ACE may take Rs 20-30cr debt if Chinese acquisition happens

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Action Construction Equipment (ACE) is in advanced talks to acquire a Chinese company. The cost of this acquisition would be around Rs 40-50 crore.

Sorab Agarwal, managing director of the company, in an interview with CNBC-TV18's Latha Venkatesh and Gautam Broker, mentioned that the Chinese company is in the similar trade as ACE. He said, "If everything goes well, the business for that company can be doubled in about one or one-and-a-half year."

Agarwal also stated that they would take some debt of about Rs 20-30 crore, if the acquisition takes place.

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: You are in advanced talks to acquire a Chinese company. When can you make this acquisition? What is the cost?

A: We are at an advanced stage. If everything goes well, we should be able to finalise it in the next one-two months. The approximate cost would be about Rs 40-50 crore.

Q: You did about Rs 700 revenues in FY11. What kind of a target do you have in mind, both from the organic and inorganic front?

A: Organically, we should be able to grow at least about 40-45% this year. If the inorganic portion also joins within this year, then it should be an addition of about 10-15% more.

Q: What does this Chinese company do?

A: I can't share that as of now. It is in the similar trade as what we are. Predominantly, they are selling those products in the domestic market. We have readymade market in India for that product. We are very hopeful that if everything goes well, the business for that company can be doubled in about one or one-and-a-half year.

Q: Is there any synergy between your two jobs?

A: Yes, there is a market for that product in India. We are already doing that product in India. Instead of expanding capacity here, we will be doing it in China. Technologically and price-wise, that product is much better than what we can do in India.

Q: Will you future expansions be in China because you have a foothold now or you will have a foothold?

A: Yes, that is a possibility.

Q: What about the overall margin profile? Will it improve after the Chinese acquisition? What kind of margins does that company operate at?

A: Currently, the Chinese company is operating at similar margins ours. Hopefully, the margins of that company in China will further improve because export prices from there are better.

Q: How does that leave your balance sheet? What kind of debt do you currently have?

A: Currently, we don't have any long-term debt on our balance sheet. Post this acquisition, if everything goes through and the agreement happens, then we will have to take some minor debt.

Q: Will the rest be funded through internal accruals?

A: Yes.

Q: How much of a debt will you have to take? Will it be around Rs 10-20 crore?

A: We might have to take about Rs 20-30 crore of debt.

Q: At the moment, your margins are at 8%. Do you expect that to improve?

A: Yes. Even without the acquisition in the current year, we are targeting about 9-10% margins. Post this acquisition; we should see 0.5% percent increase in overall consolidated margins.

Q: Did you mean that if the Chinese acquisition happens, your further expansions will be in China? What do you have in mind by way of expansions?

A: No, I didn't say that. Only for one particular product line, our further expansion will happen in China. For our other products, we will be adding capacities as and when required in India itself.