ICICIdirect has recommended 'Buy' on AIA Engineering with target price of Rs 617 as against current market price (CMP) of Rs 560 in its report.

Commenting on the investment rationale, the stock broker said, ''Scalable opportunity in the mining segment, resurrection of operating margins back 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 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 flows will fund the aggressive capex plans of AIA. Hence, initiate with Buy.

Strong volume growth and recovery of margins will drive a strong 21% PAT CAGR for AIA over FY13-16E in an environment wherein engineering companies are facing visibility challenges. Given the asset light balance sheet, manageable capex levels (under Rs 6.5 billion in FY14-15E), which is largely funded by internal cash flows (CFO to average Rs 2.30 billion over FY13-16E) and manageable debt, we expect AIA to command at least 10% premium to its historical averages over FY10-12. Hence, we arrive at a target price of Rs 617/share.''

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