AIA Engineering said its revenue increased slightly by 7% YoY to Rs 2.42 billion owing to lower realizations and slower off take from the cement business.

OPM fell by 425 bps to 22.7% because of higher raw material cost and lower realization.

Consequently, net profits surged 2% to Rs 400 million.

Export constitutes 63% of total revenue seeing an incraese of 28% (YoY basis).

Realizations fell by 13% to Rs 88/kg on YoY basis.

Production stood at 28129MT as against 22619 during the last corresponding quarter.

Sales in volume terms improved by 23% to 27400MT vs 22300MT. Sales to overseas mining industry were striking at 9200 MT. The volume growth was negated by the lower realizations.

OPM narrowed by 425bps mainly because of higher raw material cost. Sharp rise in material cost could not be passed on to the customers. However, we believe the company would be able to pass on the rise in material cost in the coming quarters.

The management has guided for volumes between 130k - 140k MT in FY11. Good traction of orders is expected from overseas mining companies and with capacities on stream, AIA is best placed to encash it. However, higher contribution from the mining segment, where realizations are lower, would put pressure on realizations going forward. Company remains debt free with healthy cash balance of Rs. 3.43bn.

The analysts expect the company to see a volume CAGR of ~23% in FY10-FY12E.

Sales are likely to see a CAGR of 20% (FY10-FY12E).

The market analysts have maintained 'hold' rating on the stock with a revised target price of Rs 355 (14xFY12E).