Hold Action Construction Equipment; target of Rs 100: ICICI Direct

ICICI Direct's research report on Action Construction Equipment

Action Construction (ACE) reported a weak Q4FY19 performance wherein topline, EBITDA, PAT de-grew 18.5%, 37.8%, 43.1% respectively, YoY. The topline mainly got impacted by cranes & tractors i.e. agri-equipment segment. EBITDA margins declined ~250 bps YoY to 7.9% largely due to impact of higher steel prices (COGS, up ~260 bps YoY) while higher employee expenses were offset by lower other operational expenses. Overall, EBITDA, PAT were at Rs 23.9 crore, Rs 12.2 crore, respectively. Softened demand for cranes led revenue for cranes segment down 15.1% YoY to Rs 223 crore driven by 18% decline in volume sold to ~1,485 units. Sales were sluggish for forklifts (234 units), backhoe loaders (115 units) and tractors (622 units) as well. According to the management, ACE has planned a buyback of shares worth Rs 34.25 crore.

Outlook

ACE, market leader in the ‘pick & carry’ cranes segment (60% market share) is currently witnessing headwinds. On a long term basis, the demand environment for construction equipment, cranes, etc, continues to look robust. Near term sluggishness in the infrastructure space is expected to remain an overhang for ACE. Accordingly, we estimate 7.1% growth in topline, with 10.1% growth in EBIDTA and 16.4% growth in PAT over FY19-21E. At an estimated EPS of Rs 6.5/share in FY21E, we value ACE at 15x P/E for a target price of Rs 100. We change our stance on the stock to HOLD.