Action Construction Equipment Limited Q4 FY24 Earnings Conference Call Insights

Key highlights from Action Construction Equipment Limited (ACE) Q4 FY24 Earnings Concall

• Financial Performance
  • 4Q standalone operational revenue was INR836 crores, up 11% sequentially and  up 36.4% YoY.
  • EBITDA at INR150 crore, while PBT and PAT were at INR132 crore and INR98 crores respectively.
  • EBITDA margin expended to 17.53%, up 131 bp sequentially.
  • PAT increased 103% to INR328 crores.
  • ROC and ROE upwards of 42% and 30% respectively.
• Segment Performance
  • Crane segment grew 76%, revenue INR343 crores, margin 16.3%.
  • Truck segment grew 55%, revenue INR387 crores, margin 12.84%.
  • Material Handling grew 8.6%, revenue INR184 crores, margin 13.2%.
  • IT division grew 12%, revenue INR237 crores.
  • Export sales increased 72%, contributing 8.5% of revenue.
• Growth Strategies
  • Strategic positioning in infrastructure, manufacturing, logistics, and agri sectors.
  • Diversified revenue mix across sectors for counter-cyclical growth.
  • Expanded into defense sector, orders for specialized equipment.
  • Focus on product improvement, upgrading to meet revised emission norms.
• Capacity Expansion
  • Crane division capacity increased 45% to 13,200 units annually.
  • Material Handling capacity grew 50% to 27,00 units annually.
  • Plans for further modernization and automation to boost capabilities.
• Future Outlook
  • Expect 15-20% growth in FY25 for Crane, Truck, and Agri portfolios.
  • Construction Equipment segment growth of 30-40%.
  • Overall topline growth of 15-20% in FY25, with margin expansion.
  • Optimistic about medium to long-term prospects and sustainable growth.
  • Targeting to double revenue over next 3 years.
  • Aiming for 3x revenue growth over 5-year horizon from current levels.
• Growth Guidance
  • Guidance of 15-20% growth for FY25 is conservative.
  • Expecting higher demand in H2 due to positive industry factors.
  • Pre-buying expected in Q3 ahead of BS5 emission norms from Jan 2025.
  • Guidance likely to be revised upwards after Q2, based on election results and monsoon.
• New Product Launches
  • Electric crane launch delayed due to pending regulations, now expected in July.
  • Aerial work platforms to start deliveries in June after supply chain issues.
  • New next-gen crane model expected in current financial year.
  • Launching reach stacker (40-45T capacity) for container handling.
  • Special all-wheel steering backhoe loader for export markets in Jul-Aug.
• Competitive Positioning
  • Expanding capacity for larger cranes (up to 80T) to 400 units/month.
  • Expects to double or triple larger crane sales this year, up from 40-50 units.
  • Targets 100 plus unit sales for larger cranes to counter Chinese competition.
• Material Handling Business
  • Focusing on improving efficiencies in manufacturing, application, and quality.
  • Introducing new range of 6-4 ton forklifts from Jan 2025 with upgraded styling and performance.
  • Expects faster growth rate, targeting around 20% growth this year.
• Forklift Market Position
  • Currently serves up to 14T capacity forklifts in India.
  • Premium 20-25% market served by imports like Toyota, Hyundai.
  • Plans to target premium segment with upgraded models in addition to regular segment.
• Defense Business Prospects
  • Defense contributed 2.5% revenue (Rs 68 cr) in last year.
  • Current pending defense orders worth Rs 65 cr.
  • Expecting major defense orders of Rs 400-700 cr over next 2-3 months.
  • Overall defense revenue expected to exceed 5% target for FY25.
• Acquisition Targets
  • Open to organic and inorganic growth in India and overseas.
  • Evaluating few targets within India for acquisitions.
  • Looking at smaller overseas companies with good products for exports and contract manufacturing.
• Interest Expenditure
  • Interest cost increased due to higher borrowing rates by RBI.
  • Leveraging the arbitrage between cost of borrowing and vendor discounts.
  • Interest expenditure expected to remain in the range of INR8-10 crores going forward.
• Revenue Milestones and Emission Norms
  • Q3 appears realistic for achieving INR1000 crore quarterly revenue.
  • Q2 also possible if pent-up demand from Q1 gets unleashed.
  • Typically 40-45% revenue in H1 and 60-65% in H2.
  • Plans to alert customers about 12-15% cost impact from Jan 2025 for BS5 transition.
  • Expects pre-buying in Q3 before price hikes, supporting demand.
  • Successfully managed such transitions in the past.
• Margin Expansion Drivers
  • Better pricing environment due to strong demand.
  • Favorable product mix shift towards higher tonnage cranes.
  • Some benefit from easing commodity prices.
  • Pricing power has improved, ~2-3% price hike in January.
• Capacity Utilization Levels
  • Crane capacity at 75% utilization.
  • Plans to increase truck capacity from 13,200 to 18,000 units by Q3.
  • Material Handling at 1800 units capacity, did 1500-1600 units last year.
  • Construction equipment at 60% utilization, can expand 50% quickly.
• Export Strategy
  • Current white-labeling for US and Turkish companies.
  • Inorganic route considered for better pricing/perception in export markets.
  • Evaluating targets for about Rs 100 cr acquisition to boost export presence.
  • Leverage Indian costs with international branding for margins.
  • Focused on adding new export geographies within current year.
• Backhoe Loader Market Share
  • Market share estimated at around 2.6-2.7% currently.
  • No intention to narrow price gap with market leader.
  • Pricing strategy focused on expanding numbers in hiring/rental segment.
  • Comfortable at current pricing, able to expand market share beyond 12%.
• Agri Equipment Outlook
  • Targeting 15-20% revenue growth in FY25, same as last year’s plan.
  • Tractor volumes at 2,460 units, harvester volumes at 137 units last year.
  • Exited rotavator business due to low margins, focusing on larger tractors.
  • Introducing ultra-lightweight combines to tap growing paddy segment.