Action Construction Equipment Ltd

13th April 2011

Action Construction Equipment Ltd (ACE) is into manufacturing

BUY of construction equipments. The company is the market leader
in mobile cranes and is increasing its presence in several other
Share Price (INR) 47 construction equipments also.

Target (INR) 57 The stock is currently trading at 11.3 and 8.4 x FY11e and FY12e
EPS of 4.2 and 5.7 respectively. We spoke to the management
Return (%) 21%
and we believe that the stock has the potential to surprise on
the upside on account of increase in sales volumes and recom-
Beta (Sensex) 1.14
mend a buy with a target price of 57 (10 x FY12e EPS).

Investment Rationale
Market Data  9mth FY11 Net Sales saw 63% jump yoy, likely to report 59%
yoy growth in Net Sales in FY11e and 25% yoy in FY12e
Total Shares (mn) 92.9
 Low levels of mechanization and huge investment plans in
Mar Cap (INR mn) 4426.0 the construction industry augurs well for construction equip-
ment manufacturers like ACE
52 Wk High/Low (INR) 75/38
 Large client base with presence in all major Infrastructure,
Avg Qtr Dly Vol (000's) 225.6
Construction, Heavy Engineering and Industrial Projects
across the country through a wide product range

 EBITDA margins likely to show improvement as company

Shareholding
plans to start passing on the rise in raw material prices in the
Promoter 65.67
past few quarters

 Established segments like pick & carry cranes, mobile tower

DII 9.34
cranes, fixed tower cranes, crawler cranes likely to grow at
FII 5.12 20%

 Pick and carry cranes capacity to increase from 4800 units/

Other 19.87
annum to 9000 units/annum, Fixed tower cranes capacity to
increase from 150 units/annum to 300 units/annum in FY11

 New production unit for tractors to come up in FY12, capac-

Stock Code
ity likely to double from present 4,000 units/annum to 8,000
NSE ACE units/annum

 Market share likely to increase going ahead in products like

BSE 532762
back hoes, forklifts, etc. as new capacity comes up
Bloomberg ACCE IN
Key Risks
Reuters ACEL.BO
 Sharp increase in steel prices, slowdown in construction ac-
Source : MLR, Company tivities, competition from other players.
1 MLR Investment Research
Action Construction Equipment Ltd
13th April 2011

Company Background

Action Construction Equipment Ltd (ACE) is into manufacturing

of construction equipments like pick & carry cranes, mobile
tower cranes, fixed tower cranes, crawler cranes, back hoes,
forklifts, etc. The company also added tractors to its product line
in the year 2009. ACE has production facilities in the state of
Haryana and Uttarakhand with dealership network spread all
over India.

Action Construction Equipment Ltd (ACE) was promoted by Mr.

Vijay Agarwal in the year 1995 and went public in the year 2005.
Mr. Vijay Agarwal possesses over 38 years of experience in ma-
terial handling and heavy engineering industry and has held es-
teemed positions in different reputed industrial organizations
for two decades. He has completed B.E. (Mechanical) and MBA
from FMS, Delhi.

Quarterly Results | Standalone | INR mn

Quarterly Results Dec-10 Dec-09 Sep-10 Sep-09 Jun-10 Jun-09 Mar-10 Mar-09
Net Sales 1,816.6 1,062.5 1,537.2 970.8 1,291.8 804.9 1,433.1 769.8
Net Sales Growth (%) 71.0 - 58.4 - 60.5 - 86.2 -
Operating Expense 1,671.3 976.7 1,413.4 898.2 1,183.1 754.3 1,304.6 768.0
EBITDA 145.3 85.8 123.8 72.5 108.7 50.6 128.5 1.8
EBITDA Margin (%) 8.0 8.1 8.1 7.5 8.4 6.3 9.0 0.2
EBITDA Growth (%) 69.4 - 70.6 - 114.9 - 7,077.1 -
Other Item 36.1 13.2 24.3 19.2 17.5 14.5 21.8 42.2
Depreciation 19.6 13.1 15.1 12.3 13.2 12.0 15.2 18.2
Interest 11.3 6.7 9.8 7.5 5.0 7.8 3.8 12.1
Tax 44.2 19.6 32.7 17.6 28.4 11.2 34.8 4.0
Minority Interest - - - - - - - -
PAT 106.2 59.5 90.5 54.3 79.6 34.1 96.6 9.7
Non Recurring Item - - - - - - - -
Adjusted PAT 106.2 59.5 90.5 54.3 79.6 34.1 96.6 9.7
Adjusted PAT Margin (%) 5.8 5.6 5.9 5.6 6.2 4.2 6.7 1.3
Adjusted PAT Growth (%) 78.5 - 66.5 - 133.7 - 899.5 -
Share Capital 185.8 179.8 179.8 179.8 179.8 179.8 179.8 179.8
Face Value (INR) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Adjusted EPS (INR) 1.1 0.7 1.0 0.6 0.9 0.4 1.1 0.1

Source : MLR, Company

2 MLR Investment Research

Action Construction Equipment Ltd
13th April 2011

Key Ratios & Cash Flow | Consolidated | INR mn

Key Ratios FY09 FY10 FY11e FY12e

Net Sales Growth (%) 5.3 (0.2) 59.0 25.0
EBITDA Margin (%) 6.3 9.1 8.3 9.0
EBITDA Growth (%) (37.6) 44.7 44.2 36.4
Adjusted PAT Margin (%) 4.6 5.5 5.8 6.2
Adjusted PAT Growth (%) (41.7) 18.4 66.4 34.5
Total Asset Turnover (x) 2.6 2.3 3.2 3.2
Debt Equity Ratio (x) 0.2 0.2 0.2 0.1
RoE (%) 14.6 15.6 21.4 23.1
EV/EBITDA (x) 17.0 11.8 8.2 6.0

BVPS (INR) 15.2 16.8 20.0 24.5

P/BV (x) 3.1 2.8 2.4 1.9
DPS (INR) 0.4 1.0 1.0 1.0

Dividend Yield (%) 0.8 2.1 2.1 2.1

Adjusted EPS (INR) 2.2 2.6 4.2 5.7
Adjusted P/E (x) 21.5 18.2 11.3 8.4

Cash Flow FY09 FY10 FY11e FY12e

PAT 198.9 235.6 392.1 527.2

Deferred Tax Liability (2.2) (0.3) - -

Interest(1-Tax%) 30.0 24.4 22.3 24.1
Minority Interest (12.3) (13.0) (13.8) (11.5)
Fixed Asset (52.5) (67.8) (188.6) (176.7)
Net Current Asset (387.1) 8.1 (358.2) (310.0)
FCFF (225.2) 187.1 (146.2) 53.1
Interest(1-Tax%) (30.0) (24.4) (22.3) (24.1)
Loan Fund 280.6 (89.6) - 50.0
Minority Interest 12.3 13.0 13.8 11.5
Minority Capital (0.5) (0.5) 0.6 0.6
FCFE 37.2 85.6 (154.1) 91.1

Source : MLR, Company

3 MLR Investment Research

Action Construction Equipment Ltd
13th April 2011

Income Statement & Balance Sheet | Consolidated | INR mn

Income Statement FY08 FY09 FY10 FY11e FY12e

Net Sales 4,064.3 4,281.4 4,274.6 6,795.2 8,494.0

Operating Expense 3,633.4 4,012.8 3,885.8 6,234.6 7,729.5

EBITDA 430.9 268.7 388.8 560.6 764.5
Other Item 55.5 95.3 6.9 52.5 51.6

Interest 20.0 44.9 36.6 33.4 36.2

Depreciation 32.5 58.0 53.1 61.4 73.3
Tax 93.9 74.3 83.4 139.9 190.8

Minority Interest (1.1) (12.3) (13.0) (13.8) (11.5)

PAT 341.0 198.9 235.6 392.1 527.2

Non Recurring Item - - - - -

Adjusted PAT 341.0 198.9 235.6 392.1 527.2
Dividend 71.9 36.0 89.9 92.9 92.9

Balance Sheet FY08 FY09 FY10 FY11e FY12e

Share Capital 179.8 179.8 179.8 185.8 185.8

Reserve 1,120.8 1,249.5 1,409.6 1,884.0 2,302.9

Total Equity 1,300.6 1,429.3 1,589.4 2,069.7 2,488.7
Loan Fund 110.8 391.4 301.8 301.8 351.8

Minority Capital 3.9 3.4 2.9 3.6 4.2

Deferred Tax Liability 10.0 7.8 7.5 7.5 7.5
Total Capital 1,425.3 1,831.9 1,901.6 2,382.6 2,852.2
Fixed Asset 703.5 756.0 823.7 1,012.3 1,189.0
Investment 4.1 0.1 0.1 0.1 0.1
Cash 214.7 185.8 195.9 130.0 112.8
Inventory 369.0 546.0 596.6 807.1 1,008.8
Other Current Asset 1,122.2 1,279.7 1,550.3 2,063.5 2,579.4
Total Current Liabilitiy 988.3 935.7 1,265.0 1,630.4 2,038.0
Net Current Asset 717.7 1,075.9 1,077.8 1,370.2 1,663.1
Total Asset 1,425.3 1,831.9 1,901.6 2,382.6 2,852.2

Source : MLR, Company

4 MLR Investment Research

Action Construction Equipment Ltd
13th April 2011

Research Analyst
Saurabh Singh +91 22 40023026 saurabh.singh@mlrsecurities.com

Head of Research
Aditya Damani +91 22 22630125 aditya.damani@mlrsecurities.com

Head Office
4th Floor, Surya Mahal
5, Burjorji Bharucha Marg
Fort
Mumbai-400001

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5 MLR Investment Research