Action Construction Equipment Limited (ACE) Q4 FY23 Earnings Concall Transcript

Action Construction Equipment Limited (NSE: ACE) Q4 FY23 Earnings Concall dated May. 31, 2023

Corporate Participants:

Rajan Luthra — Chief Financial Officer and Company Secretary

Sorab Agarwal — Executive Director

Analysts:

Himanshu Upadhyay — o3 Wealth and Asset Management — Analyst

Vedika Singh — Monarch Networth Capital Limited — Analyst

Unidentified Participant — — Analyst

Devesh Kasliwal — Antique Stock Broking Limited — Analyst

Jyoti Singh — Arihant Capital Markets Ltd. — Analyst

Suhrid Deorah — Paladin Capital Management LLP — Analyst

Unidentified Speaker —

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Action Construction Equipment Limited Q4 FY ’23 Earnings Conference Call hosted by Monarch Networth Capital Limited. [Operator Instructions].

I now hand over the call to Ms. Vedika from Monarch Networth Capital Limited. Thank you and over to you ma’am.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Good evening [Technical Issue], everyone. I would first to thank the management of Action Construction Equipment for giving Monarch Networth Capital the opportunity to host this call. We have with us the senior management of Action Construction, we have Mr. Sorab Agarwal, Executive Director; Mr. Rajan Luthra, CFO; and Mr. Vyom Agarwal, Senior Vice President.

I will now hand it over to Sorab sir for giving the opening remarks, post which we will open the floor for Q&A. Over to you, sir.

Sorab Agarwal — Executive Director

Yeah, thank you. Good afternoon, and welcome everybody to this earnings conference call. For the fourth quarter and year ended March ’23. Along with me in today’s earnings con-call. We have our CFO, Mr. Rajan Luthra; and our Head of Investor Relations, Mr. Vyom Agarwal. I hope all of you have had opportunity to look at the Company’s financial statements and the earnings presentation, which has been circulated and uploaded at the stock exchanges. This has been yet another year of strong and resonant performance by our Company and the results are a testimony to our clear and compelling strategy backed by the strength of our digital assets, our people and our plan. We not only navigated through the short-term challenges with agility, but also made progress on our long-term strategic values.

Let me take you through some of the highlights of this fiscal. We begin with, it gives me immense pleasure to report that we have crossed INR2,150 crores operation where we marked in this in this fiscal, and also recorded our highest-ever sales and profit in the quarter gone by. Our growth of 33% is significantly ahead of the market in our sector. Our EBITDA margin for the year expanded to 11.4% from 10% last year. And our EBITDA grew by 51.5% to INR247 crores on a standalone basis, as against INR163 crores in the preceding years. We were able to increase our PBT by 58.4% from INR138 crores in FY ’22 to INR220 crores in the last year. Similarly, our PAT also increased from INR106 crores to INR161 crores thereby, registering a growth of 52.2% in the last year.

To briefly you on the financial performance of the fourth quarter of last year, the operational revenues stood at INR613 crores, which is up by 10.4% sequentially, and grew by 20% as compared to the same quarter, last year. Our Company was able to expand the EBITDA margin to 13.2%, PBT margin to 12%, and PAT margin to 8.5% in the last quarter. This was led by better product mix, improved price realizations, efficient cost-control measures and softening of the commodity phases. The EBITDA and PBT for the quarter stood at about INR81 crores, and INR73 crores, respectively. We continue to be a debt-free Company with sufficient availability of liquidity for growth. The Board of Directors has recommended a final dividend of 50%, that is INR1 per share for the year ended March ’23, the Board has also approved to grant ESOPs to the employee, but the ESOP program has been designed in a manner that employees are incentivized and their interests are aligned with those of the Company’s performance.

Now moving on to segmental business performance. We have strengthened our role as a market-leader in the Indian trade industry, and with us consistent efforts, we have scaled the business to over INR1,525 crores in this fiscal. Last year, our Crane business has registered a strong growth of 38.4%. The growth was both in value and volume terms, our number of claims has increased from INR5321 crores in FY ’22 to INR6584 crores in FY ’23. In Crane segment, we have been able to grow our profits by 53% to INR195 crores, with a margin expansion to 12.77% versus 11.5% for the year before that.

Our margins for quarter four stood at nearly 14%. Our Crane business is at its strongest in terms of size, aim, profitability and capability, and its impact on the nation’s development. Further, we are very pleased with the growth momentum in the CE segment, wherein we have surpassed our projected growth. The segment has clocked a yearly growth of 42% with a revenue of approximately INR250 crores, and increased margins at around 9.5% on a whole year basis, versus a 5.3%. And our margins for quarter four FY ’23 stood at 13.9% owing to the operating reasons.

Our Material Handling segment recorded revenue growth of 11.2% and stood at INR170 crores with margins at 12.33% as compared to 12% the year before. The Agri division also registered growth in revenue of around 7%, but the margins came under pressure owing to inflationary impact during the year. We have also expanded our global footprint and increased our export sales by 90% year-on year. The contribution of exports sales have increased to 6.7% as compared to 4.7% the year before. Further, we expect that going forward, the export segment will contribute about 9% to 10% of the overall volumes — overall revenues within this year, which is inline with our medium-term target of 15% to 20% contribution from exports. After two years of pandemic-led disruptions, FY ’23 marked a return to normalcy in operations. However, geopolitical tensions and continued supply-chain disruptions resulted in unprecedented inflation and volatility in commodity and energy prices.

Central banks across the world responded swiftly with sharp increase in interest rates within a relatively short timeframe. The Indian economy remains bright spot in FY ’23 amidst the global slowdown. Real GDP growth for the year is estimated at 7%. Against the backdrop of a challenging environment operating environment, as apostatised [Phonetic], the company’s customer-centricity, agility in seasoned market opportunities, focus on execution, and proactive strategic interventions enabled it to post strong numbers — strong performance across all operating segments. Our model is crafted in a manner that enables us on each business — it enabled us to focus on each business, while harnessing the diversity of our portfolio to create unique sources of competitive advantage. Our strategic positioning in the core sectors of infrastructure, manufacturing, logistics and agri will provide the necessary impetus to our growth trajectory.

Looking ahead, India is one of the fastest-growing economy and its prospects remain very strong for the period ahead. The infrastructure growth story continues to play a significant role in the economic growth, and will have its multiplier effect on the economy. We believe that going forward, the strong demand scenario should sustain itself, supported by government, and they been focused on urban, infra and rural development. The increased capital expenditure announced in the Union Budget 2023 will further aid this growth in FY ’24.

Going forward, in the current year, we expect a growth of at least 15% to 20% in our Crane, Metal Handling and Agri portfolios. For the Construction Equipment segment, we are looking at accelerated growth rates of 30% to 35% on an increased base. In terms of capacities, our Cranes and Metal Handling segments are reaching their peak utilization levels, and in order to fuel further growth, we are currently incurring a capital expenditure of INR80 crores to INR90 crores to enhance our capacity. The expansion will take shape from Q2 onwards and will enhance our installed capacity, and will have a potential to propel us to reach a turnover level of INR3,800 crores in the near future.

On the whole, as a company, we are looking at a 15% to 20% growth in our top line for the current year, with further margin expansion of 150 basis-points. We hope we are in a position to revise the projections by end of second quarter, which will predominantly depend on the onset and intensity of the monsoons. Further, we remain optimistic about the medium-to-long term prospects of the company, and remain focused to deliver on our growth agenda. We will continue to drive cost savings harder and take calibrated pricing actions, whilst ensuring to protect and grow our markets. We believe that our building blocks are firmly in place and are on path of sustainable growth in all our segments where we operate leading to expansion in topline, bottom-line and the margin profile of the company.

With this. I would like to open the call for question-and-answer session.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Mr. Himanshu Upadhyay from o3 BMS. Go ahead.

Himanshu Upadhyay — o3 Wealth and Asset Management — Analyst

Hello?

Sorab Agarwal — Executive Director

Good afternoon, good evening.

Himanshu Upadhyay — o3 Wealth and Asset Management — Analyst

Yeah, hi. I just — I’ll just go ahead with my questions. The agriculture equipment has been on the downturn in terms of units for the last three years, the market was strong. Can you elaborate on what happened and the way forward here?.

Sorab Agarwal — Executive Director

So we are talking about. I just missed the beginning, which segment?

Himanshu Upadhyay — o3 Wealth and Asset Management — Analyst

Agricultural Equipment.

Sorab Agarwal — Executive Director

Yes. We have in a little roll down here as I did mention in the last all, last quarter. And Vyom, I think you’ll be able to clarify better here, with respect to what really happened in the last quarters.

Vyom Agarwal — Senior Vice President

Yes, hi. Good afternoon, Himanshu. And as you all know that the tractor industry has grown by around 10% and last fiscal, and we have been able to the additional growth of 6% in this space. When we talk about numbers, in Q4, our deliveries have been higher than our billings that goes to show that our inventory with our channel partners at the end of Q4 is lesser as compared to the previous quarters. Currently, our inventory levels with our channel partner is close to three to five weeks only. And one of the reasons that we have been reducing our inventories is the migration from BS-III norms to BS-IV norms, so post-July, the registration of the BS-III tractor inventory will not be permissible. So we have to reduce inventory at the channel level.

Owing to that, the volumes which you are seeing, has shown a little dip. However, going forward the crop prices, which is the MSV, the monsoon and the water reservoir levels remain at normal levels and we expect to experience a growth of around 10% to 15% in this segment of the current FY.

Himanshu Upadhyay — o3 Wealth and Asset Management — Analyst

Thank you. Thank you for that answer. I’ll go down to my second question. From the Material Handling, last time, we stated that we were having some issues and that was the reason on the growth in that segments, can we now assume that we are back on track and can do more than FY ’22 sales in numbers in this next year? Also how has been our market penetration in that segment and the share of the market?

Sorab Agarwal — Executive Director

Yeah, market penetration has been very good. Our share is around 25%, 26%. And going forward, I think easily in the current year we are looking at a 15% to 20% growth here in numbers, if not more than that. Because we have overcome this plant as well as the supply-chain issues [Technical Issue] as the result of that, even in the last quarter. Even on a sequential basis, we were able to increase 15%. Going forward in this whole year, I think it should to do more than 15%, 20%.

Himanshu Upadhyay — o3 Wealth and Asset Management — Analyst

Okay, okay. Thank you. And my last question is that, how has the backhoe loaders done for us in FY ’23 versus FY ’22. And EBIT is now at 10% of the construction business, would we like to grow the share from hereon, or the margins will be the focus in the construction segment?

Sorab Agarwal — Executive Director

I think, I also mentioned in our last con-call, on a quarterly result that as we start to go around INR250 crores and beyond that, our margins will start to — balancing similar to cranes. And if you look at the quarter four numbers of INR80 crore revenue, we have nearly touched 14% EBITDA margin here as well. So — and this is what I had mentioned earlier, that once we start to cross INR300 crores going towards INR350 crores on an annual basis, the margins would normalize to the crane levels, and we are already experiencing it. So hopefully, I think, in the current year, yes, we will grow our business at least 30%, 35%. It can only be faster than that, that time will tell. But the margin profile is, I think, here to stay now. It can only increase from here.

Himanshu Upadhyay — o3 Wealth and Asset Management — Analyst

Thank you so much, sir. Thank you so much for all the answers. And that was my last questions. Thank you.

Operator

Thank you. Our next question is from Mr. Harsh Saraswat [Phonetic] from Elegant Family Office. Over to you, sir.

Unidentified Participant — — Analyst

Hi, Sorab. Congratulations on a great year. My first question would be, how does ACE prices in a comparable product compared to companies like JCB, Sansui and other MNC players? Is there a price differential which benefits us also other than having service centers across the country and all?

Sorab Agarwal — Executive Director

See, it depends from product-to-product. I mean, backhoes is one category where obviously JCB is the market leader; there are seven, eight players. And cranes are there where we primarily compete with Escorts Kubota, and tower cranes with Potain. So here I would say that if we especially talk of backhoes, we are definitely better priced than JCB. And so, are the other players as well, leaving aside one or two like Caterpillar. All of them are positioned 8%, 10%, 12% lower than JCB, so we are also pretty similar there.

With respect to cranes, we are more or less similar in most of the sales with respect to our competition. But yes, there are ups and downs depending on the customer profile or the size of the orders and also depends on our competition how much we are willing to play with respect to gaining the market, so we have to maintain that balance of market share as well.

Forklifts again, I would say that the main players are Godrej and Voltas and also Toyota to some extent. And Toyota is definitely slightly higher priced than all of us; and Voltas, Godrej and us; where we are nearly similar bracketed with respect to price as of now. So a little off, a little here and there depending on models, depending on customers.

Unidentified Participant — — Analyst

Got it. Got it. Got it. And another question was how does import work in this segment? Like can you import a whole crane or it is broken up and assembled here in India? And what are the import duties on this?

Sorab Agarwal — Executive Director

See, if I talk of backhoe loaders, India is perhaps, I think, the world’s largest producer of backhoe loaders, so there are practically no imports.

Unidentified Participant — — Analyst

Okay.

Sorab Agarwal — Executive Director

And something even with respect to road machinery, very few units here and there, sizes and things which are not made in India might be getting imported. But most of the global players are also present in India. And India is producing its own road machinery, as high as [Phonetic] that are competitors. If I talk of pick-and-carry cranes, we are the world’s largest producer of pick-and-carry cranes, so we only export some of them from India. And going forward, those numbers are only going to increase, so there is nothing to worry about with respect to imports. But when I talk of cranes as a whole, see, pick-and-carry is the biggest strong player. But then again, tower cranes are there where we are market leaders. And where we do get some Chinese imports, mainly due [Phonetic] to European, I would say, especially in a very high tonnage or a very sensitive type of model, which is not made in India.

For crawler cranes and truck cranes, which is a growing — which has been a growing segment within the crane segments in the last, I would say, 10 years, eight years, but especially in the last four or five years, yes, there a lot of imports happen from the Chinese. And to be frank, had ridiculous prices and ridiculous payment terms. So the capex we are doing is currently to enhance our capacity in these crawler cranes and truck cranes, which is the higher tonnage cranes. The quantities comparatively are much lower as compared to pick-and-carry cranes. But yes, India is moving towards high tonnage cranes because so much construction, elevated construction is happening, all the metros and the bullet trains and the flyovers. So, yes, we need bigger cranes. And we are increasing our capacity there. So yes, but the bigger cranes, currently, yes, the imports are dominating. But the numbers are miniscule as compared to pick-and-carry cranes.

Unidentified Participant — — Analyst

Got it. Got it. So also on the export side, when you say that we will take our revenue to 10% of the total revenue of export revenues, how do we compete against these Chinese players in the international markets like on the prices and all? What do we tell the customers that we are giving more that they buy from us?

Sorab Agarwal — Executive Director

See, like I mentioned, the Chinese players are dominant only in the crawler cranes and the truck crane segment, which even we are evolving in the country as of now. So we are rather focusing on our strength, let’s say, pick-and-carry cranes. We are the largest producer in the world, and India is the largest pick-and-carry producing country. India is one of the largest backhoe producing countries in the world. And especially products like backhoe has, the product is well-established in more or less all the countries. So we are focusing more on products with our company or our country as a strength with respect to the product.

As of now, we are not at all trying to compete in the crawler crane or the truck crane segments because here the market size is smaller. The ticket size is big, but the market size is small. And we still have to create our strength there. I mean, we have strength, we want to increase those strengths in the country to be able to compete effectively with the Chinese. So like I said, we are focusing on backhoes. We are focusing on pick-and-carry cranes. We are focusing on some higher horsepower tractors, 80-90 horsepower tractors with respect to exports, where India is really good at.

Unidentified Participant — — Analyst

Got it. Makes sense, makes sense. All the best for the future, Sorab. Thanks.

Sorab Agarwal — Executive Director

Thank you.

Operator

Thank you. Our next question is from Mr. Devesh Kasliwal from Antique Stock Broking. Over to you, sir.

Devesh Kasliwal — Antique Stock Broking Limited — Analyst

Hello?

Sorab Agarwal — Executive Director

Yeah, hi.

Devesh Kasliwal — Antique Stock Broking Limited — Analyst

Yeah. Congratulations on a good set of numbers. I just wanted to understand the overall market size, the addressable market share that we have in the crane segment as well as in the forklift segment. And how has it grown over the past two years? And what are we expecting the industry growth to be in the coming two to three years, given by the overall industrial activities that are going on? What is the expected growth rate in the industry as such?

Sorab Agarwal — Executive Director

If you look at cranes, pick-and-carry cranes, because in our cranes segment we report numbers for our pick-and-carry cranes, tower cranes and also crawler cranes, truck [Phonetic] cranes. But there also that crane segment has been — pick-and-carry segment has been growing at a good rate about 20%, 25%.

Tower cranes even faster than that, about, I would say, maybe 35%, 40%. And something similar for the bigger cranes where obviously we are building our capacities now to bring Indian products into the market. And going forward, I think, there might be similar momentum should sustain looking at the overall scenario, if not faster. And even the construction equipment overall market size in the country has gone up by about 25% approximately in the last year, which gels very well with — because we are also focusing now on construction equipment to bring in additional growth. And we feel that it might be the fastest-growing segment for us for a good amount of time now, going forward.

Material handling has been little, I do not know why, growing only at about 10%, 20%. I believe that would have been faster. But I’m sure with the mechanization and manufacturing growing in our country, it will catch up very fast.

Devesh Kasliwal — Antique Stock Broking Limited — Analyst

So, is it right to assume that the entire cranes market that is there, so it will be ballpark figure around INR2,500 crores, INR3,000 crores? And forklift, it’s between INR700 crores, INR800 crores as of now?

Sorab Agarwal — Executive Director

Yes. The entire crane market may be close to about INR3,000 crores or say less than that, I would say. Maybe around INR2,500, INR2,600, INR2,700. And forklift maybe at about I would say about 7,000-odd units because the models again range. So the pricing goes plus and minus — plus, minus than that. But I would say maybe about INR600 crores, INR700 crores.

Devesh Kasliwal — Antique Stock Broking Limited — Analyst

Okay. And sir, one last question. We had actually rolled out some products in the crane segment. So the traditional products that we had, we had rolled out in segments — like a man list attached to a pick-and-carry crane and products like that, two to three products. So what is the overall traction on that side? Are we — like what is the overall demand? As well as how much of that — if at all you have those numbers, how much of that is contributing to the cranes revenue right now?

Sorab Agarwal — Executive Director

Yes. I think about three years back, just around COVID, we had brought in these multi-activity cranes NX series. And yes, some time was wasted during COVID, one or two years because people were not willing to spend money and there was, in any case, hyperinflation happening all around. But yes, in saying that, in the last year, we have seen really good traction there. And to be very frank with you, although the numbers there are small maybe it’s all about 3%, 4% of the entire pick-and-carry cranes that we are doing as of now. But they’ve already started contributing to our bottom line, and you can also see increase in our bottom line here and there. So this is primarily due to this changing product mix and obviously some realization.

And going forward, already the type of traction and order booking which is happening for these NX, the new type of cranes, this is very encouraging. And I think, in the next two years, three years, they can really become 10%, 20% of our portfolio of pick-and-carry cranes. And there the margin profile is really good because of the innovation part.

Devesh Kasliwal — Antique Stock Broking Limited — Analyst

Okay. Thanks a lot, sir. Congratulations again on the good set of number. Thank you.

Sorab Agarwal — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] Our next question is from Ms. Jyoti Singh from Arihant Capital Markets Ltd. Over to you.

Jyoti Singh — Arihant Capital Markets Ltd. — Analyst

Yeah. Thank you for the opportunity. And sir, congratulations on the great set of numbers. So, my question is on the — yeah, like you have guided 15% to 20% growth in Crane and Agri. So — also you guided to 20% to 25% that I missed, for which part? And second question, I wanted to know your view overall industry, how is it going? And what’s our expectation, going forward?

Sorab Agarwal — Executive Director

Yes. See, we have projected 15% to 20% growth for cranes for Material Handling and for Agri. And 30%, 35% growth for Construction Equipment, the CE segment. And I think the overall industry is also growing, but we have been lucky enough to grow faster than the industry. And see, especially in Cranes, we were able to grow 38%, Construction Equipment 41% and against the industry growth of around 20%, 25%. So that is the advantage we’ve been able to gain even in the last year. And we hope we continue to gain that advantage because that’s how our market share will keep on increasing.

What was the second part of your question?

Jyoti Singh — Arihant Capital Markets Ltd. — Analyst

Yeah. So and sir, there on the margin side, like we are targeting, it will expand 100, 150 bps. So what are your strategy to lead this EBITDA margin expansion?

Sorab Agarwal — Executive Director

Basically, it is to be very frank with you we purely coming in from operating leverage. And as a matter of fact, it can be more than that. Pricing is sensitive, if you have to maintain market share. So it is a mix of operating leverage coupled with wherever possible, if we can increase our prices, coupled with the changing product mix because, yes, within the pick-and-carry range, again, there is a shift towards slightly higher tonnage where realizations get better.

Jyoti Singh — Arihant Capital Markets Ltd. — Analyst

Okay. Great. Thank you, sir.

Sorab Agarwal — Executive Director

Yeah. Thank you.

Operator

Thank you. Our next question is from Mr. Rajiv Maheshwari [Phonetic] from Praj Investments [Phonetic]. Over to you.

Unidentified Participant — — Analyst

Hi. Good evening.

Sorab Agarwal — Executive Director

Yeah, good evening.

Unidentified Participant — — Analyst

I had a couple of questions. Like in terms of we were planning some acquisitions, as we discussed in the last couple of con-calls. So what is the current state on that? And if you can throw some light in terms of the utilization of the QIP amount?

Sorab Agarwal — Executive Director

Yeah. I think QIP amount utilization, Mr. Luthra will take that question. And regarding acquisitions, do Vyom, you want to elaborate?

Vyom Agarwal — Senior Vice President

Yeah. Good afternoon, Rajiv. And as we had indicated earlier that there were a couple of exciting opportunities for us, one in the backward-integration space and one in the forward-integration space. Coming to the backward-integration, there was a company which had gone to NCLT. It was an SME company where we were trying to bid for the company. However, unfortunately, the bankers and the COC have decided to grant that in favor of the existing promoters being an MSME, so that thing for the time being, it has been kept on abeyance.

For the forward-linkage part, there was an acquisition which we were targeting. But seeing how this space, especially the Cranes and the Construction Equipment space is behaving, the valuations currently are not logical enough to go ahead with that acquisition as of now. Although we still are trying on that to keep the valuations at a logical level, and if in case something happens in this phase, we will keep everyone informed.

Unidentified Participant — — Analyst

Apart from these two, there is nothing new in the pipeline which has come up, I believe?

Vyom Agarwal — Senior Vice President

No, there are three, four other opportunities which we are working upon quite aggressively. But these were the two on the very advanced stages, which we had discussed in our earlier con calls as well.

Unidentified Participant — — Analyst

Okay.

Vyom Agarwal — Senior Vice President

Apart from these two, there are three, four other opportunities in some related space, which we are working on.

Sorab Agarwal — Executive Director

Vyom, but I think his question was very specific on something, which I think I have been able to figure out. No, nothing as of now, but we are expecting something.

Unidentified Participant — — Analyst

Okay. Yes, to put it straight. And with regards to the utilization of the QIP amount?

Sorab Agarwal — Executive Director

Yes. As regard the QIP proceeds is about INR135 crores which was is lying as such as — just for us for the — whenever we acquire this company. And if you have noticed that our investment has grown up to INR400 crore. Not only the QIP proceeds, but as well as the, whatever the profit we are generating and has been conservatively used and has been put into the liquid investment for — as and when the time opportunity comes, we are able to encash them and still remain a debt-free company after acquiring any of the companies which we have.

Rajan Luthra — Chief Financial Officer and Company Secretary

As a matter of fact, we are also saving up this money for the opportunity maybe you were talking about.

Unidentified Participant — — Analyst

Okay. Okay. That’s good. The amount has gone up, so maybe it’s for maybe something good may come up, it’s good to know that. One thing I noticed that in the quarterly results, there is a difference in the other income mentioned in the stand-alone as well as in the consolidated. So what’s the reason for that? I think it’s — the difference is close to INR4 crores.

Rajan Luthra — Chief Financial Officer and Company Secretary

Yeah, actually that difference is basically because of the — in the earlier, in June quarter, something that money has moved from the — wrongly stated as reserves, which has moved to the — from — reduced from income and gone into translation result because that was because of the change in currency value.

Unidentified Participant — — Analyst

No, no. But why is it then not that part not shown in the consolidated profit and loss account?

Rajan Luthra — Chief Financial Officer and Company Secretary

It is already mentioned, I will — if you can give me your e-mail, I will probably explain there much better. Okay.

Unidentified Participant — — Analyst

I’ll share my email ID. And one quick question. How is the electric crane going on in terms of the — any commercial production, the orders? And how have things gone?

Sorab Agarwal — Executive Director

We were waiting three, four months to commercialize it. So hopefully in the next quarter we will commercialize it. The excitement is very much there. We want to be very sure once we release the product in the market. We had launched it, showcased it. And currently the endurance testing and all the cycles are being done up. And obviously the facility is being geared up to be able to produce and we are also on the capex because we are totally consumed in our capacities with our existing products.

Unidentified Participant — — Analyst

Okay.

Sorab Agarwal — Executive Director

So I think in Q2, we should be able to commercialize it.

Unidentified Participant — — Analyst

So still maybe three, four months down the line?

Sorab Agarwal — Executive Director

Yes, yes.

Unidentified Participant — — Analyst

Okay, then. Thanks a lot.

Sorab Agarwal — Executive Director

Thank you.

Operator

Thank you. Our next question is from Ms. Vedika Singh from Monarch Networth Capital Limited.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Hello sir.

Sorab Agarwal — Executive Director

Yeah. Hi, Vedika.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Sir, what is the likely traction in the CE space that we are seeing? And what is our target revenue mix for the business in FY ’25 or ’26?

Sorab Agarwal — Executive Director

I think, we should easily be able to grow this business at 30%, 35% every year to be a little conservative. And I’m saying that, so I think we should definitely be looking at INR325 crores, INR350 crores or maybe a little more than that in the current fiscal. And I’m going at a 30%, 35% increase ratio, so I think, we should be hitting INR500 crores in the next 1.5 to two years.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Okay, sir. And what would be the overall revenue mix coming from the MHC cranes? Would there be a deviation from our current product mix in two years down the line?

Sorab Agarwal — Executive Director

Which cranes are we talking about, Vedika?

Vedika Singh — Monarch Networth Capital Limited — Analyst

Sir, the overall revenue mix coming from Construction Equipment cranes. Since we are so bullish on the Construction Equipment, would the revenue mix change?

Sorab Agarwal — Executive Director

Yeah, maybe a little bit in favor of Construction Equipment at the cost of especially, I would say, Metal Handling and Agri because they’ll be growing slower. Yes, the crane, the base itself is big. So it might be a small — very small one or 2%, 3% there. But I think over the next two, three years, construction equipment currently is our second biggest segment already at 11%. So that should definitely start to look something like maybe at about, let’s say, next two, three years of INR4,000 crore revenue, INR5,000 crore revenue and this being maybe about 12%, 13%, 14%, something like that.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Okay, sir. Okay. Sir, could you also share the progress on the Ghana plant, what’s happening and what’s the time line that we are following at present?

Sorab Agarwal — Executive Director

Yeah. Unfortunately, we were looking at — to start execution in quarter one. But due to — Luthra Sir, would you want to answer that? You are more abreast with the Ghana news.

Rajan Luthra — Chief Financial Officer and Company Secretary

Yeah. Basically, there has been some discussions going on between the Ghana government and the Indian government and which — because it was — the project was funded by the Indian government through Exim Bank of India, and we were — and we would have — although payments were secured from the Exim Bank including advanced payment and all those things, there have been some regulatory issue between Ghana government and the Indian government which is, I understand, is under discussions. So once that is — which we expect to be resolved very soon.

Once we resolve them, once the Indian government gives clearance, then the Exim Bank will start making payments to us. Once we — and we will start the project only when we get the advanced payments because we don’t want to take risk on the government asset, but we only because of the secured payment we do the business. So hopefully the situation should — I mean, whatever, should be resolved in the next one or two months. And we are looking at our payments going through the Exim Bank most probably in the coming quarters. So we are hopeful that — I mean, we were expecting quarter one to start execution. So hopefully quarter two, we should be in a position to start execution at some time.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Still, sir, for now we have not put in any capital towards Ghana, right, from our end?

Sorab Agarwal — Executive Director

Not really capital, but a lot of intellectual capital, I would say, because all the planning and with respect to the plant that is going to be set up there and with respect to the proposed ordering for that, most of the homework has been done by us, finished by us.

Rajan Luthra — Chief Financial Officer and Company Secretary

Yes. But we have not spent any financial commitment as such to vendors and everything, so.

Sorab Agarwal — Executive Director

We have not deployed any capital assets.

Rajan Luthra — Chief Financial Officer and Company Secretary

Yeah.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Okay, sir. Thank you so much, sir.

Sorab Agarwal — Executive Director

Yes.

Operator

Thank you. Our next question is from Mr. Suhrid Deorah from Paladin Capital. Over to you.

Suhrid Deorah — Paladin Capital Management LLP — Analyst

Yeah. Hi, sir. Just one quick question, accounting question. Could you explain what is impairment losses of financial assets?

Sorab Agarwal — Executive Director

Impairment losses of financial assets, Luthra Sir?

Rajan Luthra — Chief Financial Officer and Company Secretary

Yeah, see, basically this is the — making a provision for the expected credit loss because recently the accounting standard has been revised from last one or two years and which has made a stringent — we have made a stringent policy of making provisions for overdues which are more than six months or so. So depending on those policies and because on the historical trend and all those things, we have made a expected credit loss. This may not happen, but we have made a provision. So that isn’t shown separately as a impairment of the receivables basically.

Sorab Agarwal — Executive Director

To be very frank, in short, DSR, where KPMG has become our audit firm now and so they wanted to make the provisioning very transparent and very clear. So although most of these payments are recoverable, but they have a provision for it under this.

Suhrid Deorah — Paladin Capital Management LLP — Analyst

Okay. So is it fair to assume that the receivables that are shown in the books, the rest of them are likely to materialize over the next 12 months and you won’t see such a large write-off, going forward?

Sorab Agarwal — Executive Director

Yes, anything possible, DSR has made sure it is provisioned. But in saying that, most of the provisioning is actually recoverable, to be very frank with you. And whatever receivables which are balance are 100% recoverable.

Suhrid Deorah — Paladin Capital Management LLP — Analyst

Okay. Got it. So this is a one-time thing?

Sorab Agarwal — Executive Director

It got delayed a little beyond six months or whatever as Mr. Luthra sir was saying, and they have been provided for.

Suhrid Deorah — Paladin Capital Management LLP — Analyst

Got it. Thank you. Got it.

Operator

Thank you. [Operator Instructions] Our next question is from Mr. Jitendra Pethkar from JD Capital [Phonetic], over to you. Mr. Pethkar, please go ahead with your question sir.

Sorab Agarwal — Executive Director

I think, we can skip and got to the next one.

Operator

Our next question is from Indumathi Rangan [Phonetic], an individual investor.

Unidentified Participant — — Analyst

Hi. I have a few questions. My question is — my first question is, in the last conference call you said that the Chinese are selling large cranes in India at very low prices and giving one year credit to buyers, but we are entering the large crane segment by building a new plant for it. So how are you going to compete with the Chinese players who are selling at such low prices and also offering one year’s credit?

Sorab Agarwal — Executive Director

In all probability, by doing the same thing. By offering competitive prices and wherever possible credit terms, obviously secured credit terms to LC and all. First I’ll start with the credit terms. We have tied up with some banks at very good interest rates with respect to sale bill discounting and healthy discounting, wherein I think we should be able to compete with the Chinese on the credit terms. And I’m sure as soon as there is an alternative available, the customers will start to prefer Indian buyers.

Yes, with respect to bigger cranes, their prices are really ridiculous with respect to margin profile. We would have thought that bigger cranes should not be less than 20%, 25% EBITDA levels. But still they are not that bad once we produce them in good quantity in India. Our only — I think in the last four, five years, what was holding us back was the possible margin profile. But once we calculated that after increasing our business by around five times and competing at same prices. So because of the operating leverage part of it, which will come. I think, last year we did the bigger cranes — just pulling out a paper, just a second — close to about INR130 crores, INR140 crores approximately. And obviously once we are doing INR400 crores, INR500 crores and operating leverage that will come along with it, I’m sure will help us compete with the Chinese.

Unidentified Participant — — Analyst

And my second question is, the Chinese products are now being imported, but you will be manufacturing the large cranes in India itself. So that will give you a logistic cost advantage, correct? Is that logistics cost advantage going to be an important part of your competitive advantage? And what percentage of competitive advantage will you have because of the logistic cost?

Sorab Agarwal — Executive Director

The logistics will give us anywhere between 7% to 8% advantage. But apart from logistics, another part is the Chinese machines which are being imported they also attract a 7.5% custom duty, so that barrier is also there. But even after calculating all of that, they are still being very competitive. And in a way, you can say some sort of dumping. So we are also — we’ve been in talks with MHI and DGFT with regards to these ill practices of the Chinese companies. And they are also planning, and if something like that happens, then it can be much more beneficial in our favor.

Operator

Thank you. Our [Technical Issue] from PhillipCapital, PCG.

Unidentified Participant — — Analyst

Yes, sir. Good afternoon, team. Congratulations for the really good job. Sir, two things, I just make a clarification on like when we are guiding for crane segment to grow at maybe 15% to 20%. So are we considering the incremental revenue from crawler crane or it is not factored in this guidance?

Sorab Agarwal — Executive Director

As of now, no, to be very frank with you, because the plant will become operational next quarter. And obviously we will have some incremental revenue with respect to crawler cranes and truck cranes. I’m sure the numbers will double up at least in the second half. Yes, so it could be additional INR30 crores, INR40 crores, INR50 crores, which might trickle in, but we have not factored that in, and.

Unidentified Speaker —

Probably, that could come in Q3 or Q4, right?

Sorab Agarwal — Executive Director

Yes, Q3, Q4. And to answer your question very frankly, we have pegged it at 15%, 20%, the Crane segment, but I think it is going to be bigger than that.

Unidentified Participant — — Analyst

Fantastic. And sir, another thing on Agri side. So like as we have reached the optimum revenue for Construction Equipment, which is reflected in your margins as well, which is similar to your Crane segment. So for Agri what could be that option revenue side revenue where we can see some margin improvement because that is the one of the segment where we are not able to show the margin improvement. So any thought on that one?

Sorab Agarwal — Executive Director

And it is also our pain point.

Unidentified Participant — — Analyst

Exactly. So like once the margin improvement is visible in that segment, then probably you would be — you would have all four product buckets, which is roughly 10% to 12% kind of EBIT margin. So that’s why need some — your thoughts on

Sorab Agarwal — Executive Director

When Agri starts to perform, believe me, we will start doing more than 15% — 14%, 15%. But in saying that, I think they’re similar to backhoe loaders, I mean this Construction Equipment. As soon as we start doing a INR70 crores, INR75 crores, I would say INR75 crores at least on a quarterly basis, let’s say, INR300 crores on an annual basis, which I think is really not possible in this coming year, but definitely in the year after that. Our margin profile can be similar to other segments like Cranes and Construction Equipment.

And similar questions, we was being asked two years back regarding our Construction Equipment, and we’ve been able to solve that and bring it to normalcy. So hopefully, I mean, not in the next one year, definitely you’ll see improvement in the Agri. But I think FY ’25, if you are able to do a INR300 crores, INR350 crores turnover, I think the margin profile will start to look very different.

Unidentified Participant — — Analyst

Got it, sir. Thank you very much and all the best.

Sorab Agarwal — Executive Director

Thank you.

Operator

Thank you. Our next question is from Mr. Jitendra Pethkar [Phonetic] from JD Capital [Phonetic]. Over to you.

Unidentified Participant — — Analyst

Can you all hear me?

Sorab Agarwal — Executive Director

Yeah, yeah. We can hear you, yes.

Unidentified Participant — — Analyst

Okay. Thank you for taking my question. I have two questions. One is about Note 11 in the annual result, which mentioned some corrections that have been made for the previous year’s consolidated results. Is it because of changing in the accounting practices? What is it? Is there any impact, financial impact on that?

Sorab Agarwal — Executive Director

Mr. Luthra, financial impact [Phonetic]?

Rajan Luthra — Chief Financial Officer and Company Secretary

Yeah, actually, there is no financial impact. There are certain regrouping only from one head to another head. So these are basically all balance sheet items only where some loans have moved to advances and all those. These are small corrections, you can say, as per EBIT, because with the change in auditors different view has been taken on that it should be shown as security deposit or rather than advances and — so this is — if you have noticed that there has been no change in the financial profit and loss in the — no restatement on the profit and loss for the previous year.

Yes, definitely, balance sheet has been restated, but very minutely in certain heads, moving from one head to another in the similar category. Some assets from, financial assets have gone to other assets and like that all, so.

Unidentified Participant — — Analyst

[Technical Issue].

Rajan Luthra — Chief Financial Officer and Company Secretary

No significant impact on the net worth, on [indecipherable], not facing any impact on that, no impact on the net worth and the book value of the share.

Unidentified Participant — — Analyst

And my second question is about defense as a new sector. Is there any possibility of business growing rapidly there in that sector?

Sorab Agarwal — Executive Director

Yes, there are definitely possibilities. I think 2.5% to 3% revenue contribution has come from defense in the current year. And internally, we have targeted 8% to 10% revenue going forward as soon as possible to come in from defense sector.

So hopefully, I think, this year would be better than last year with respect to defense business. And we are working on different projects, different requirements. The gestation is slightly longer, sometimes they click quickly sometimes — but generally will take longer. So that’s where we stand. Internally we plan to take revenue contribution from defense to 8% to 10%. Eventually, currently we are working at about approximately 2.5%.

Unidentified Participant — — Analyst

So going forward, we hope to get more traction and a little better margins in the defense?

Sorab Agarwal — Executive Director

Yes. I mean, good margins. Margins are reasonable generally in the defense business, because the products and the requirements are pretty typical and sort of tailor-made. So I think they will be in sync with the profile of the segment we are working in.

Unidentified Participant — — Analyst

Fine. Thank you and congratulations for good numbers. And I hope the impact of this Note 11 is not more than about INR4 crores as it can be generally seen broadly as I can see.

Sorab Agarwal — Executive Director

Yes, I think, again, because of the new auditors. So wherever, you understand very well, wherever they thought maybe some grouping or whatever Mr. Luthra was explaining. But there is really no financial impact, right, Mr. Luthra?

Rajan Luthra — Chief Financial Officer and Company Secretary

Yes, there is no. As I stated, there has been no impact on the profit/loss of the last year also. And the only restatement was basically in taking some investment as current or to mostly non-current. And only this movement has been from one head to another head.

Unidentified Participant — — Analyst

Okay, sir. Thank you very much.

Rajan Luthra — Chief Financial Officer and Company Secretary

And no, there will be no future adjustment because now we have aligned the number as per the KPMG requirements.

Operator

Thank you. As there are no further questions, I would like to hand the conference over to the management for closing comments.

Sorab Agarwal — Executive Director

Yes. Thank you. Even about 2-2.5 years back we planned and conceived that by FY ’24 we will double our turnover from about INR1,100 crores, INR1,200 crores and take the company to about INR2,500 crores. So as of now, we seem to be on track to take our company beyond INR2,500 crores in the current financial year. And going forward, I think this would again be our endeavor, to double ourselves in the forthcoming three years. And as conveyed, we are looking at 15% to 20% growth on the conservative side in the current year, which will be driven by Cranes, Metal Handling and Agri with about a 15%, 20% contribution and Construction Equipment at a slightly better pace.

And more importantly, I think double-digit margins for us are here to stay. And within the coming quarters and this year, I’m sure we’ll be able to further increase our margin profile by at least 100 to 150 basis points, if not more. And the scenario in the country seems to be good and buoyant. Slight dependency on the monsoons, I would say, because that does impact the buying pattern a little. But on the whole, things seem to be on the right track. And we seem to be heading in the right direction as per our plan. Yes.

Thank you, everybody, and good evening.

Vyom Agarwal — Senior Vice President

Thank you, everybody.

Operator

Thank you, I will now hand over the conference to Ms. Vedika Singh from Monarch Networth Capital Limited. Over to you, ma’am.

Vedika Singh — Monarch Networth Capital Limited — Analyst

Thanks to the management for taking us through the FY ’23 results and a promising future outlook. Thanks to all the participants for joining us today. We would now like to close the call.

Operator

[Operator Closing Remarks]