Buy Action Construction Equipment; target of Rs 160: ICICI Direct

ICICI Direct's research report on Action Construction Equipment

Action Construction Equipment (ACE) reported highest ever quarterly numbers led by a revival in infra & construction activities coupled with spillover from Q2. Revenue for the quarter came in at Rs 400.4 crore, up 38.4% YoY. Segment revenue for crane, CE, material handling & agri equipment were Rs 257.3 crore, Rs 38.8 crore, Rs 31.3 crore, Rs 73 crore respectively. Gross margins contracted ~96 bps YoY on account of higher input costs. However, price hike in November is expected to have curtailed contraction. Further down the line, positive operating leverage and a decline of 8% YoY in employee cost aided operating performance. Consequently, EBIDTA increased 101.7% YoY to Rs 45.2 crore with an expansion of ~ 354 bps in EBIDTA margins, which came in at 11.3%. Subsequently, ACE reported a net profit of Rs 30.9 crore, up 145.3% YoY.

Outlook

we value ACE at 9x FY23 EV/EBIDTA to arrive at a target price of Rs 160 (earlier Rs 100). We maintain our BUY rating on the stock.