I made a scrap note on AIA Engineering about 7 - 8 months back and last updated after Q3 '15 result…Thought of sharing as I never checked this thread of VP before. If any one can update further on the questions raised, it would be great.
AIA is in a very interesting business … Large opportunity size…Very professional promoter …
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Increase of business volume is dependent on adding new mines as existing mines can continue replacing grinding balls / mil parts but pace / tonnage would be more or less a function of mining capacity / mining plan.
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Since they do total consultancy and customization, QoQ result has very little merit but at the same time once a base level is created that would be protected for as many years as the mine survives (and its rate of extraction). It is a 5 year horizon one need to look assuming they remain technically / costwise ahead of the curve. They are producing now not only the consumable but the wearable parts too. Like a company with full range of product basket for both horizontal and vertical grinding mills.
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In India, Balls & Cylpebs, Balaji Industrial Products also produce Chromium Grinding balls … It would be good to know what AIA does special and where these guys falter.
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Magotteaux competes directly with them now (US$ 800 - US$ 900 million sales) and also they have a technology agreement with Scaw Metals in South Africa. If you know the sales of Scaw Metals, let me know. Else I would find out.
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Annhui Ninguo (China), Ares Engineering (Egypt), Arrium Mining and Materials also manufacture these items but don’t know much details. Firth Rixson used to a grinding mill component 15 years back (not balls) but they vacated the space as they moved up in value chain and produce Jet Engine components (acquired by Alcoa recently).
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Mill Internals are special steel casting and their are few International Companies like Christian Pfierrer; Estanda etc etc … Why they don’t get into consumable space of Grinding Balls is something you may look into. Or for that matter why Simplex Casting of Bhilai or some quality alloy steel foundry can’t make it.
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If bespoke solution made available, why a customer (miner) would go for an integrated solution exposing them to one supplier risk?
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As per management total world market for Cement Grinding Balls is about 300,000 tons and they cater 60% of the market. So others does rest (assuming Magotteaux does a good portion of this) … And other areas like Iron, Platinum, Gold,Copper, Coal etc have a market size of 2.4 million tonnes. and presently only 20% is in cast steel segment. Their expanded nameplate capacity would be 440000 MT and actual may be in the rage of 300 K to 350 K range … So surely they are targeting other segments aggessively. Incremental yearly conversion rate is the data point to look for…
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If my understanding is correct, management tells every year incremental increase would be in the range of 20000 to 30000 MT from their current 200000 MT level … So full utilisation of new added capacity (from FY 16) is at least 4 -5 years away.
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Margin improvement from 22 - 24 % level is difficult but sustaining that is very much possible. So, a 30% increase Yoy PAT is very plausible for coming 5 years.
Overall a very good business and very hard to dislodge but outsized return possibility is limited at this price point but downside is very well restricted.
Disc.: No investment at present.