Action Construction at new high on strong outlook; soars 48% so far in July

Thus far in the calendar year 2023, the stock has zoomed 139 per cent, as compared to 9.2 per cent rise in the S&P BSE Sensex.

Shares of Action Construction Equipment (ACE) hit a new high of Rs 724.60, as they rallied 7 per cent on the BSE in Wednesday’s intra-day trade on expectations of strong earnings.

Thus far in the month of July, the stock of construction vehicles company has soared 48 per cent. While, so far in the calendar year 2023, it has zoomed 139 per cent, as compared to 9.2 per cent rise in the S&P BSE Sensex.

ACE is among the leading cranes and material handling manufacturer in India, with market leadership in mobile and fixed tower cranes segment. The cranes segment remains the mainstay of the company, contributing nearly 70 per cent to its turnover. In India, ACE is positioned as a market leader (60-65 per cent share) in the mobile and fixed tower cranes segment, which find applications in sectors like metro construction, mining, manufacturing, industrial development and the railways.

In the current financial year 2023- 23 (FY24), ACE expects a growth of at least 15 per cent to 20 per cent in its cranes, metal handling and agri portfolios. For the construction equipment segment, the management are looking at accelerated growth rates of 30 per cent to 35 per cent on an increased pace.

In terms of capacities, cranes and metal handling segments are reaching their peak utilization levels. And in order to fuel further growth, the company is currently incurring a capital expenditure of Rs 80 crore to Rs 90 crore to enhance capacity. The management said expansion will take shape from Q2 onwards and will enhance installed capacity and will have a potential to propel to reach a turnover level of Rs 3,800 crore to Rs 4,000 crore in the near future.

On the whole, as a company, the management is looking at a 15 per cent to 20 per cent growth in its top line for FY24, with further margin expansion of 100, 250 basis points.

The management believes that going forward, the strong demand scenario should sustain itself, supported by government's unweaving focused on urban infra and rural development. The increased capital expenditure announced in the Union Budget 2023 will further aid this growth in FY24.

Meanwhile, going forward, ICRA expects ACE’s credit profile to continue to remain healthy, aided by gradual scale up of operations and comfortable profitability indicators. Its moderate capex requirements are expected to be funded from internal accruals and available cash and investments, thus keeping dependence on incremental borrowings low.

Going forward, the company’s business prospects are expected to be aided by the Government’s continued focus on infrastructure spending as well as ACE’s improving presence in the agricultural equipment and CE industries. A strong operating performance is expected to translate into healthy earnings for the company, thereby aiding it in maintaining its strong financial risk profile, ICRA said in rating rationale.