Action Construction Equipment (ACTCON)

CMP: | 260 Target: | 320 (22%) Target Period: 12 months BUY

November 10, 2021

Strong performance led by cranes segment…

About the stock: Action Construction Equipment (ACE) is an Indian construction

Result Update
equipment and material handling company.

 ACE has eight manufacturing and one R&D site in Faridabad, Haryana
Particulars
 The company has a capacity of 12000 construction equipment and 9000 Particular Amount
tractors annually Market Capitalization 3,370
Total Debt (FY21) (| crore) 51
 ACE’s product portfolio is divided into four main categories viz. agricultural
Cash and Inv (FY21) (| crore) 62
equipment, construction equipment, road construction equipment and
EV (FY20) (| crore) 3,360
earth-moving machinery 52 week H/L (|) (BSE) 292 /71
Equity capital (| crore) 22.7
Face value (|) 2

Q2FY22 Results: ACE reported its Q2FY22 results. Shareholding pattern

Dec-20 Mar-21 Jun-21 Sep-21
 Revenue for the quarter came in at | 360.9 crore, up 35% YoY & 12% QoQ Promoter 73.1% 70.1% 70.1% 66.8%
FII 1.0% 3.2% 4.2% 5.3%
 Absolute EBIDTA came in at | 34.8 crore, up 15.2% QoQ and 43.8% YoY
DII 0.7% 1.4% 2.0% 4.0%
 PAT came in at | 23 crore vs. | 14.6 crore in Q2FY21 & | 19.3 crore in Q1FY22 Others 25.1% 25.4% 23.7% 24.0%

Price Chart

ICICI Securities – Retail Equity Research

What should investors do? ACE continues to tread on its growth path. Even with 300 20000
a disrupted H1FY22, the management has guided for 20-25% growth 250
15000
200
 We continue to remain positive and retain our BUY rating on the stock 150 10000
Target Price and Valuation: We value ACE at | 320 i.e. 15x EV/EBIDTA (FY23E). 100
5000
50
0 0

Feb-20
Feb-19

Feb-21
Oct-18

Oct-19

Oct-20

Oct-21
Jun-19

Jun-20

Jun-21
Key triggers for future price performance:
 Strong growth in FY22E & FY23E with sustained EBIDTA margins ACE NSE 500

 Construction equipment segment growing and occupying a larger pie in

overall revenue contribution Recent event & key risks

 Upcoming government & private capex providing fillip to the sector  Demand revival post monsoon

 Key Risk: (i) Rising input cost (ii)

Inability to achieve meaningful
Alternate Stock Idea: We also like NRB in our capital goods coverage. growth in CE & agri segments
 It offers a play on needle roller bearings, which are largely used in auto Research Analyst
applications
Chirag Shah
 BUY with a target price of | 175 per share
[email protected]

Key Financial Summary

5 Year C AGR 2 Year C AGR
( Year -end Mar ch) FY19 FY20 FY21 ( FY16-FY21) FY22E FY23E ( FY21-FY23E)
Revenue 1,343.2 1,156.2 1,227.0 14.0 1,492.0 1,857.5 23.0
EBITDA 98.5 91.6 119.4 31.2 164.1 234.0 40.0
EBITDA margin (%) 7.3 0.08 0.097 0.11 0.13
Net Profit 56.1 52.5 80.2 51.6 115.4 165.6 43.7
EPS (|) 4.9 4.6 7.1 9.7 13.9
P/E (x) 51.7 56.7 37.1 27.0 18.8
EV/EBITDA (x) 29.7 33.1 24.8 17.9 12.3
RoCE (%) 25.3 19.3 26.9 22.3 26.2
RoE (%) 12.8 11.9 15.3 14.9 17.9
Source: Company, ICICI Direct Research
 Result Update | Action Construction Equipment ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q2FY22 Results: Sturdy performance
 Revenue for the quarter came in at | 360.9 crore, up 35% YoY & 12% QoQ.
Segmental performance was as follows. Crane segment revenue came in at
| 241.4 crore vs. | 166.4 crore in Q2FY21 and | 222.1 crore in Q1FY22. EBIT
margins for the quarter were at 11.3%. Construction equipment segment
revenue came in at | 39.9 crore vs. | 30.8 crore in Q2FY21 and | 36.6 crore
in Q1FY22. EBIT margins for the quarter were at 5.2%. Material handling
segment revenue came in at | 37.5 crore vs. | 26.5 crore in Q2FY21 and
| 33.1 in Q1FY22 with EBIT margins of 12%. Agri segment revenue came in
at | 42.1 crore vs. 44.7 crore in Q2FY21 and | 29.6 crore in Q1FY22

 Gross margins increased ~10 bps YoY and ~135 bps QoQ. EBIDTA margins
came in at 9.6% vs. 9.4% QoQ and 9.0% YoY. Absolute EBIDTA came in at
| 34.8 crore, up 15.2% QoQ and 43.8% YoY

 Ensuing PAT was at | 23 crore vs. 14.6 crore in Q2FY21 & | 19.3 crore in
Q1FY22

Q2FY22 Earnings Conference Call highlights

 The company has generated highest ever Q2 revenue, EBITDA and PAT
mainly on back of strong demand from infra and manufacturing sectors.
ACE has seen sequential growth in every month since May 2021

 The company has guided for 12-15% increase in volumes and 8-10%
increase in price of its products with revenue increment of around 20-25%

 EBITDA will be in the range of 10-13% for FY22

 Despite having a good quarter ACE is facing issues on rising raw material
process, supply chain disruption (shortage of container)

 The company has passed on higher raw material prices to its customers
twice this year and is planning to increase prices once again in November

 ACE has received two orders from the defence industry with the order size
of around | 100 crore and is confident of securing more such orders in
coming quarters

 Money raised will be used for inorganic growth

 The company is optimistic about 40% CAGR in construction equipment and

estimates it will reach | 400-500 crore by FY25

ICICI Securities | Retail Research 2

 Result Update | Action Construction Equipment ICICI Direct Research

Exhibit 1: Variance Analysis

Ye a r Q2FY22 Q2FY21 YoY (%) Q1FY22 QoQ (%) C omme nts
Better performance, both in terms of value and volume
Revenue 360.9 268.3 35% 321.5 12%
due to revial in infra, construction and industrial activities
Other Income 2.2 1.8 24% 2.4 -5%
Total Income 363.1 270.1 34% 323.9 12%
Cost of materials consumed 296.3 229.8 29% 249.0 19%
Higer material cost primarily led by increase in steel prices
Change in inventories -13.3 -19.3 -31% 7.4 -280%
Employee cost 20.1 17.9 12% 19.1 5% Employee cost declined 45% YoY
Other expenses 23.0 15.6 47% 15.8 45%

EBITDA 34.8 24.2 43% 30.2 15% EBIDTA grew 43% YoY led by positive operating leverage
EBITDA Margin (%) 9.6 9.0 60 bps 9.4 24 bps
Depreciation 3.8 3.5 7% 3.6 3%
Interest 3.3 3.5 -5% 2.7 23%
PBT 29.9 19.0 57% 26.2 14%
Taxes 6.9 4.5 55% 6.9 0%
PAT 23.0 14.6 58% 19.3 19% Profitability improved led by higher utilisation

Ke y me tric e s Q2FY22 Q2FY21 YoY (%) Q1FY22 QoQ (%) C omme nts
Robust performance in crane segment led by revival in
Cranes 241.4 166.4 45% 222.1 9%
infra activities
EBIT Margin % 11.3% 9.2% 11.2%
EBIT 27.2 15.2 79% 24.9 9%
Improved performance in CE segment led by revival in
Construction Equipment 39.9 30.8 30% 36.6 9%
infra activities
EBIT Margin % 5.2% 1.3% 4.9%
EBIT 2.1 0.4 NA 1.8 16%
Source: Company, ICICI Direct Research

Exhibit 2: Change in estimates

FY19 FY20 FY21 FY22E FY23E
(| Crore) Actual Actual Actual Old New % Change Old New % Change
Revenue 1343.2 1,156.2 1,227.0 1,419.0 1,492 5.1 1,758.0 1,858 5.7
EBITDA 98.5 91.6 119.0 156.0 164 5.2 221.0 234 5.9
EBITDA Margin (%) 7.3 7.9 9.7 11.0 11.0 0 bps 12.6 12.60 0 bps
PAT 56.1 52.0 80.0 107.0 115 7.9 156.0 166 6.2
EPS (|) 4.9 4.6 7.1 9.4 9.7 3.1 13.7 13.9 1.5
Source: ICICI Direct Research

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 Result Update | Action Construction Equipment ICICI Direct Research

Financial Summary

Exhibit 3: Profit and loss statement | crore Exhibit 4: Cash flow statement | crore
(Year-ended-March) FY20 FY21 FY22E FY23E (Year-ended-March) FY20 FY21 FY22E FY23E

Revenue 1,156 1,227 1,492.0 1,857.5 Profit after Tax 52 80 115 166
Total Raw Material Costs 894 962 1164 1427 Add: Depreciation 13 14 13 14
Employee Expenses 86 72 82 98 Interest 15 12 3 2
Other expenses 85 74 82 98 (Inc)/decrease in CA (61) (59) (144) (155)
Total Operating Expenditure 1,065 1,108 1,328 1,623 (Inc)/decrease in CL and prov 33 42 43 80
EBITDA 92 119 164 234 CF from Operations 51 106 29 116
EBITDA Margins 7.9% 9.7% 11.0% 12.6% (Inc)/decrease in Fixed Assets (39) (18) (35) (30)
EBITDA Growth % -6.3% 30.4% 37.5% 42.6% Others 9 5 18 12
Other Income 4 15 12 12 CF from Investing (30) (12) (17) (18)
Interest 15 12 3 2 Issue/(Buy back) of Equity (33) - 136 -
PBDT -10 3 9 10 Inc/(dec) in loan funds 30 (23) (20) -
Depreciation 13 14 13 14 Dividend paid & dividend tax (6) (6) (9) (13)
PBT before Excep item 68 108 160 230 Others (15) (25) 23 (31)
Total Tax 16 28 45 64 CF from Financing (23) (54) 129 (45)
PAT before MI 52 80 115 166
Minority Interest 0 0 0 0 Net Cash flow (2) 40 141 54
PAT 52 80 115 166 Opening Cash/Cash Equivalent 12 10 50 191
% Growth -6.3 52.8 44.0 43.5 Closing Cash/ Cash Equivalent 10 50 191 244
EPS 4.6 7.1 9.7 13.9 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

Exhibit 5: Balance Sheet | crore Exhibit 6: Key ratios

(Year-ended-March) FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E
Equity Capital 23 23 24 24 Per Share Data
Reserve and Surplus 420 501 751 903 EPS 4.6 7.1 9.7 13.9
Total Shareholders funds 443 523 774 927 BV 39.0 46.1 65.0 77.8
Minority Interest 0 0 0 0 Dividend per share 0.5 0.5 0.8 1.1
Other Non Current Liabilities 18 18 18 13 Dvidend payout ratio 10.8 7.1 8.0 8.0
Total Debt 74 51 31 31 Operating Ratios
EBITDA Margin 7.9 9.7 11.0 12.6
Sources of Funds 535 593 824 971 PAT Margin 4.5 6.5 7.7 8.9
Return Ratios
Gross Block 464 488 526 556 RoE 11.9 15.3 14.9 17.9
Acc: Depreciation 121 135 148 161 RoCE 19.3 26.9 22.3 26.2
Net Block 398 416 408 420 RoIC 20.0 28.0 29.0 35.5
Capital WIP 19 13 10 10 Valuation Ratios
Total Fixed Assets 417 429 418 430 EV / EBITDA 33.1 24.8 17.9 12.3
Non Current Assets 50 36 42 42 P/E 56.7 37.1 27.0 18.8
Inventory 271 266 327 397 EV / Net Sales 2.6 2.4 2.0 1.6
Debtors 147 225 286 356 Market Cap / Sales 2.6 2.4 2.1 1.7
Loans and Advances 0 0 0 0 Price to Book Value 6.7 5.7 4.0 3.4
Other Current Assets 52 38 60 74 Turnover Ratios
Cash & Equivalent 9 37 191 244 Asset turnover 2.6 2.4 1.9 2.0
Investments 6 25 25 25 Debtors Turnover Ratio 7.8 5.5 5.2 5.2
Total Current Assets 486 591 888 1097 Creditors Turnover Ratio 3.6 3.7 4.1 4.3
Current Liabilities 419 463 505 585 Solvency Ratios
Debt / Equity 0.2 0.1 0.0 0.0
Net Current Assets 67 128 383 512 Current Ratio 1.1 1.1 1.3 1.4
Quick Ratio 0.5 0.6 0.7 0.7
Application of Funds 535 593 824 971 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

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 Result Update | Action Construction Equipment ICICI Direct Research

Exhibit 7: ICICI Direct coverage universe (Capital Goods)

Company CMP M Cap EPS (|) P/E (x) RoCE (%) RoE (%)
(|) TP(|) Rating (| Cr) FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E
L&T (LARTOU) 1943 2,150 Buy 272642 81.9 51.9 52.9 23.7 37.4 36.7 7.4 8.0 9.0 18.8 11.4 11.2
Siemens Ltd 2408 2,550 Buy 85754 28.3 37.9 45.1 85.2 63.5 53.4 13.5 16.3 17.4 9.9 12.1 13.0
AIA Engineering (AIAENG) 1906 2,230 Buy 17977 59.7 60.4 69.7 31.9 31.5 27.3 16.4 15.3 16.1 13.3 12.4 12.9
Thermax (THERMA) 1337 1,680 Buy 15931 17.3 26.8 40.0 77.1 49.9 33.5 9.8 11.9 16.3 7.6 9.3 12.7
Kalpataru Power(KALPOW) 420 455 Hold 6498 41.3 25.8 37.8 10.2 16.3 11.1 15.9 15.2 16.7 12.7 9.7 11.8
KEC International (KECIN) 467 550 Buy 12007 21.5 19.9 32.3 21.7 23.4 14.4 19.4 17.3 21.3 16.5 14.7 18.7
Greaves Cotton (GREAVE) 140 150 Hold 3237 0.4 2.4 5.4 312.4 57.2 26.0 6.5 7.2 18.6 3.3 5.1 13.6
Elgi Equipment (ELGEQU) 219 260 Buy 6940 3.2 3.9 6.2 67.7 55.9 35.6 11.7 12.8 18.1 11.8 13.9 18.7
Bharat Electronics (BHAELE) 220 250 Buy 53605 8.5 9.6 11.3 26.0 22.8 19.5 27.2 27.0 28.7 19.1 19.9 21.4
Cochin Shipyard (COCSHI) 365 500 Buy 4964 46.4 44.0 55.6 7.9 8.3 6.6 14.4 15.2 16.0 15.3 13.0 14.7
SKF (SKFIND) 3940 3,960 Buy 20882 67.6 78.1 98.9 58.3 50.4 39.8 27.0 26.5 27.9 21.4 20.6 21.6
Timken India (TIMIND) 1812 1,740 Hold 11597 19.0 28.2 36.3 95.2 64.3 49.9 13.7 18.3 23.5 10.7 14.0 18.0
NRB Bearing (NRBBEA) 137 175 Buy 1329 5.6 8.0 9.8 24.5 17.1 14.0 11.8 15.8 17.2 10.4 13.1 14.1
Action Construction (ACTCON) 258 320 Buy 2915 7.1 9.7 13.9 36.3 26.6 18.6 26.9 22.3 26.2 15.3 14.9 17.9
Source: Bloomberg, ICICI Direct Research

ICICI Securities | Retail Research 5

 Result Update | Action Construction Equipment ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

ICICI Securities | Retail Research 6

 Result Update | Action Construction Equipment ICICI Direct Research

ANALYST CERTIFICATION
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ICICI Securities | Retail Research 7