AIA Engineering Ltd

CONFERENCE CALL - from Capital Markets

Expects decent volume growth in FY17

AIA Engineering held a conference call on May 25, 2016 to discuss the performance of the company for the quarter and fiscal ended March 2016.

Key takeaways of the call

  • Production in Q4FY16 and FY16 stood at 46399 MT (down from 51324 MT in Q4FY15) and 189449 MT (down from 200215 MT in FY15).

  • Sales in Q4FY16 stood at 53502 MT (of which 28594 is mining volume) compared to 50626 MT (of which 25326 is mining volume) in corresponding previous period. The sales volume for FY16 was 185844 MT (mining volume is 100684 MT) compared to 186656 MT (mining volume of 106056 MT) in FY15.

  • Marginally lower sales volume in FY2016 can primarily attributable to certain strategic and conscious decisions i.e. restricting sales to Ukraine, reduction in South African market volume owing to currency uncertainties, and volume reduction owing to closure of one particular iron ore mine in Brazil.

  • Expects decent volume growth in FY17. The confidence for volume growth for current fiscal comes from happening of new opportunities. Developmental activities of new mines in several key locations in full swing. The company target an incremental volume growth of 120000 MT over next 3 years.

  • Greenfield expansion at GIDC Kerala, Phase II that envisage a capacity addition of 100000 TPA taking the total installed capacity of the company to 440000 TPA is expected to be commissioned by Oct 2017. The total capex cost is Rs 350 crore.

  • Capex incurred during FY2016 is Rs 178 crore and capex estimated to be incurred in FY2016-17 is Rs 150 crore.

  • Order book as at April 1, 2016 was Rs 534 crore.

  • The opportunity landscape over medium to long term horizon remaining unchanged with the total addressable annual mining replacement market estimated at around 3 million TPA coupled with a very low penetration of high chrome consumable wear parts in mining. Bulk of future growth is expected to come from outside India and that too mainly in mining segment.

  • Apart from significant cost reduction due to much lower wear rates, high chrome solutions also bring about benefits like improved process efficiencies, reduction in other consumables (other than high chrome consumables), improved environmental benefits, etc. which are other key growth drivers.

  • Outstanding foreign currency forward contracts as of March 31, 2016 stand at USD 26.25 million, Euro 4.75 million.

  • Cement sector outlook continues to remain flat with no near term signs of recovery visible either in India or outside India.

  • The supplies of high chrome mill internals to Indian thermal power plants, although flat as of now, are expected to pick up from this fiscal, but the growth rate will be pegged to the growth rate achieved by thermal power segment in India.

  • For the time being, AIA has a limited presence in China limited to the VSMS high chrome mill internal parts.


Today’s financials mentions short-term borrowings of Rs 125 Crs even though the company has current investments (debt MFs) of Rs 890 Crs.

Don’t understand why the company needs to borrow Rs 125 Crs and that too while reporting numbers in March year-end?

1 Like

Dear @hnk_so,

I am glad you liked what you read in my research. I am happy you have taken up investing in the stock market. As for your request for some stock ideas this is not how investing works. It is a very personal decision to invest and all investments should be done after careful organic research. There are no shortcuts in investing. I do not recommend any stock purchases because the payoff is asymmetrical, with limited upside and unlimited downside risk to my reputation.

As for sharing my portfolio what works for me will not necessarily work for you and whatever business was a great buy when I bought it will not necessarily be a great buy now at appreciated prices.
I hope your interests in investing flourishes as time passes and you learn to put in the work required.

Thank you & Cheers.


The management has explained this in the concall as treasury operation i.e. the cost of this borrowing is lower than what the company expects to earn on its liquid investments. So you make a neat margin in between.

1 Like

Conference call on 12th August 4:30 PM

Why do they never inform about how to join the concall or where it will be held.

I wrote to their investor relations and they forwarded the invite with a guest password.
So good to see them respond quickly.
In the email, I also requested them to share details in BSE announcement itself… Of course no revert on that. let’s see if they change their practice… maybe more of us should keep writing them

But for now, I have got a quick reply fm the co.

They actually did disclose this to BSE today.

Thanks amil. Will contact them immediately.

Q1 numbers for AIA are not that great. Mgt is still confident of 120,000 MT incremental volume growth in 3 years. Is it even feasible? or are they being too aggressive in their guidance? Any thoughts?

I think their order book for next quarter is around 700Cr (which is around 40% up from their quaterly revenue of around 500Cr). So, business seems to be picking and so is the stock.

1 Like

AIA has mentioned in the latest annual report that they have moved from fixed rate contracts for raw materials to floating rates. They have also cited that they will make use of low prices to buy raw material cheaper.

Now, as AIA is basically a foundry business, majority of their raw material is metal. Does it not make sense to get into long term fixed price contracts for raw materials now as the metal prices are at their cyclical low points?

What am I missing here?

I was reading up annual report of AIA engineering. Found 2 instances of mismatching numbers in AR -

The first instance is w.r.t. Raw Material prices -
In AR FY11 RM prices are shown to be 594Cr. But RM prices for FY11 in AR FY12 are shown to be 447 Cr. I must also state that the accounting head is different in two ARs - Raw Materials & Stores Consumption (AR FY11) & Cost of materials consumed (AR FY12).

The second instance is w.r.t. Loss in Exchange rate -
In FY12 AR, exchange loss in consolidated financial statement is 8 Cr. The exchange loss for FY12 as per AR FY13 is 55 Cr.

Can someone with accounting experience please explain these discrepancies?


Disc - No investments

My research notes on AIA. Have picked few points from this thread as well & credit goes to respective persons -
@rajpanda, @aveekmitra, @hack2abi, @punitm306

High Chrome Mill internal products that are used for crushing/grinding

The company supplies - grinding media, shells liners & diaphragms for this industry.

Tube MIll Parts
Following diagram explains the usage of various tube mill parts -

Vertical Mill Parts
The company provides grinding rolls for vertical mills. The company claims to have improved abrasion properties of these rolls resulting in cost savings. The company claims to have improved metallurgy of grinding rolls in following client mills - Loesche, Polysius, Atox, E, Raymond, CE

The company also provides - HRCS castings & crusher parts.


Tube & Rod Mill Parts
The company provides grinding media, inlet/outlet head liners, shell liners & diaphragms in this segment. The parts are customized for different metals that are being mined.

A similar assortment of products is provided for power sector as well.
Also company provides services like - Mill Audits, Installation Supervision, Mill optimization etc.

Grinding media needs to be replaced every 30 days whereas liners need to be replaced every 2-3 years.

AIA is global supplier of mill parts in cement industry in Europe & North America.
In FY11, company started supplying vertical mills parts to China cement industry.
The global demand of high chrome mill internals for cement is pegged at 0.3 million tonnes per annum.
The global client list includes - Holcim, Lafarge, Heidelberg, etc

The company serves the cement industry in domestic market as well.

Mining (60%+ revenue)
AIA supplies mill parts to Iron, copper, gold, platinum & zinc mines in various counties like USA, Canada, Brazil, South Africa, Australia, Philippines. The global replacement demand in mining industry is pegged at 3 million tonnes per annum & only 10-15% of the demand is converted into high chrome.

The focus of the company in mining industry is predominantly outside India. The company sells products to companies like - Rio Tinto, Anglo American, BHP Billiton, Vale, Arcelor Mittal, etc.

Company also serves coal powered thermal power plants in India.
The list of customers include - NTPC, SEBs, BHEL, Doosan, L&T, Hitachi, Alstom etc.

Worldwide presence in 120 countries through front end marketing companies.
S&M Commission Expenses - 20Cr+

Magotteaux – 350K MT, Anhui – 12K, Estanda – 8K, Christian Pfeiffer – 7K
Manpower cost too high for foreign players, freight cost is not an issue.

Forged players also form competition & falling forge prices pose challenge.


  • Replacement products - these products are repetitive in nature as against one time nature.
  • Stickiness - Once customer moves to chrome (takes 2-3 years), they stick with chrome due to tangible/intangible benefits.


  • Lower commodity prices poses a question for survival of various metal mines. This also naturally holds back investments from mines. But on the other hand, increasing RM prices can hit OPM.
  • The major growth driver for growth in company is exports markets. This seem to have slowed down in FY15, FY16. (Need to figure out why?)
  • If some other technology other than high chrome metallurgy provides mill parts with longer life/lower cost, that would be disruptive.


  • Welcast Steels Limited (71% stake)
  • Vega Industries (Middle East) FZE, U.A.E.
  • Vega Industries Ltd., U.K.
  • Vega Industries Ltd., U.S.A.
  • Vega Steel Industries (RSA) PTY Ltd.
  • Wuxi Weigejia Trade Co. Limited, China
  • DCPL Foundries Ltd.


  • Conversion to high chrome parts
  • Mines for newer metals
  • Geographical expansion in India & Abroad
  • Commodity upswing

Bhadresh K Shah - Managing Director, B. Tech Metallurgy, IIT, Kanpur
The company seems to be one man army riding out on the talent & skills of Bhadresh K Shah - an IIT graduate. His age is 60+ & prudent succession planning is required for future growth of the company.

Mr. Sanjay Majmudar, Independent director
Independent director yet quite hands on.

Dr. S Srikumar, Director
Common director with powertec & company uses powertec services.

Yashwant M. Patel, Whole Time Director
Closing in on 70, salary is just 7-8 lacs. Can’t figure out - what does he bring to table? wisdom?

Mr. Kunal Shah, Executive Director, Finance
Working in company in last 14 years. Intelligent but very direct in communication.



  • The legal & consulting expenses are consistently high - 10Cr+ since FY10


  • Added 22 new customers in cement business
  • Started supplies to - Platinum mines in South Africa, Iron ore mines in Brazil, Copper mines in Africa, Gold mines in Far East.
  • 45 - 55 sale ratio for India - Outside India
  • FII + Mutual Funds already hold 30%


  • OPM shrank from 24% to 21% mainly due to increase in raw material cost (447 Cr → 580 Cr) & 31% increase in other expenses (373 Cr → 489 Cr – 20Cr more purchases + 37Cr more in power & fuel)
  • The capacity of cement industry domestically stood at 300 million tonnes per annum
  • It seems to me that some accounting method has changed in this FY. The numbers vary across two annual reports in Raw Material, Loans & Advances etc. Raw material example shown below. (Ask CA??)

FY11 RM →

FY12 RM →


  • Joint venture with Polyex Minerals Private Limited on 50-50 basis. The goal is to establish a Silca Sand Refining project with capacity of 2L MT. This will help in backward integration & procurement of quality sand on continuous basis.
  • Another instance of mismatching numbers between AR FY13 & AR FY12. In FY12 AR, exchange loss in consolidated financial statement is 8 Cr. The exchange loss for FY12 as per AR FY13 is 55 Cr.
  • Award of Damages in Patent matter by District Court of 3924.02 - Nashville, Tennessee U.S.A. (US$ 7228544.64, INR - 39Cr), which is disputed by the Company.


  • Operating margins significantly expanded in FY14 on the back of reduced RM cost (39% to 35%) & reduction in other expenses (40% to 33%)
  • The patent matter dispute in USA of 39Cr seems to have resolved without any payment. Perhaps, this is one of the reasons legal fees had spiked to 19 Cr in FY13.


  • Margin expanded again due to inventory expense going from +70Cr to -100Cr.


  • Margin expanded again on the back of reduced RM cost from 39% to 32%

The pro-investment points in AIA engineering are -

  • Very sharp managing director
  • A very large opportunity size in converting mill parts from forged to high chrome
  • Repetitive nature of business
  • Capacity expansion to 4.4L TPA with utilization around ~2L TPA
  • Clean balance sheet with negligible debt through expansion.

The risks in investment thesis are as follows -

  • The stock is well discovered (32% holdings by FII + MF) & richly valued.
  • The growth in export business has slowed down which was major growth driver

Disc - No investments at this point


AIA engineering results out -


Link -

  • Very flattish sort of results on 9M basis & PAT is up more than sales due to other income. RM cost climbed up faster than sales on 9M basis.
  • Very good results for Q3FY17 on Y-o-Y & even Q-o-Q basis


1 Like

Sharing here for the benefit of all interested, the Q3FY17 Conference Call Transcript which was held the day before. I have transcripted this myself from the conference call recording and there may be errors, so please be careful about the factuals, and confirm all figures with the management.

Q3FY17 ConCall Transcript.pdf (255.9 KB)

Q3FY17 Conference Call Recording: Dropbox - File Deleted


Thank you. Management sounds bullish.
Here is a link from barron’s on AIA

1 Like

Thank you for uploading good stuff, grinding media application explain in simple words.
Disclosure: No any holding in AIA

AIA Engineering: A long term investment that may gain from shift to Electric Vehicles

By 2030, purchase of ICEVs (Internal Combustion Engine Vehicles) will completely stop as they will enter a vicious cycle of increasing costs, decreasing convenience and diminishing quality of service. - Tony Seba in Rethinking Transportation 2020-2030. (1)

EVs (Electric Vehicles) require more copper wiring than standard internal combustion engines. For example, the battery in an electric car contains about 38 kilograms of copper, 11 kilograms of cobalt and 11 kilograms of nickel, according to Glencore. Those materials, along with manganese, stand to benefit from more demand for electric cars, Glasenberg said. (2)

EVs will influence the demand for metals:

Today’s conventional ICEV contains about 20 kg of copper. Hybrids use about 40 kg, an average PBEV (Pure Battery EV) requires about 80 kg, four times the amount of a conventional vehicle. Today there are about 1.1 Bn light vehicles globally, about 1 million are EVs. By 2035, we should see 140 million EVs or 8 % of the total 1.8 Bn fleet. Building the EV fleet will use about 11m tonnes of copper. Subtract the amount that would have been used in the conventional vehicles ‘displaced’ by EVs, and that figure comes down to about 8.5m tonnes of genuine new demand — equivalent to more than a third of total global copper demand today. (3)

Other LME commodities should benefit from these trends. Although lithium gets a lot of press for its role in batteries, nickel, manganese and cobalt, (in that order) will see more volume growth in our view. Aluminium will also continue to benefit from the push to make cars lighter. But the combination of market size, diversified demand and long-term supply constraints make copper the pick for our portfolio. (3)

(The above estimates by BHP are their mid case scenario while the high case scenario expects the 2035 EV fleet to be double of the mid case scenario. Different studies have different estimates of the future penetration of EVs in the global fleet. Some being conservative and some being aggressive. What is certain today is the direction of disruption, the speed of disruption is anyone’s guess.)

Thesis is dependent on:

1.) Shift from ICEVs to EVs materializes (Cost of EVs should be below ICEVs for mass adoption)
2.) That Taas (Transport as a Service) does not significantly reduce the number of vehicles needed globally, car ownership shifts from individuals to fleets.
3.) Durability of EVs does not extend the life of a vehicle immensely. (Elon has mentioned a million mile electric drive train, which has no value for an individual owner who drives on average 10k miles per year but will have immense value for a fleet owner providing TaaS.) (4)
4.) Grid Scale and Residential Scale Energy Storage Requirements due to intermittent renewable sources of energy.
5.) Charging Infrastructure Requirements.

How to benefit from the long term Copper Demand Pick Up?

One play would be to directly invest in copper miners, producers, refiners but being a commodity play it is difficult to time the investment for me. A better way in my perspective is to invest in the suppliers of copper miners who are indispensable to the mining industry. Suppliers of mining equipment should benefit but the maximum benefit should be seen by providers of consumables to miners.

Grinding media consumables was a commodity low margin business globally (Forged grinding media is a highly competitive mature industry with little technological barriers to differentiate) until it was disrupted by the likes of HCGM (High Chrome Grinding Media) suppliers such as Magotteaux and AIA Engineering.

How May AIA Engineering Benefit:

The best part about grinding media business is its consumable nature which leads to repeat demand. To sweeten the deal with declining ore grades, the per tonne consumption of grinding media increases over time as more ore needs to be ground to extract the same quantity of refined mineral. With the added tailwind of boost in global copper demand for the next two decades, AIA Engineering should do good business.

The current scenario is that the 9MFY17 volumes were at 156000 tonnes of which 97000 tonnes were from mining, 9MFY16 volumes were at 132000 tonnes of which 72000 tonnes were from mining. Current mining opportunity in grinding media is at 2500000 tonnes per annum of which 15% has been converted to HCGM from FGM (Forged Grinding Media) by the two HCGM suppliers. (From Q3FY17 Investors Conference Call).

Their main targets in the mining industry are copper and gold producers but the company does not track and provide individual breakdown of volumes and revenues from different ores. The management is currently aggressively targeting to make the HCGM the mining industry standard by volume at all cost.

The company has accumulated a war chest of 1100 cr in cash with little debt to help them scale up manufacturing capabilities as and when required.

Long Term Risks:
1.) Threat of substitution of Copper by Aluminium in electrical application.

2.) Revenue from thermal power stations will have diminished by 2030, if the renewable energy revolution plays out.

3.) Any future changes/advances in the grinding media technology, similar to forged GM being replaced by High Chrome GM could disrupt the company.


1.) Invested.

2.) This is a personal opinion which may contain inherent biases and blind spots that may not be possible to correct from my vantage point. Please do your own research and form your own opinion before investing, this is not a stock recommendation. This information is being shared to facilitate collaboration. Any opposing views that may arise from a different vantage point and thought process are welcome to enhance my understanding.

3.) I refrain from talking about the most important part, the current valuations, as it is difficult to accurately gauge with sufficient margin of safety, that whether the current valuations and the inherent expectations built in the price account for how much of the future growth and business opportunity.







PS: I understand that the future copper demand pickup can be played in many ways other than the ones mentioned above. I would request everyone to keep your responses relevant to the AIA Engineering thread where this is being posted. Any new discussion on other ideas can be started in a new relevant thread on VP.


Good research Abhinav…And thanks…