Action Construction Equipment - Company Update - ICICI Securities

Action Construction Equipment (ACE) reported a sturdy Q4FY20 performance clocking 2% YoY revenue growth. Margins expanded YoY on account of a reduction in input costs. Revenue for the quarter was at Rs. 305.5 crore, up 2% YoY. Crane segment revenue, which contributes ~70% to topline, was at Rs. 217.4 crore, down 2.5% YoY. Total crane volumes were at ~1319 units vs. ~1464 units in Q4FY19. Gross margins expanded ~285 bps YoY due to lower input costs. Consequently, EBIDTA margins were at 9%, expanding ~100 bps YoY. ACE registered absolute EBIDTA of Rs. 27.4 crore, up 15% YoY. On the expenses side, employee expenses increased 15% YoY to Rs. 23.3 crore while other expenses increased 20% YoY to Rs. 20.2 crore. Thus, due to increased expenses, the benefit of higher gross margins to the bottomline was partially negated. PAT came in at Rs. 13.8 crore, up 12.6% YoY. Tax rate during the quarter came in at 24.6%.

Valuation & Outlook

Given the recent events, ACE is likely to face headwinds in the short to medium term on account of sluggish demand and low capacity utilisation. At present, ACE is trading at 6.5x FY22E EV/EVITDA, with most of the near term uncertainty priced in the stock. Going ahead, market leadership in the 'pick & carry' cranes (>60% market share) with a healthy balance sheet, foreseeable improvement in working capital, growing agri and construction equipment segment is expected to augur well for the company in the long term. However, short & medium term pain is expected to weigh on profitability in FY21E. In light of all the above, we value the stock at 8x FY22E EV/EBIDTA to arrive at a target price of Rs. 65 per share with a BUY rating.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_ActionCons_CoUpdate_Jun20.pdf

Shares of ACTION CONSTRUCTION EQUIPMENT LTD. was last trading in BSE at Rs.57.6 as compared to the previous close of Rs. 52.7. The total number of shares traded during the day was 108304 in over 1341 trades.

The stock hit an intraday high of Rs. 58 and intraday low of 52.3. The net turnover during the day was Rs. 6068144.

Source : Equity Bulls

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