ACE - Ready To Take Advantage Of The Infrastructure Boom: Anand Rathi Initiates Coverage With A 'Buy' Rating

Anand Rathi Report

Well Diversified Product Portfolio

Action Construction Equipment Ltd. boasts a diversified portfolio encompassing various segments, including cranes, construction equipment, material handling equipment, and agricultural machinery. These versatile assets find application in diverse sectors such as construction, infrastructure, manufacturing, logistics, and agriculture. Notably, ACE holds the title of the world's largest manufacturer of pick and carry cranes, commanding a remarkable 63% market share in the mobile cranes segment within the country.

Furthermore, the company dominates the domestic tower cranes segment with a majority market share exceeding 60%.

Strong Financial and Operational Highlights –

The company reached its all-time highest quarterly revenues and margins. The robust growth trend persisted, with operational revenue experiencing a 36.8% year-on-year increase and a 3.4% quarter-on-quarter rise. The construction equipment segment sustained substantial growth, marking nearly a 100% YoY increase, accompanied by margins reaching 12.7%. The margin increased by 75 basis points quarter-on-quarter and 500 basis points year-on-year, attributed to a more favorable product mix, enhanced price realizations, and effective cost control measures.

Robust revenue and volume expansion observed in every segment – In the recently concluded quarter, there was a 30% YoY growth in the cranes segment, nearly 100% YoY growth in the construction equipment segment, a 26% YoY growth in the material handling equipment segment, and a 33% YoY growth in the agri equipment segment.

The quarterly sales volume for the cranes, construction equipment, and material handling segments increased by 36.5%, 115.8%, and 23.5%, respectively, on a YoY basis. However, there was a decrease in sales volume for the agricultural equipment segment.

Capital investment and upward revision of guidance – ACE's expanded and newly established facilities were partially put into operation during the third quarter. This facility focuses on high-capacity slow cranes, including truck cranes, crawler cranes, and rough terrain cranes, aiming to increase capacity by four-five times. The capital expenditure is expected to enhance the company's overall capabilities, enabling them to achieve revenue in the range of Rs. 4,000 crores at full utilisation levels. The company aims for a growth rate exceeding 25%, along with an expansion in Ebitda margins compared to the previous year.

New Product Launches – The company has plans to launch India’s first fully electric mobile crane, India’s largest mobile crane - 180 Tons crawler crane, 35 Tons 4x4 Gen crane. The company is also working on two specific models of backhoe loaders and telehandler, which is not sold in India and is only for export market.

We believe that the company is well positioned to take advantage of the strong demand in all its segments. ACE is well supported by the Indian government’s plan to invest in different sectors like urban infra, railways, manufacturing, agriculture, logistics, airports and many such sectors.

Also, the company is well positioned to take advantage of the export markets. We initiate a 'Buy' rating for the company with a target price of Rs 1,000 per share.

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