Hold Action Construction Equipment; target of Rs 68: ICICI Direct

ICICI Direct's research report on Action Construction Equipment

Action’s Q1FY21 performance was dire as the company registered a loss. Crane segment (~70% of revenue in FY20) was the worst hit due to standstill in infrastructure activities. Revenue for the quarter was at Rs 100.9 crore, down 65.6% YoY. Crane segment revenue was at Rs 49.8 crore, down 77% YoY. Total crane volumes were at ~299 units vs. ~1316 units in Q1FY20. Gross margins expanded ~160 bps YoY on account of lower input costs & trade purchases. However, unabsorbed fixed overheads led ACE to report an EBIDTA loss of Rs 3 lakh. On the expenses side, employee expenses declined 23% YoY coming in at Rs 14.85 crore while other expenses declined 61% YoY to Rs 7.87 crore. Subsequently, ACE reported a net loss of Rs 4.2 crore vs Rs 11.9 crore profit in Q1FY20.

Outlook

Worst seems to be over for ACE as post-monsoon resumption in infrastructure activities led by return of migrant labour is expected to usher demand. ACE with a strong balance sheet, improved working capital and leadership position in crane segment is well placed to benefit from the same. Currently, ACE is trading at 8.1x FY22E EV/EVITDA, as the stock has performed well in recent days, thus leaving us with little upside. We value ACE at 9x FY22E EV/EBIDTA to arrive at a target price of Rs 68 and revise our rating from BUY to HOLD.

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