Buy Action Const; target of Rs 82: Prabhudas Lilladher

“Action Construction Equipment (ACE) reported strong sales growth of 56.8% YoY at Rs 1.5 billion. The company reported strong volume growth across its various product segments. The largest segment, Mobile pick and carry cranes (~55% of revenues), reported a volume growth of 44% for the quarter to 951 units. Tractors segment (~14% of revenues) reported slightly slower volume growth of 18.8% for the quarter to 695 units. The slower growth in the tractor segment was on account of a slowdown in funding from banks. As a result, ACE had to tie up with private NBFC’s. Hence, the company expects the tractor volumes to pick up meaningfully over the next few quarters.”

“Despite a strong volume growth, margin was down 20bps YoY to 8.1% on account of an increase in input costs like steel and significant increase in transport costs. ACE is confident of passing the cost in the subsequent quarter and report better margins, going ahead. Increase in the employee cost by 49.3% YoY to Rs 75 million on account of payment of increments in the current quarter also impacted margins.”

“At the CMP of Rs 60, the stock trades at 11.6x FY11E and 8.0x FY12E earnings, respectively. We believe that the volume growth will drive margins and RoE expansion. We expect the stock to deliver 41% and 59% CAGR on topline and bottom - line, respectively over FY10 - 12E. We maintain our ‘BUY’ rating on the stock with a target price of Rs 82,” says Prabhudas Lilladher research report.

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