AIA Engineering mining conversions and spare capacity underpin volume growth outlook

Investment View and Valuation

ICICI Direct Research has upgraded its rating on AIA Engineering Ltd to BUY and values the company at 35 times FY28E EPS, resulting in a target price of Rs 5,285.

The broker identifies AIA Engineering's solution-led mining conversion strategy, substantial available capacity and strong balance sheet as key medium-to-long-term growth drivers. The company is India's largest manufacturer and supplier of high-chrome wear-, corrosion- and abrasion-resistant castings for cement, mining and thermal-power mills, and is described as the world's second-largest high-chrome producer.

Q4FY26 and FY26 Financial Performance

AIA Engineering reported healthy operating performance in Q4FY26. Sales volume rose 2.0 per cent year on year to 70,138 MT from 68,741 MT in Q4FY25. Consolidated revenue from operations grew 9.4 per cent year on year to Rs 1,266 crore, supported by better realisations and steady volume growth. Operating EBITDA increased 17.4 per cent to Rs 371 crore, while the EBITDA margin expanded 200 basis points to 29.3 per cent, helped by favourable product mix and operating leverage. PAT rose 37.9 per cent year on year to Rs 393 crore.

For FY26, sales volume increased 1.0 per cent to 258,002 MT, revenue from operations grew 3.1 per cent to Rs 4,414 crore, operating EBITDA rose 9.1 per cent to Rs 1,250.4 crore and EBITDA margin improved 150 basis points to 28.3 per cent. FY26 PAT increased 19.7 per cent to Rs 1,270 crore.

ICICI Direct views the business as cash-generative and capital-efficient, with net cash of around Rs 4,300 crore and operating margins of 28-29 per cent despite macroeconomic uncertainty.

Capacity Expansion and Balance-Sheet Strength

Management stated that overall capacity utilisation is around 55 per cent and can rise to 70-75 per cent within existing infrastructure before major additions are needed. A brownfield expansion at Kerala could add 50,000-75,000 tonnes of capacity. Expansion projects in Ghana and China are currently slowed but can be accelerated when demand visibility improves.

Management expects captive hybrid renewable-power projects to meet 60-65 per cent of total power needs by June-July 2026. Annual maintenance and renewable-related capex is guided at Rs 100-150 crore, including around Rs 30 crore of remaining renewable-project investment. FY26 capex was about Rs 130 crore.

Mining Conversion Opportunity

Mining conversions are the central growth opportunity for AIA Engineering. Successful trials of the company's new-generation discharge system at a large South American mine resulted in an immediate conversion order for a second mine from the same customer. Dispatches have begun for the previously announced 15,000-tonne South American order.

Management said the system can deliver at least 15 per cent throughput improvement and about 15 per cent lower power consumption, alongside downstream recovery benefits. The addressable global forged grinding-media market is estimated at 800,000 to 1 million tonnes, with an additional mill-liner opportunity.

Q4FY26 realisation of Rs 178 per kg benefited from product mix and currency, compared with sustainable long-term guidance of around Rs 165 per kg. Management expects margins to normalise towards 23-24 per cent as volumes rise and the grinding-media mix increases. Favourable currency added roughly 4-5 per cent to Q4FY26 EBITDA.

Growth Outlook and Estimates

ICICI Direct expects volume to grow 9 per cent over FY26-28E to 309,293 tonnes. The broker forecasts revenue and PAT CAGRs of 12.8 per cent and 4.6 per cent, respectively, over FY26-28E.

Key Risks

• Delays in the conversion to high-chrome grinding media.
• Increases in input costs or freight costs.