Buy Action Construction; target of Rs 80: Motilal Oswal

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Buy Action Construction; target of Rs 80: Motilal Oswal

Motilal Oswal is bullish on Action Construction Equipments (ACE) and has recommended buy rating on the stock with a target of Rs 80 in its June 1, 2011 research report.

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Motilal Oswal is bullish on Action Construction Equipments (ACE) and has recommended buy rating on the stock with a target of Rs 80 in its June 1, 2011 research report.

"Action Construction Equipments Ltd.(ACE)'s 4QFY11 results were above estimates, but quality of earnings has detoriated. In 4QFY11, revenue growth of 55% was driven by 50%+ growth across segments. Operating margins have been under pressure due to higher raw material costs. Margins in tractors and material equipment businesses have dropped sharply as raw material cost increases in Jan-Mar-11 quarter were passed onto customers only in Mar/Apr-11. Despite higher interest cost on higher sales, profits have grown by 37% on account of higher other income. For FY11, earnings are up by 79% on 61% rise in revenues. Margins are flat y/y. All businesses have shown strong growth of 50%+ but tractors have shown depressed margins on account of raw material pressure."

"We had recommended ACE Ltd. as a mid cap opportunity to play the infrastructure and construction theme. ACE remains a top bet in the segment and the duopolistic nature of its crane business has the potential to keep surprising. The management estimates this business to continue to grow at 25%+ rates with capacity having been expanded to 800 units per month. There has been a ramp up in the tractor side of the business and momentum in the business is picking up. The company expects to ramp up volumes from 3500 units to 6000 units by the end of FY12. The stock is trading at the bottom of the valuations band for the last 5 years at 8x FY12E EPS vs 16.3x average valuations for the last 5 years. We reiterate our target of Rs 80 and our BUY rating on the stock," says Motilal Oswal research report.

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To read the full report click on the attachment