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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.
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