (HCMI) industry. After penetrating
the cement market well, AIA has shifted its focus to the relatively large
mining segment and has made significant inroads into the same (share has
risen from 18% in FY10 to 54% in 9MFY14). This traction will enable AIA to
post revenue CAGR of 17% with margins reviving to historical levels of 22-
23%, over FY13-16E. Consequently, PAT CAGR of 21% and strong cash
flow generation will fund the aggressive capex plans of.
High chrome mill internals industry
Grinding media is primarily used as a consumable in crushing and grinding
mineral ores, grinding cement clinker, other crushing operations in utilities
and recycling of concrete as aggregates. Total annual global consumption
of grinding media is ~3 MT driven by the mining sector (annual
requirement of ~2.5 MTPA) while that of the cement segment is pegged at
0.3-0.35 MTPA. On a broad basis, grinding media can be divided into two
categories a) forged media and b) high chrome mill internals (HCMI). As far
as the HCMI industry is concerned, we believe the cement sector is mostly
penetrated (current consumption is pegged at 300,000-350,000 tonnes and
expected to grow in the range of 3-4%, going ahead). The mining segment
will provide the next leg of growth for the HCMI industry as only 20% of the
1.5-2 MT opportunity has been converted to HCMI from the conventional
forged media segment. Hence, we believe potential scalability is present for
the HCMI industry as consumption is pegged at ~6,00,000 tonnes.
Exhibit 7: Dynamics of grinding media industry in a nutshell
G rinding m e dia finds a pplica tions in C om position of ra w m a te ria ls:

the ce m e nt, utilitie s a nd m ining 100% scra p ste e l
spa ce . T he m a in de m a nd com e s K e y pla ye rs: Molycop, G e rda u, ME E le cm e ta l,
from re pla ce m e nt m a rke t, which Arce lor, S C AW
form s 70-80% of the de m a nd K e y a pplica tion: E xtra ction of ore from m ine ra ls like
F orge d m e dia coppe r, gold, iron ore , pla tinum . Ma inly use d for
m ining a pplica tions
G rinding Me dia
H igh chrom e m e dia /m ill
inte rna ls
T he a nnua l consum ption of grinding K e y pla ye rs: Ma gotte a ux, AIA E ngine e ring, E sta nda ,
m e dia is pe gge d a t 3 MT P A. O ut of C om position of ra w m a te ria ls: C hristia n P fe ffie r, C hine se pla ye rs
this, the m ining se gm e nt itse lf 70% scra p ste e l a nd 11-30% K e y a pplica tion: C e m e nt, coa l ba se d utilitie s a nd
consum e s ~2.5 MT of consum a ble s fe rro chrom e (de pe nding on m ining ( coppe r, gold, iron ore , pla tinum )
the na ture of the use r industry)

High chrome mill internals (HCMIs) such as grinding media, heat resistance
castings, diaphragm, etc. are critical components for grinding operations
used extensively in cement and thermal power plants. With significant cost
savings achieved (~30-40%) through lower wear rate, increased
productivity and lower power consumption, HCMIs are increasingly making
inroads into the mining sector. This has, till now, been served by forged
media (manganese steel, nihard iron, hyper steel and forged steel internals).
Applications of HCMI differ in all three segments as the cement sector has
most diversified applications of HCMIs across the production process
(limestone crusher, coal mill, raw mill and cement finishing mill) while
segments like utilities require HCMI application for crushing and grinding
coal.
Exhibit 8: Applications of various HCMI products across verticals/sector

Industry Products Objective
Grinding media, shell liners, diaphragm, vertical mill Mainly used in limestone crushers, coal
Cement
parts, crusher parts and castings mill, raw mill and cement finishing mill
Extraction of minerals from ores of gold,
Mining
Grinding media, shell liners, diaphragm, iron ore, platinum and copper
Utilities Grinding media, shell liners, diaphragm, vertical mill

parts Crushing and Grinding of coal
Exhibit 9: Cement manufacturing process finds significant applications of HCMI products
Source: Dscrusher.com, ICICIdirect.com Research

Replacement demand accounts for ~85-90% of the total global demand for
HCMI due to the high wear and tear rate of mill internals such as grinding
media, which needs to be replaced every 30 days and forms ~80% of the
total global (ex-China) replacement demand. The remaining demand comes
from other mill internals such as liners and diaphragm that need to be
replaced every two or three years. The strong visibility of demand from the
replacement segment provides a stable revenue stream for HMCI
manufacturers such as Magotteaux and AIA.
HCMI industry: Mostly dominated by two players

The HCMI market is mainly dominated by two key players i.e. Magotteaux
(Belgium) and AIA (India). Belgium-based Magotteaux leads the global
HCMI market with a share of ~35% while AIA, though the second largest
globally with ~25% share, is the largest HCMI manufacturer in India (market
share ~90% in cement sector and ~70% in thermal utilities sector).
Although mill internals form just 1.5-2% of production costs in cement and
around 10% in mining, the criticality of internals is very high since product
failure could result in hampering production. On account of this, customer
loyalty/stickiness stays and would not shift very easily to any new entrants
even on lower costs. Quality of grinding output is key to ensure quality of
the end product for mining and cement operators. Hence, customers insist
on long-drawn and thorough trials of grinding media before any new
vendor can be empanelled for supplies. This acts as an entry barrier,
resulting in very few new grinding media suppliers entering the market.
In terms of capacity, Magotteaux commands a capacity of 468,500 tonnes

out of which HCMI capacity stands at 350,000 tonnes (300,000 tonnes of
metals). The capacity of Magotteaux is spread across 13 countries across
the globe. On the other hand, AIA has a present capacity of 2,00,000
tonnes, which is expected to get aggressively ramped by >2x up to
4,40,000 tonnes by FY16E. If executed on time, the current expansion will
help AIA dislodge Magotteaux as the leader in the HCMI industry. Other key
players include, Estanda (8000 tonnes), Christian Pfeiffer (7,000 tonnes),
Anhui (12,000 tonnes), thereby virtually making the HCMI industry a
duopoly/oligopoly kind of market.
Exhibit 10: Composition of capacity for AIA and Magotteaux
500000
450000 50000
400000 68500
350000
50000
300000
(tonnes)
60000
250000
200000
150000
240000
100000 200000
50000
0
AIA Magotteaux
HCMI LCMI Forged Steel Balls Castings JV Capacity

Exhibit 11: Key HCMI players
C om pa ny L oca tion C a pa city (tonne s)
AIA E ngine e ring India 200000
Ma gotte a ux B e lgium 240000
C hristia n P fe iffe r Ita ly 7000
E sta nda S pa in 8000
S ca w Me ta ls* S outh Africa 100000
Anhui C hina 12000
*SCAW is a JV wherein Magotteaux has 50% stake in the JV or 50000 tonnes of capacity.
On the forged media side, Molycop (US) is the largest player in the world
with a capacity of 1.3 MT of capacity. However, Molycop has ~3.5x the
installed capacity of the next largest competitor, which includes players like
ME Elecmetal, SCAW, Gerdau, Donhad and Arcelor whose capacity ranges
between 50000 and 225000 tonnes.
Mapping opportunity for HCMI industry:
Globally, the cement segment is a well penetrated opportunity for the HCMI
industry [HCMI serves 80% of the global cement industry (ex-China)] while
the utilities opportunity is relatively non-scalable. The next up leg for the
industry is envisaged in the mining space (gold, copper, platinum and iron
ore) where the industry estimates that conversion opportunity of 1.5 MTPA
from forged media to high chrome media can provide huge volume gains
for HCMI players. If quantified, this can be 3x the current volumes of the
cement segment.
Based on empirical data, replacement demand for grinding media for 1

tonne of cement produced is pegged at 100 gm whereas OEM demand for
one tonne of new cement capacity is pegged at 300 tonnes. On similar
lines, replacement and OEM requirement for other mill internals (liners,
crushers and diaphragms) is pegged at 75 gm (for one tonne of cement
production) and 23 tonnes (for one tonne of capacity added).
In the utilities segment, replacement demand is pegged at 15 gm per

MW/hour of power produced while 0.15 tonnes of grinding media is
required for one MW of new capacity commissioned.
Exhibit 12: Thumb rule to compute/forecast HCMI products demands across segments
C e m e nt Industry Q ty.
G rinding m e dia
N e w ca pa city (tonne of grinding m e dia pe r MT of ca pa city com m issione d) 300
R e pla ce m e nt or pe r tonne of ce m e nt produce d (gra m s of grinding m e dia ) 100
O the r m ill inte rna ls (line rs, dia phra gm s a nd othe r crushe rs pa rts)
N e w ca pa city (tonne of grinding m e dia pe r MT of ca pa city com m issione d) 75
R e pla ce m e nt or pe r tonne of ce m e nt produce d (gra m s of grinding m e dia ) 23
U tilitie s S e gm e nt
H C MI re quire d pe r MW of e le ctricity ge ne ra te d (in gra m s) 15
H C MI re quire d for 1 MW of ne w powe r ca pa city com m issione d (in tonne s) 0.15
Source: Company DRHP, ICICIdirect.com Research

Cement segment: Steady performance in well penetrated vertical
The importance of HCMI (vs. conventional media) for grinding operations in
the cement sector is evident from the fact that HCMI serves more than 80%
of the global (ex-China) mill internals demand. The Chinese market is
primarily served through conventional media. We believe HCMI demand
from the cement sector will be muted as cement consumption is expected
to grow from 3750 million tonnes in CY12 to 4442 million tonnes in CY16E,
implying a CAGR of 4.3% coupled with the high rate of penetration already
made by HCMI in the cement industry. We believe a few players like AIA
have been able to maintain their market as they have continuously explored
newer geographies in order to maintain the steady performance.
Exhibit 13: Trend in world cement consumption
4700
4200
3700
(m illion tonne s)
3200
2700
2200
1700
1200
700
200
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013E
2014E
2015E
2016E
Source: International Cement Review, ICICIdirect.com Research
Given that global cement demand is expected to grow at a CAGR of 4.3%

over CY12-16E, we expect demand for high chrome grinding media
(replacement demand) to grow in the range of 3.2% over CY12-16E. On an
absolute basis, HCMI demand globally (ex-China) would be pegged
between 300,000 and 320,000 tonnes per annum.
Exhibit 14: Dissecting replacement demand of HCMI in global cement market

C e m e nt C Y 12 C Y 13 C Y 14E C Y 15E C Y 16E
World production (m illion tonne s) 3750 3949 4099 4276 4442
G rinding m e dia re quire d pe r tonne of ce m e nt produce d is 100 gm 100 100 100 100 100
T ota l re pla ce m e nt re quire m e nt of grinding m e dia from ce m e nt se ctor (tonne s) 375000 394900 409900 427600 444200
O the r m ill inte rna ls re quire d pe r tonne of ce m e nt produce d (gra m s) 23 23 23 23 23
T ota l re pla ce m e nt re quire m e nt of othe r m ill inte rna ls from ce m e nt se ctor (tonne s) 86250 90827 94277 98348 102166
T ota l re pla ce m e nt de m a nd for H C MI in globa l ce m e nt spa ce (tonne s) 461250 485727 504177 525948 546366
G rowth in H C MI de m a nd from ce m e nt re pla ce m e nt m a rke t 5.3 3.8 4.3 3.9
C hina ce m e nt consum ption (m illion tonne s) 2160 2290 2360 2450 2520
R e pla ce m e nt D e m a nd in C hina (m illion tonne s) 265680 281670 290280 301350 309960
G loba l de m a nd e x-C hina (m illion tonne s) 195570 204057 213897 224598 236406
% sha re of C hine se m a rke ts 57.6 58.0 57.6 57.3 56.7
T ota l H C MI m a rke t globa lly e x-C hina a ssum ing tha t 90% is re fle cte d by re pla ce m e nt
de m a nd 260760 255071 267371 280748 295508
G rowth (% ) -2.2 4.8 5.0 5.3
Source: International Cement Review ICICIdirect.com Research
With respect to domestic markets, we expect cement consumption to grow

at a CAGR of 6% over FY13-16E to 280 million tonnes per annum (MTPA) in
FY16E. Coupled with this, we expect cement capacity to rise to 365 million
tonnes (MT) in FY16E from 313 MT in FY13, implying an average capacity
addition of 17 MT over the same period. This will translate into a
replacement opportunity (grinding media + other mill internals) of ~34600

tonnes in FY16E from ~28,800 tonnes in FY13 for HCMI players like AIA
(90% market share in domestic markets). With respect to OEM markets, the
volume opportunity will be at 6750 TPA in FY16E from 7875 tonnes as the
run rate in FY13 as rate of capacity addition will decelerate in FY16E.
Exhibit 15: Domestic demand for cement sector for HCMI industry will grow at a CAGR of 4% over FY13-16E
D om e stic ce m e nt opportunity F Y 10 F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E

C e m e nt ca pa city (m illion tonne s) 228.0 270.0 292.0 313.0 329.0 347.0 365.0
C a pa city a dde d (m illion tonne s) 24 42.0 22.0 21.0 16.0 18.0 18
P roduction (m illion tonne s) 199.0 208.5 223.8 234.2 243.9 259.8 281.1
C a pa city utilisa tion (% ) 87.3 77.2 76.6 74.8 74.1 74.9 77.0
G rinding m e dia opportunity

H C MI re pla ce m e nt de m a nd (tonne s) 19,900 20,850 22,380 23,420 24,390 25,980 28,105.0
H C MI O E M de m a nd (tonne s) 7,200 12,600 6,600 6,300 4,800 5,400 5,400
T ota l dom e stic grinding m e dia opportunity 27,100 33,450 28,980 29,720 29,190 31,380 33,505
O the r m ill inte rna ls opportunity

H C MI re pla ce m e nt de m a nd (tonne s) 4,577 4,796 5,147 5,387 5,610 5,975 6,464
H C MI O E M de m a nd (tonne s) 1,800 3,150 1,650 1,575 1,200 1,350 1,350
T ota l dom e stic othe r m ill inte rna ls opportunity (tonne s) 6,377 7,946 6,797 6,962 6,810 7,325 7,814
T ota l H C MI dom e stic opportunity in C e m e nt 33,477 41,396 35,777 36,682 36,000 38,705 41,319
S ha re of re pla ce m e nt m a rke t (% ) 73.1 62.0 76.9 78.5 83.3 82.6 83.7
Utilities: Smaller segment with more focus on domestic opportunities

Though not a big opportunity in terms of size, we expect utilities to add
capacity (coal based power plant) at a run rate of 14000-16000 MW per
annum, in India, over FY14E-16E. This will take the coal based capacity in
India to ~160,000 MW in FY16E from ~130,000 MW in FY14E. Taking into
account fresh capacity additions over FY14-16E and replacement demand,
the utility segment opportunity would result in a CAGR of 6% over FY13-
16E for HCMI products. Players like AIA, which have long-term contracts
with power equipment OEMs will stand to benefit from the same.
Exhibit 16: HCMI product requirement to grow at CAGR of 6% over FY13-16E
D om e stic utilitie s opportunity F Y 10 F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E

O pe ning the rm a l ca pa city (coa l, in MW) 77648.9 84198.4 93918.4 112022.4 130220.4 145220.4 159220.4
C a pa city a dde d (C oa l, in MW) 6549.5 9720 18104 18198 15000 14000 16000
C losing ca pa city (C oa l, in MW) 84198.4 93918.4 112022.4 130220.4 145220.4 159220.4 175220.4
P L F 's(% ) 82 79 72 68 62 65 65
E ffe ctive e le ctricity ge ne ra te d (MW) 66357 70356 74139 82363 85387 98943 108693
H C MI re pla ce m e nt de m a nd (tonne s) 7166.6 7598.5 8007.0 8895.2 9221.8 10685.9 11738.9
H C MI opportunity for ne w ca pa city (tonne s)_ 982.43 1458.00 2715.60 2729.70 2250.00 2100.00 2400.00
T ota l p.a . opportunity in dom e stic utilitie s (tonne s) 8149 9056 10723 11625 11472 12786 14139
S ha re of R e pla ce m e nt de m a nd (% ) 87.9 83.9 74.7 76.5 80.4 83.6 83.0
Source: CEA, Company, ICICIdirect.com Research

Mining segment: Conversion opportunity in the offing for HCMI players…
Currently, consumption of grinding media requirement is mainly dominated
by the mining sector. Consumption in the mining sector stands at ~2.5 MT,
which comprises ~83% of the overall grinding media consumption. Most of
the demand for grinding media is met by the forged media industry. With
significant cost savings achieved (~30-40%) through lower wear rate,
increased productivity and lower power consumption, HCMIs are
increasingly making inroads into the mining sector. As per AIA
management, out of the 2.5 MT of annual consumption at least 1.5 MT can
be converted from forged media to high chrome media. It is estimated that
less than 20% of this 1.5 MT opportunity has been converted into high
chrome media (source: FY13 annual report of AIA). Hence, currently HCMI
products consumption stands at ~300,000 tonne (20% of 1.5 MT).
Exhibit 17: Assessment of opportunity in mining segment for HCMI players
Mining de m a nd for ove ra ll grinding m e dia (m illion tonne s pe r a nnum ) 2.5-3

Addre ssa ble opportunity for conve rsion to H C MI (m illion tonne s pe r a nnum ) 1.5-2
O pportunity a lre a dy conve rte d (% ) 20
Addre ssa ble opportunity tha t still ne e ds to be ca pture d (m illion tonne s pe r a nnum ) 1.2
We believe there exists a large opportunity for high-chrome grinding media

to replace ball mill applications wherein the ball size is between 1 inch and
4 inches. Thus, high-chrome grinding growth would be driven by
replacement of ball mill (forged media) in the secondary crusher/high
pressure grinding roll used in ore mining applications. In mining operations,
mainly in gold and copper, HCMI is used in the secondary and tertiary
crushing while forged media is mainly used in semi autogenous grinding
(SAG) mill where the ball sizes are of larger size in the range of 4-6 inches.
According to Wood Mackenzie, growing demand for copper and gold

coupled with declining ore head grades will result in increased ore milled.
This, in turn, will lead to increased demand for grinding media products
(forged and high chrome media based). It is estimated that copper and gold
production will increase at a CAGR of 12% and 8%, respectively, over
CY13-17E. With respect to copper ore, North America and South America
are expected to witness strong production CAGR of 14% over CY13-17E.
On the other hand, gold production in North America and South America is
expected to witness 12% and 14% CAGR, respectively, over CY13-15E.
Exhibit 18: Mining production growth to create strong opportunity for grinding media players
16
(% C AG R ove r C Y 13-C Y 17E )
14 14 14
14
12 12
12
10
8
8
6
4
2
0
C oppe r G old
O ve ra ll N orth Am e rica S outh Am e rica
Source: Wood Mackenzie, Molycop, ICICIdirect.com Research

Exhibit 19: Trend in production of gold and copper over CY12-17E
Source: Wood Mackenzie, Molycop, ICICIdirect.com Research
Given the robust outlook for copper and gold mining, key players like
Molycop (largest forged media player) and AIA (second largest HCMI
players) have set out their capacity expansion plans to capture the
upcoming mining opportunity. Molycop plans to add capacity to the tune of
160,000 tonnes or 12% of the current 1.3 MT capacity. On the other hand,
sensing the conversion opportunity in the HCMI industry, AIA is planning to
increase its capacity by 2.2x to 440,000 tonnes by FY16E end from the
current 200000 tonnes. AIA’s expansion has been bifurcated into greenfield
capacity of 180,000 tonnes (FY16E) and brownfield capacity of 60,000
tonnes (by Q4FY14E). The incremental capacity is fully dedicated to mining
applications mainly in gold and copper metal.

…AIA eyeing No.1 position by FY16E with aggressive capex programme as…
Successful penetration in the mining segment (58% volume CAGR over
FY10-13) and presence of strong conversion opportunity (80% of the 1.5-2
MT global opportunity per annum from forged media to HCMI still
unexploited) has prompted AIA to undertake an aggressive capacity
expansion plan. From a capacity of 260,000 tonnes in FY14E (60,000 tonne
brownfield capacity is expected to be added in Q4FY14E), AIA plans to add
another 180,000 tonnes of greenfield capacity in Gujarat by FY16E. Thus,
AIA post FY16 will become the largest HCMI player globally as the current
capacity of 200,000 tonnes (as of 9MFY14) will grow 2.1x to 440,000 tonnes
by the end of FY16E. AIA will then overtake the current market leader
Magotteaux, which currently has a capacity of 360000 tonnes.
Historically, over FY07-13, AIA has increased its capacity thrice. The
capacity has grown at a CAGR of 20.6% over FY07-13 as it grew 3x from
FY07 (65,000 tonnes) to 200,000 tonnes in FY13. Over this period, AIA had
acquired a Bangalore based company Welcast Steels, which had capacity of
50,000 tonnes while the other two capacity programmes were in-house
(undertaken in FY09 and FY11). Going ahead, with capacity addition of
240,000 tonnes (60,000 tonnes in Q4FY14E and 180,000 tonnes in FY16E),
capacity is set to rise at a CAGR of 30.7% over FY13-16E.
Exhibit 20: Trend in capacity addition
470000 FY13-FY16E CAGR: 30.7%

420000
370000
FY07-FY13 :CAGR: 20.6% 440000
320000 300000
(Lakh Tonnes)
260000
270000
220000 200000 200000
200000
170000 165000 165000
115000
120000
65000
70000
20000
FY14E
FY15E
FY16E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
Capex dedicated for further ramping up of mining volumes.

The current brownfield expansion of 60,000 tonnes is mainly dedicated to
grinding media balls of higher size up to 120 mm, which will be mainly used
for mining application. Similarly, the greenfield expansion is also dedicated
to further strengthening its positioning in the mining segment. Out of
180,000 tonnes of greenfield expansion, two-third or 1,20,000 tonnes will be
for grinding media while the remaining 60,000 tonnes will be for mining
liners. Hence, post the expansion, the share of mining liners in the overall
capacity would rise from 15% in FY14E to 23% in FY16E. The rising share
of mining liners will be highly margin accretive for AIA, as these entail
relatively higher value addition and realisations, which will add to margins
going ahead.
AIA is focusing aggressively on the global conversion opportunity in the

mining segment as the 1.5-2 MTPA conversion opportunity from forged
media to HCMI still remains largely unexploited (management estimates
only 20% of the opportunity has been exploited till now). This, we believe,
has prompted AIA to undertake such an aggressive capex plans. Going
ahead, we except overall volumes to grow at a CAGR of 13.6% over FY13-
16E (235,662 tonnes in FY16E from 160,800 tonnes in FY13). However, in

the overall pie, share of mining will inch up from ~46% in FY13 to ~63% in
FY16E. This means mining volumes will rise ~2x from 73,500 tonne in FY13
to ~1,49,000 tonnes, implying a CAGR of 26.5% over FY13-16E.
Exhibit 21: Volume to witness 16% CAGR over FY13-16E Exhibit 22: Mining segment share to rise to 63% by FY16E
300000 25 100 7.6 7.0
8.2 8.5 8.7 8.1
90
250000 20
80
15 70 35.8
45.1 45.7
(T onne s)
200000 54.4 58.8

10 60 63.2
(% )
150000 50
(% )
5 40
100000 0 30 55.6
20 46.5 45.4
50000 -5 37.4 33.5 29.8
10
F Y 08
F Y 09
F Y 10
F Y 11
F Y 12
F Y 13
F Y 14E
F Y 15E
F Y 16E 0
F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E
P roduction S a le s G rowth in sa le s C em ent Mining U tilities
Post capacity expansion, what would FY17E look like for AIA
Though we are pencilling in our explicit forecast till FY16E, we are making
ball park calculations for FY17E volumes and revenue forecast as this will
be the fiscal wherein the full impact of capex gets reflected in the financial
performance of AIA. In our calculations, we assume modest 70% capacity
utilisation levels. AIA may clock volumes of ~3,00,000 tonnes. In terms of
segmental composition, the share of mining is expected to further inch up
to 69% from 63% in FY16E and 46% in FY13. In terms of revenues, we
expect revenues to touch | 3300 crore in FY17E as our realisation
assumptions stand at a modest | 110000/tonne.
On a normalised basis, AIA’s capacity utilisation has averaged at 71% over

FY10-13. Going ahead, we expect the utilisation to average 85%, based on
the penetration in the mining segment. The increase in utilisation rate is
mainly owing to 13.6% volume CAGR over FY13-16E.
Exhibit 23: Trend in capacity utilisation
100
90
80
70
(% )
60 92.4
84.0 81.7 81.5
74.0
50 66.2
61.5
40
30
F Y 10 F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E

Penetrative strategy into mining segment starts paying off…
AIA is currently the second largest HCMI player globally. By sensing the
conversion opportunity in the mining segment in FY10 (from forged media
to high chrome mill internals) the company is strongly hedged against the
already penetrated cement sector both domestically and internationally.
Since FY10, AIA has been commanding 90% share in the domestic cement
sector while in the global market (ex-China), the share stands at ~25%.
Given the peak penetration in the cement sector and tempering of growth
rates in capacity addition, AIA’s shift towards the mining segment was
natural. The conversion opportunity i.e. 80% of the 1.5-2 MT remains
unexploited vis-à-vis a relatively small 300,000-350,000 tonnes per annum
cement opportunity. This implies that the opportunity size in mining is
almost 3x that of the cement segment.
Hence, AIA entered the mining sector in FY10 when cement segment
volumes comprised ~80% of the overall volumes while the share of mining
segment stood at 18%. In terms of volume, the mining segment stood at
~18,500 tonnes while that of cement stood at ~75,000 tonnes in FY10.
Exhibit 24: Scenario in FY10
125000
105000
85000
(tonne s)
65000
103000
45000
75460
25000
18540
5000
C e m e nt Mining T ota l
The gestation period for entering the mining segment per client ranges
from six to nine months. At the same time, one has to take pricing cuts in
order to make a breakthrough given clients are highly sticky with their
existing vendors. This was one of the key challenges that AIA faced during
the initial period of entry. Coupled with this, convincing mining clients to
switch over from traditional forged media to high chrome based media was
another challenge in front of AIA as costs and risks involved in conversion
are high owing to factors such as pricing risk and performance risks.
Pricing risks: In order to gain entry, suppliers of grinding media have to

supply at lower rates to incentivise the client to use new media given the
client is risking the production process by using a new grinding media
against tried and tested media. Also, cost of using HCMI is high when
compared to forged media (generally 20-30%), which may be a
disadvantage at the initial point but the benefits accrued from usage of
HCMI outweigh the high capital costs. Benefits of using HCMI as grinding
media manifest in the form of a) higher extraction of the metal and b) lower
wear and tear of the grinding and crushing equipment.

Mining foray apprehensions on volume traction and margins receding
While making the mining foray, apprehensions were there whether AIA
would be able to win big ticket global mining client, garner volume growth
and, if penetrated, whether AIA would get back to its historical EBITDA
margins.
AIA has successfully addressed the above risks, in our view, thereby
making inroads into the mining segment.
a) Big mining OEMs are its customers:

Since the foray, AIA’s mining segment supplies to mines of global mining
majors like Rio Tinto, BHP Billiton, Vale, Arcelor, etc. Currently, as of
Q3FY14, AIA is serving 30-40 mining locations while it is actively pursuing
another 20-30 mining sites in various stages of active discussions for
getting converted into AIA’s clients.
b) Over FY10-13, mining volume CAGR 58%; likely to remain strong:

In its first year of mining foray (FY10), AIA managed to garner ~18,500
tonnes of mining volume, which comprised 18% of overall volumes.
However, with successful penetration in the global mining space over FY10-
13, AIA’s mining segment volume grew 5x to 73500 tonnes, implying a
CAGR of 58% over FY10-13. Hence, the share of the mining segment has
risen to ~46% and 54% in FY13 and 9MFY14E, respectively. These trends
are only going to get stronger as we expect mining volumes to register
CAGR of 26.5% over FY13-16E as mining segment volumes are expected to
reach a level of ~149000 tonnes by FY16E. Similarly, volume composition
is expected to get massively skewed in favour of the mining segment as we
expect the share at 55%, 59%, 63% at the end of FY14E, FY15E, FY16E,
respectively.
Exhibit 25: Mining segment volumes to continue inching up in absolute and relative terms …
165000 160
145000 140
125000 120
105000 100
(tonne s)
(% )
85000 80
65000 60
45000 40
25000 20
5000 0
F Y 10
F Y 11
F Y 12
F Y 13
F Y 14E
F Y 15E
F Y 16E
V olum e s Y oY growth in volum e s

Exhibit 26: Share of mining segment in overall volumes
70
60
50
40
(% )
30 58.8 63.2
54.4
45.1 45.7
20 35.8
10
0
F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E
c) Scalable penetration and price revisions lead to margin uptick:

While penetrating the mining segment over FY10-13, AIA faced margin
headwinds given the nature of sticky clients. Therefore, the company had to
offer discounts on its products to win clients in the segment. Once entry is
established, the same level of pricing continues through the initial trial
phase of 9-12 months. However, this does not ensure client win, which can
further create headwinds for margins. Consequently, AIA’s margins peaked
in Q1FY10 at 26% and made a low of 17.7% over FY13 to make a mark in
the mining space. However, with the mining segment gaining traction and
AIA getting a stronghold with its clients, EBIDTA margins have hit a trough
and started making a comeback in FY14 as margins have averaged over
22.3% over 9MFY14. Even AIA’s management has indicated normalised
margins of 22-23% in the long run. This is despite the fact that the share of
mining volume is expected to inch up to 63% in FY16E from 18% in FY10.
This clearly shows that AIA has gained scale in the mining segment and a
stronghold with its mining clients. This will help it to achieve strong overall
volume CAGR of 13.6% over FY13-16E.
Exhibit 27: Realisation of AIA vs. Magotteaux
3200
2700
2200
($/tonne)
1700
1200
700
200
F Y 11 F Y 12 F Y 13
AIA E ngine e ring Ma gotte a ux*

Exhibit 28: Quarterly margin trends strong indicator of mining segment penetration strategy of AIA over FY10-13
30
28
26
24
22
(% )
20
18
16
14
12
10
Q 1F Y 10
Q 2F Y 10
Q 3F Y 10
Q 4F Y 10
Q 1F Y 11
Q 2F Y 11
Q 3F Y 11
Q 4F Y 11
Q 1F Y 12
Q 2F Y 12
Q 3F Y 12
Q 4F Y 12
Q 1F Y 13
Q 2F Y 13
Q 3F Y 13
Q 4F Y 13
Q 1F Y 14
Q 2F Y 14
Q 3F Y 14
Exhibit 29: Margins to stabilise at 22-23% even though mining share to rise to 63% by FY16E
70 63.2 30
58.8 28
60 54.4 26
50 45.1 45.7 24
22
40 35.8 20
(% )
(% )
18
30 16
18.0 14
20
12
10 10
Mining se gm e nt volum e sha re E B IT D A Ma rgin s (R H S )

Key Financials
Revenues to witness ~17% CAGR on 13.6% volume CAGR over FY13-16E
On the back of robust volume CAGR of 13.6% driven mainly by the mining
segment, we expect AIA to post revenue CAGR of ~17% over FY13-16E.
Hence, revenues are expected to reach | 2774 crore in FY16E from | 1751
crore in FY13. In 9MFY14, AIA reached a turnover of | 1503 crore, implying
growth of 16% YoY.
In terms of segmental volume growth, the mining segment is expected to

lead the pack as it is expected to witness 26.5% volume CAGR over FY13-
16E as cement and utilities segments are expected to post moderate CAGR
of -1.3% and 5.6%, respectively, over the same period.
Exhibit 30: Revenues to grow at CAGR of ~17% over FY13-16E Exhibit 31: Mining segment to drive growth, going ahead…
3300 30 50
2774 25 42.2
2800 40
2320 20
2300 2014 30 28.6
15 24.3 26.7
1751
(| crore )
20
(% )
1800 10 16.5 16.714.8

1417
(% )
1172 5 10 10.6
1300 973 8.0 8.0
3.0 5.0
0 0 1.0
800
-5 F Y 12-5.7 F Y 13 F Y 14E F Y 15E F Y 16E
-10 -11.0
300 -10
F Y 10 F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E -20
R evenue s G rowth in revenue s C em ent Mining U tilities

The revenue is expected to grow at a CAGR of ~17% We do like the quality of revenue growth that AIA has posted historically
during FY13-16E. This will be mainly led by 13.6% CAGR and also that it is likely to register, going ahead. In any given fiscal, revenue
in volumes over the same period. growth is mainly explained by volume growth rather than realisation
growth. On an average, over FY10-13, ~78% of the revenue growth is
explained by volume growth. Even going ahead, over FY14E-16E, our
expectation is that ~82% of the revenue growth will be volume driven as
compared to realisation growth.
Exhibit 32: Revenue growth mainly led by volume growth
25 23.6
22.2
20.4 20.9
19.6
20 18.0
15.0 15.215.0
15 12.9 13.2
9.1
10 7.2 8.0
6.5
5
1.3
0.2
0
F Y 11
-1.4 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E
-5
G rowth in S a le s G rowth in volum e s sold G rowth in re a lisa tions

As mentioned above, our forecasts assume almost negligible realisations
growth, which ranges between -0.6% and 0.6% over FY15E-16E. However,
realisations have less scope to improve from the 9MFY14 average of
~| 116000/tonne as it already factors in a steep depreciation of exchange
rate and upward adjustments of realisations in the mining segment in
FY14E. Hence, going ahead, we have built in a realisation of | 115000-
116000/tonne over FY15E-16E.
Exhibit 33: Trend in realisations
120000
115000
110000
(|/tonne ) 105000
100000
95000
90000
85000
80000
Margin recovery commences in FY14E; likely to stabilise in 22-23% range

We believe most of the margin pressure is a thing of the past and AIA
would be able to claw back to its previous margin range of 22-23%. In order
We expect operating margins to improve from 17.7% in to make inroads into the mining segment, AIA had to take price cuts in
FY13 to 22.2% in FY14E. The same consistency is order to win clients. The same was reflected in EBITDA margins, which fell
expected to be maintained over FY15E-16E between 22% from 23% in FY10 to 17.7% in FY13. However, given the successful entry of
and 23% even though AIA will pierce into the mining AIA in the mining segment, margins have started clawing back to historical
segment levels of over 20%. The same is reiterated by the fact that 9MFY14 EBITDA
margins of AIA have been at 22.3%. Going ahead, we expect margins to
improve 450 bps YoY with improvement in margins in FY14E at 22.2%. The
same is expected to be contained in the 22-23% range over FY15E-16E.
This is despite the fact share of mining volumes is expected to rise to 63%
by FY16E.
Exhibit 34: Exiting lower margin projects to help drive margins
26
24
23.4
22.6 22.7 22.6
22 22.2
20 19.8
19.2
(% )
18 17.7
16
14
12
F Y 09 F Y 10 F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E

However, a depreciating rupee has been another positive for margin
improvement for AIA, given that over 60% of sales (FY10-FY13) of AIA
come from export market. However, this positive impact is limited to a
certain extent as AIA follows a three month hedging policy for its
receivables. Going ahead, over FY10-13, we believe the export share should
rise over 75% given the incremental mining volumes will come from
international geographies.
Exhibit 35: Export sales as percentage of overall sales
80
70
60
50
40
(% )
30 57 58.0 60.6
53.6 52.8
20
10
0
F Y 09 F Y 10 F Y 11 F Y 12 F Y 13
In terms of raw materials, AIA’s products mainly use scarp steel (70-80%
composition) and ferro chrome (20-30% composition) as its key raw
materials. Over the past few years, prices of raw materials have been
stable. Going ahead, given the global trends, we expect raw materials to be
in a comfortable range from a cost perspective. Hence, we expect the raw
material to sales ratio to hover in the range of 35-36% over FY13-16E.
Exhibit 36: RM as percentage of sales Exhibit 37: Trend in raw material prices
50 120000
45 100000
40
80000
(|/tonne )
35
30 60000
25 40000
(% )
20 20000
15
0
10
Q 4F Y 10
Q 2F Y 11
Q 4F Y 11
Q 2F Y 12
Q 4F Y 12
Q 2F Y 13
Q 4F Y 13
Q 2F Y 14
5
0
R e a lisa tions F e rro C hrom e S cra p S te e l

Volume traction & margin restoration to drive PAT at 21% CAGR over FY13-16E
We expect AIA’s profitability to witness strong trends on the back of robust
We expect net profit to grow at a CAGR of 20.8% in 13.6% volume CAGR and return to historical margin level of 21-22% over
FY13-16E. Profits are expected to go up from | 211 crore FY13-16E. Hence, PAT is expected to grow at a CAGR of ~21% over FY13-
in FY13 to | 372 crore in FY16E 16E to | 372 crore vs. | 211 crore in FY13.
Exhibit 38: Net profit to grow at ~21% CAGR in FY13-16E
400 372.0 20
350 322.0 18
299.0 16
300
14
250 210.8 12
183.2
(| crore )
200 179.7 10
164.5
(% )
150 8
6
100
4
50 2
0 0
P AT P AT Ma rgins (R H S )
Minuscule leverage, strong CFO to ensure smooth capex execution

The greenfield capex of 180,000 tonnes involves an expenditure of | 650
crore, which will be executed across FY15E-16E. AIA expects to fund the
capex by internal accruals and debt. The company expects to raise debt in
the range of | 300-350 crore while the rest will be funded by internal
accruals. We believe the mode of capex commitment will not create any
kind of pressure on AIA’s balance sheet as the company currently has a
cash balance of | 580 crore and debt of | 130 crore. The current debt/equity
ratio at the end of FY14E will be at 0.1x and remain at the same levels even
after assuming incremental debt of | 300-350 crore by FY16E. Our
forecasting assumes peak debt of | 350 crore by FY16E end. Historically,
AIA has been able to generate cash flows from operations (CFO) in the
range of | 100 crore over FY10-13. With an improvement in volume growth
in FY15 and resurrection of EBITDA margins in the range of 22-23% over
FY14E-16E, we expect AIA’s CFO to average at | 230 crore over FY13E-
FY16E.
Exhibit 39: Strong balance sheet as leverage at 0.1x is negligible
2500 0.16
0.14
2000
0.12
1500 0.10
(| cro re )
0.08
(x)
1000 0.06
0.04
500
0.02
0 0.00
Networth D ebt D ebt/E quity R atio

Exhibit 40: Generates strong cash flow from operations
400
300
200
325
(| cro re )
253
100 193
150
101 99
51
0
-143
-100
-200
Strong performance to lead to RoE improvement to 17-18% by FY14E-16E

AIA’s RoEs had hit a low of 14.5-14.8% over FY12-13 given margins have
taken a hit in those fiscal owing to its penetrating strategy in the mining
A strong operational recovery will lead to a massive
segment coupled with strong cash reserves sitting on the balance sheet.
improvement in RoEs from 14.8% in FY13 to 17% in
However, as the financial performance is getting back to a strong growth
FY16E
path from FY14 onwards, we expect AIA to report RoEs of ~17-18% over
FY14E-16E.
Exhibit 41: Strong return ratio on the back of sustained earning growth Exhibit 42: AIA’s balance sheet possesses high cash and liquid
investments
30
26.5 600 35
25
500 30
21.5 21.9 21.1 21.4
20 20.8
18.8 25
18.0 18.2 18.0 400
(% )
17.2 17.3 16.8 16.9

(| crore )
15 14.8 20
14.5 300
(% )
15
10 200
10
5 100 5
F Y 09
F Y 10
F Y 11
F Y 12
F Y 13
F Y 14E
F Y 15E
F Y 16E
0 0
ROE ROCE C a sh & L iquid inve stm e nts As % of N e tworth(R H S )

Risk & concerns
Delay in shift of HCMI in mining sector
Globally, mill internals demand of the mining sector is provided through
conventional media, which is cheaper than HCMI. Although the potential
savings from using HCMI ranges between 35% and 40% due to less wear
and tear, players in the mining sector may delay full adoption of HCMI. This
delay can adversely impact volume growth for AIA and, hence, profitability.
Also, if SAG mills or other grinding media gain acceptance in smaller-size
grinding applications, this would lead to lower penetration of HCMI. We
have run a sensitivity analysis to asses the impact of deviation from base
volume assumptions on the overall profitability for AIA in FY15E. We
estimate that if AIA overshoots the base case volume target of 15% by 100
bps and 200 bps, the EPS would then get positively impacted by 1.2% and
2.1%, respectively. On the contrary, if volumes miss the base case scenario
by 100 bps and 200 bps, the similar negative impact on the EPS would be
to the tune of 0.9% and 2.1%, respectively.
Exhibit 43: Sensitivity volume growth on EPS of FY15E
V olum e F Y 15E
(200 bps) (100 bps) B a se C a se 100 bps 200bps
E P S (|/sha re ) 33.4 33.8 34.1 34.5 34.8
C ha nge in E P S (% ) -2.1 -0.9 0.0 1.2 2.1
P AT (| crore ) 38.6 39.1 39.4 39.9 40.2

Currency volatility may impact earnings consistency

AIA’s revenues are highly influenced by volatility in the exchange rate as
~60% of revenues are from the international market, which we believe will
be over 75% by FY16E. A significant appreciation/depreciation of the rupee
vis-à-vis currencies of countries where AIA does business can have a
significant bearing on revenues and profitability. However, as a risk
mitigation measure, AIA does follow a hedging policy of covering its three
month receivables.
Litigation can have adverse impact on profitability of company
Recently, AIA ended litigation on an out-of-court settlement basis with
Magotteaux. The litigation referred to a lawsuit filed in the US court by
Magotteaux referring to infringement of a patented product by AIA. The out
of court settlement led to an outflow of ~| 31 crore from AIA towards
settlement charges and impacted profitability of Q3F14. Hence, if suck kind
of litigation happens then AIA’s profitability will be hampered.

Volatility in key input prices may impact margins and earnings
Scrap steel and ferro chrome are two key major raw materials. Even though
AIA mostly sources raw material from domestic players, the pricing is
based on global benchmarks. Hence, any distortion in raw material costs
can have a significant bearing on the EBITDA margins and profitability. We
have run a sensitivity analysis to asses the impact of RM cost to sales ratio
on margins and EPS for AIA in FY15E. We estimate that if AIA’s RM to sales
ratio overshoots the base case assumption by 100 bps, 200 bps, EPS would
then get negatively impacted by 5%, 10%, respectively. On the contrary, if
the RM to sales ratio is lower by 100 bps, 200 bps for FY15E, EPS would be
positively impacted by 5%, 10%, respectively.
Exhibit 44: Sensitivity of RM to sales ratio on EPS of FY15E

R M to S a le s R a tio F Y 15E
(200 bps) (100 bps) B a se C a se 100 bps 200bps
E B IT D A Ma rgin (% ) 24.7 23.7 22.7 21.7 20.7
E P S (|/sha re ) 37.5 35.8 34.1 32.4 30.7
C ha nge in E P S (% ) 10.0 5.0 0.0 -5.0 -10.0
E B IT D A (|crore ) 667.4 640.4 625.8 586.3 559.3

P AT (| crore ) 43.4 41.4 39.4 37.5 35.5

Valuation
AIA making strong inroads into the mining segment, as witnessed from the
4x ramp up in mining volumes over FY10-13 and chalking out aggressive
capex plans to become the No. 1 player in the global HCMI industry, will
drive revenue CAGR of ~17% over FY13-16E. Revenue growth will be
driven mainly by volumes, which are expected to witness a CAGR of 13.6%
over the same period. Coupled with this, operating leverage will also aid
margins as a hike in realisation in the mining segment will help AIA get back
to its normalised EBITDA margin range of 22-23% over FY14E-16E. This is
despite the fact that AIA will further acquire new clients in the mining
segment, which are initially margin dilutive in nature. Strong volume growth
and recovery of margins are expected to drive a strong 21% PAT CAGR for
AIA over FY13-16E in an environment wherein engineering companies are
facing massive visibility challenges.
Given the asset light balance sheet, manageable capex levels (under | 650
crore in FY14-15E), which is largely funded by internal accruals/some debt
and strong cash flow generation (CFO averages at | 230 crore over FY13-
16E), we use P/E multiples for fair valuation of stock price.
In order to derive the target multiple, we have divided the trading history
(one year forward P/E multiple) into three phases and study various
variables that drive earnings and, hence, investment multiples ascribed to
AIA.
Phase 1: (FY07-09) cement segment was the bread and butter
Over this phase, most of AIA’s revenues came from the cement segment as
AIA commanded 90% and 25% market share in domestic and international
markets, respectively. Working on a low base, revenue exhibited strong
CAGR of ~40% while capacity grew at a CAGR of 59%. On the profitability
front, average EBITDA margins stood at 25% while PAT CAGR stood at
35%. In terms of P/E multiple, AIA traded at average one year forward P/E
multiple of 17.3x. However, upward re-rating of the same was limited as
cement segment was mostly penetrated with HCMI both globally and
domestically. Hence, question of scalability restricted upward rerating of
investment multiples. Going ahead, the key question was that of scalability.
Hence, from FY10 AIA forayed into mining in order to gain scale.
Phase 2: (FY10-FY12) In search of foothold in mining segment
Going ahead, the key question was that of scalability. Hence, from FY10,
AIA entered the mining segment to grow and eliminate the concentration
risk of being exposed to cement segment. Mining segment volumes in FY10
stood at 18540 tonnes. Over the period, AIA did penetrate the mining
segment as by FY12 end mining segment volume stood at 64,000 tonnes or
42% of the volume share of AIA. Hence, AIA’s volume CAGR stood at 17%
while capacity CAGR was at 10%. However, while doing so, AIA’s margin
profile weakened as average margins stood at 20% despite sales exhibiting
strong CAGR of 21% over the same period. However, PAT CAGR was at a
minuscule 4.5%. This led to scepticism on AIA’s ability to scale back to the
historical profitability profile. Hence, P/E multiples on an average hovered at
15x on a one year forward basis below averages seen over FY07-09.
Phase 3: (FY13-16E) Eyeing No.1 position in HCMI industry by FY16E
After hitting a low of 17% on EBITDA margins in FY13, AIA made a strong
comeback on every parameters during 9MFY14 as 1) volume growth in
mining for 9MFY14 stood at 24% YoY to 69000 tonnes (already surpassed
FY13 mining volumes of 64000 tonnes), 2) share of the mining segment is
expected to scale up to 63% in FY16E from 54% in FY14E and 46% in FY13,
3) EBITDA margins have clawed back to 22.3% in 9MFY14. Going ahead,
the management expects margins to be in the 22-23% range and 4) AIA has

charted out an aggressive capex plans to almost increase the capacity by
2.2x to 440000 tonnes by FY16E. This will take AIA to the No.1 position in
the HCMI industry and the capex will be funded without having leverage on
the balance sheet (D/E ratio is expected to be at 0.1x by FY16E).
Target multiple should be above historical mean:
Given that AIA is traversing Phase 3, which will help it to scale its volume
trajectory globally coupled with a profitable growth profile (21% PAT CAGR
over FY13-16E), we believe AIA will attract premium valuations relative to
its historical averages. Hence, even assigning 10% premium to the average
multiple of Phase 2 (i.e. 15x) will give us a target P/E multiple of 16.5x for
AIA.
In terms of discounting, we would take average EPS of FY15E and FY16E so
that EPS can capture both the consistency of margins in FY15E and
commissioning of the new capacity in FY16E. Hence, our target price works
out to | 617/share.
Exhibit 45: Trend in key performance parameters and consequent P/E multiples that AIA got…
30 Parameters (%) FY10-FY12

Sales CAGR 21.1
Average EBITDA margin 20.8
PAT CAGR 4.5
25 Phase 1 Volume CAGR 17.4
Capacity CAGR 10.1
Average 1 yr forward P/E(x) 15.0
Phase 3
20
15
(x)
Phase 2 Parameters (%) FY13-FY16E

10 Parameters (%) FY07-FY09 Sales CAGR 17.9
Sales CAGR 39.8 Average EBITDA margin 21.3
Average EBITDA margin 25.2 PAT CAGR 20.8
PAT CAGR 35 Volume CAGR 13.6
5 Capacity CAGR 59.3 Capacity CAGR 30.1
Average 1 yr forward P/E(x) 17.3 Average 1 yr forward P/E(x) ???
0
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Source: Bloomberg, ICICIdirect.com Research

Exhibit 46: Trend in one year forward EV/EBITDA band
18
16
14
12
10
(x)
8
6
4
2
0
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
May-06
Oct-12
Oct-13
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Exhibit 47: Trend in one year forward P/BV band
8
7
6
5
4
(x)
3
2
1
0
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
May-06
Oct-12
Oct-13
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Exhibit 48: I-Direct Estimates vs. Consensus

P a ra m e te rs C onse nsus I-D ire ct D e via tion ove r conse nsus (% )
R e ve nue s
F Y 14E 2012.8 2014.4 0.1
F Y 15E 2327.0 2320.4 -0.3
F Y 16E 2816.0 2774.0 -1.5
E B IT D A
F Y 14E 447.3 448.0 0.2
F Y 15E 514.7 526.0 2.2
F Y 16E 596.2 625.8 5.0
P AT
F Y 14E 285.2 299.0 4.8
F Y 15E 328.1 322.0 -1.9
F Y 16E 398.1 372.0 -6.6

Relative valuations:
AIA operates in an oligopoly industry wherein its closest competitor
Magotteaux, a subsidiary of Chilean conglomerate, Sidgo Koppers. Hence,
we do not have a comparative analysis of valuations with Magotteaux as it
is an unlisted company, thereby restricting alternative comparative metrics.
In such an instance, as an alternative, we have selected a set of companies
that are present in the industrial products space and are leaders in their
respective set of categories. The set of companies include Cummins India
(leading engine manufacturer), SKF India (leading MNC in the ball bearing
segment), Thermax (leader in heating & cooling solutions and CPP segment)
and VA Tech Wabag (EPC solutions provider in the water segment). All
these companies also boast a strong margin and cash flow profile with
minimum leverage on their balance sheets.
Hence, we have compared AIA with these sets of companies across all
business variables (revenue, EBITDA and PAT growth) and also on various
valuations parameters (RoE, P/E, P/BV and EV/EBITDA). The conclusion that
we draw is AIA stands tall across all parameters vis-à-vis the competitors
average (refer the below exhibits).
Exhibit 49: Growth profile of AIA vs. peers

R e ve nue G rowth (% ) E B IT D A G rowth (% ) P AT G rowth (% )
F Y 13 F Y 14E F Y 15E F Y 16E F Y 13 F Y 14E F Y 15E F Y 16E F Y 13 F Y 14E F Y 15E F Y 16E
C um m ins 11.3 -10.0 10.2 13.8 19.1 -18.4 11.1 16.8 29.3 -21.0 9.2 12.6
S K F India -8.8 1.5 11.1 8.7 -14.2 -7.6 18.1 10.7 -8.8 -8.2 21.9 9.0
T he rm a x -11.6 -3.0 25.9 9.2 -14.9 -11.3 23.3 28.1 -4.2 -18.9 29.9 8.2
V A T e ch Wa ba g 11.4 26.2 19.7 25.4 17.2 18.2 26.3 21.5 22.5 17.8 26.0 21.5
Ave ra ge 0.6 3.7 16.7 14.3 1.8 -4.8 19.7 19.3 9.7 -7.6 21.7 12.8
AIA E ngine e ring 23.6 15.0 15.2 19.6 13.8 44.4 17.4 19.0 17.3 41.8 7.7 15.5
Exhibit 50: Profitability profile of AIA vis-à-vis peers

E B IT D A Ma rgin(% ) R O E (% ) P AT Ma rgin (% )
F Y 13 F Y 14E F Y 15E F Y 16E F Y 13 F Y 14E F Y 15E F Y 16E F Y 13 F Y 14E F Y 15E F Y 16E
C um m ins 18.5 16.7 16.9 17.3 34.5 24.2 23.8 24.5 16.9 14.9 14.7 14.5
S K F India 12.3 11.2 11.9 12.1 17.5 14.7 15.3 15.5 8.6 7.9 8.6 8.6
T he rm a x 10.6 9.7 9.5 11.1 20.6 15.0 17.0 18.2 8.3 7.0 7.2 7.1
V A T e ch Wa ba g 10.0 9.1 9.6 9.3 13.3 14.0 15.7 16.4 5.6 5.3 5.5 5.4
Ave ra ge 12.8 11.7 11.9 12.5 21.5 17.0 18.0 18.6 9.9 8.7 9.0 8.9
AIA E ngine e ring 17.7 22.2 22.7 22.6 14.8 18.0 16.8 16.9 12.0 14.8 13.9 13.4
Exhibit 51: Valuation metrics of AIA vis-à-vis peers

P /E (1 yr forward) P /B (1 yr forward) E V /E B IT D A (1 yr forward)
F Y 14E F Y 15E F Y 16E F Y 14E F Y 15E F Y 16E F Y 14E F Y 15E F Y 16E
C um m ins 20.0 18.3 16.3 4.6 4.2 3.9 16.6 14.9 12.8
S K F India 18.7 16.1 14.5 2.7 2.4 2.1 12.7 10.7 9.7
T herm ax 23.5 18.1 16.8 3.9 3.5 2.6 15.6 12.9 9.8
V A T ech W aba g 15.3 12.1 10.2 2.0 1.8 1.6 8.7 6.9 5.7
Average 19.4 16.2 14.5 3.3 3.0 2.5 13.4 11.4 9.5
AIA E ngineering 17.3 16.1 13.9 3.1 2.7 2.4 10.9 9.5 8.0

Key Financials
Exhibit 52: Income statement
(| C rore )
(Y e a r-e nd Ma rch) F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E
T ota l ope ra ting Incom e 1,416.7 1,751.3 2,014.4 2,320.4 2,774.0
G rowth (% ) 24.6 23.6 15.0 15.2 19.6
R a w Ma te ria l E xpe nse s 656.5 663.6 734.6 800.3 963.7
E m ploye e E xpe nse s 64.2 80.9 98.7 111.5 130.4
O the r e xpe nse s 423.4 696.6 733.1 882.6 1,054.1
T ota l O pe ra ting E xpe nditure 1,144.1 1,441.1 1,566.4 1,794.4 2,148.2
E B IT D A 272.6 310.2 448.0 526.0 625.8
G rowth (% ) 21.2 13.8 44.4 17.4 19.0
D e pre cia tion 29.4 34.5 43.4 61.2 82.3
Inte re st 4.4 5.5 8.6 21.1 31.4
O the r Incom e 13.3 21.3 26.6 37.9 44.0
P BT 252.0 291.6 422.6 481.6 556.1
O the rs -1.0 0.0 0.0 0.0 0.0
T ota l T a x 71.5 80.0 123.6 159.6 184.1
P AT 179.7 210.8 299.0 322.0 372.0
G rowth (% ) -1.9 17.3 41.8 7.7 15.5
E P S (|) 19.1 22.4 31.7 34.1 39.4
Exhibit 53: Balance Sheet

(| C rore )
L ia bilitie s
E quity C a pita l 18.9 18.9 18.9 18.9 18.9
R e se rve a nd S urplus 1,219.6 1,402.7 1,638.7 1,892.9 2,186.6
T ota l S ha re holde rs funds 1,238.4 1,421.5 1,657.6 1,911.8 2,205.4
T ota l D e bt 50.1 160.9 180.9 280.9 330.9
D e fe rre d T a x L ia bility 19.3 21.0 21.0 21.0 21.0
Minority Inte re st / O the rs -1.0 0.0 0.0 0.0 0.0
T ota l L ia bilitie s 1,345.6 1,662.6 1,948.7 2,332.9 2,706.5
Asse ts
G ross B lock 495.0 547.5 736.0 1,023.0 1,313.6
L e ss: Acc D e pre cia tion 137.5 169.9 212.5 272.9 354.3
N e t B lock 357.5 377.6 523.4 750.1 959.3
C a pita l WIP 18.1 31.6 31.6 31.6 31.6
T ota l F ixe d Asse ts 375.5 409.1 555.0 781.7 990.9
Inve stm e nts 0.5 9.0 9.0 9.0 9.0
Inve ntory 301.1 403.0 406.6 530.5 594.7
D e btors 377.4 342.2 426.1 493.2 592.2
L oa ns a nd Adva nce s 143.8 215.1 251.5 288.6 305.8
O the r C urre nt Asse ts 3.4 0.8 2.7 1.4 3.5
C a sh 134.5 261.7 263.4 181.2 167.4
T ota l C urre nt Asse ts 960.2 1,222.8 1,350.3 1,494.9 1,663.7
C re ditors 98.6 112.6 127.8 148.0 177.7
P rovisions 54.6 80.9 102.3 118.4 142.1
T ota l C urre nt L ia bilitie s 153.3 193.6 230.1 266.3 319.8
N e t C urre nt Asse ts 806.9 1,029.2 1,120.2 1,228.5 1,343.9
O the rs Asse ts -1.0 0.0 0.0 0.0 0.0
Applica tion of F unds 1,343.0 1,658.5 1,944.6 2,328.8 2,702.4

Exhibit 54: Cash flow statement
(| C rore )
P rofit a fte r T a x 179.7 210.8 299.0 322.0 372.0
Add: D e pre cia tion 29.4 34.5 43.4 61.2 82.3
(Inc)/de c in C urre nt Asse ts -134.2 -135.3 -125.8 -226.8 -182.5
Inc/(de c) in C L a nd P rovisions -24.2 40.3 36.5 36.3 53.5
O the rs 2.3 3.3 3.0 5.0 5.0
C F from ope ra ting a ctivitie s 50.8 150.3 253.1 192.6 325.2
(Inc)/de c in Inve stm e nts -0.5 -8.6 0.0 0.0 0.0
(Inc)/de c in F ixe d Asse ts -106.1 -68.5 -188.5 -287.0 -290.6
O the rs -1.0 0.0 0.0 0.0 0.0
C F from inve sting a ctivitie s -83.9 -104.6 -208.5 -307.0 -310.6
Issue /(B uy ba ck) of E quity 0.0 0.0 0.0 0.0 0.0
Inc/(de c) in loa n funds 29.0 110.8 20.0 100.0 50.0
D ivide nd pa id & divide nd ta x -33.2 -44.5 -63.0 -67.8 -78.3
Inc/(de c) in S e c. pre m ium 0.0 0.0 0.0 0.0 0.0
O the rs -1.0 0.0 7.6 0.0 0.0
C F from fina ncing a ctivitie s 21.4 81.6 -43.0 32.2 -28.3
N e t C a sh flow -11.7 127.2 1.7 -82.2 -13.7
O pe ning C a sh 146.2 134.5 261.7 263.4 181.2
C losing C a sh 134.5 261.7 263.4 181.2 167.4
Exhibit 55: Ratio analysis

P e r sha re da ta (|)
EPS 19.1 22.4 31.7 34.1 39.4
C a sh E P S 22.2 26.0 36.3 40.6 48.2
BV 131.3 150.7 175.7 202.7 233.8
DPS 3.0 4.0 5.7 6.1 7.1
C a sh P e r S ha re 14.3 27.7 27.9 19.2 17.8
O pe ra ting R a tios (% )
E B IT D A Ma rgin 19.2 17.7 22.2 22.7 22.6
P B T / T ota l O pe ra ting incom e 18.6 17.3 21.7 21.4 20.6
P AT Ma rgin 12.7 12.0 14.8 13.9 13.4
Inve ntory da ys 72.6 76.1 76.0 76.0 76.0
D e btor da ys 101.9 74.0 80.0 80.0 80.0
C re ditor da ys 26.6 24.4 24.0 24.0 24.0
R e turn R a tios (% )
R oE 14.5 14.8 18.0 16.8 16.9
R oC E 18.8 17.3 21.9 21.1 21.4
R oIC 14.4 14.4 17.1 14.5 14.4
V a lua tion R a tios (x)
P /E 28.9 24.6 17.3 16.1 13.9
E V / E B IT D A 18.2 15.8 10.9 9.5 8.0
E V / N e t S a le s 3.7 2.9 2.5 2.2 1.9
Ma rke t C a p / S a le s 3.8 3.1 2.7 2.3 1.9
P rice to B ook V a lue 4.2 3.6 3.1 2.7 2.4
S olve ncy R a tios
D e bt/E B IT D A 0.2 0.5 0.4 0.5 0.5
D e bt / E quity 0.0 0.1 0.1 0.1 0.2
C urre nt R a tio 6.3 6.3 5.9 5.6 5.2
Q uick R a tio 5.4 5.0 4.7 4.9 4.7

Appendix
AIA Engineering is India’s leading manufacturer and supplier of HMCI that
are used for grinding clinker (in cement plants), coal (in thermal power
plant) and mineral ores (in mining plants). The grinding process is
conducted through two types of mills – tube mills (or horizontal mills) and
vertical mills. AIA also provides process improvement services such as mill
audit, designing, alloy selection, supervision during installation of wear
parts and optimisation of the grinding system.
Tube mill operation
During the rotation of the mill, the grinding media are lifted and made to fall
on the feed thereby, grinding the feed. Since the grinding media are hard,
repeated operation has the potential to damage the shell of the mill. In order
to protect the shell, liners are used. Liners are also utilised for aiding and
controlling the lifting action of grinding media. The mill is divided into two
chambers while the two chambers are separated by diaphragms, grates and
back plates. Diaphragms, grates and back plates are used to screen the feed
with predetermined size that are allowed to enter the second chamber.
The primary mill internals manufactured for tube mills are:
• Grinding media
• Diaphragms
• Head liners
• Shell liners
Exhibit 56: Tube mill

Exhibit 55:Tube mill parts - grinding media Exhibit 56: Tube mill parts - liners
Exhibit 57: Tube mill parts – diaphragm
Vertical mill operation

In vertical mill operations, feed materials are made to pass between rotating
table liners where the grinding take place. These mill internals are subject to
wear and tear, which results in less efficiency during grinding operations
and consequently, less output.
The mill internals manufactured for vertical mills are:
• Rollers and table liners
• Crusher parts
• Heat resistant castings such as dipping parts

Exhibit 58: Vertical mill parts - rollers Exhibit 59: Vertical table parts – table liners
Exhibit 60: Vertical mill parts – blow bars Exhibit 61:Vertical mill parts – hammers
Heat resistant castings
Exhibit 62: Heat resistant castings – dipping tubes

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ratings to its stocks according to their notional target price vs. current market price and then categorises them
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target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: > 10%/ 15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
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AIA Engineering (AIAENG) : Eyeing No.1 Position

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Initiating Coverage

Exhibit 1: Key financials

ICICI Securities Ltd | Retail Equity Research

7.8 Company, Hindustan Zinc, Bharat Aluminium Company, Lafarge, etc.

In FY13, AIA’s consolidated revenues increased ~24% to | 1751 crore on

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 2

Manufacturing Marketing units

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Exhibit 6: List of acquisition done in the past by AIA Engineering

ICICI Securities Ltd | Retail Equity Research Page 3

G rinding m e dia finds a pplica tions in C om position of ra w m a te ria ls:

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 4

Exhibit 8: Applications of various HCMI products across verticals/sector

Utilities Grinding media, shell liners, diaphragm, vertical mill

Exhibit 9: Cement manufacturing process finds significant applications of HCMI products

Source: Dscrusher.com, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 5

HCMI industry: Mostly dominated by two players

In terms of capacity, Magotteaux commands a capacity of 468,500 tonnes

HCMI LCMI Forged Steel Balls Castings JV Capacity

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 6

Based on empirical data, replacement demand for grinding media for 1

In the utilities segment, replacement demand is pegged at 15 gm per

ICICI Securities Ltd | Retail Equity Research Page 7

Exhibit 13: Trend in world cement consumption

Given that global cement demand is expected to grow at a CAGR of 4.3%

Exhibit 14: Dissecting replacement demand of HCMI in global cement market

With respect to domestic markets, we expect cement consumption to grow

ICICI Securities Ltd | Retail Equity Research Page 8

D om e stic ce m e nt opportunity F Y 10 F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E

G rinding m e dia opportunity

O the r m ill inte rna ls opportunity

Source: Company, ICICIdirect.com Research

Utilities: Smaller segment with more focus on domestic opportunities

Exhibit 16: HCMI product requirement to grow at CAGR of 6% over FY13-16E

D om e stic utilitie s opportunity F Y 10 F Y 11 F Y 12 F Y 13 F Y 14E F Y 15E F Y 16E

Source: CEA, Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 9

Exhibit 17: Assessment of opportunity in mining segment for HCMI players

Mining de m a nd for ove ra ll grinding m e dia (m illion tonne s pe r a nnum ) 2.5-3

We believe there exists a large opportunity for high-chrome grinding media

According to Wood Mackenzie, growing demand for copper and gold

O ve ra ll N orth Am e rica S outh Am e rica

Source: Wood Mackenzie, Molycop, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 10

Source: Wood Mackenzie, Molycop, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 11

470000 FY13-FY16E CAGR: 30.7%

Source: Company, ICICIdirect.com Research

Capex dedicated for further ramping up of mining volumes.

AIA is focusing aggressively on the global conversion opportunity in the

ICICI Securities Ltd | Retail Equity Research Page 12

200000 54.4 58.8

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

On a normalised basis, AIA’s capacity utilisation has averaged at 71% over