Action Construction Equipment Ltd (ACE) is a 25-year-old company with a significant presence in the construction, infrastructure, logistics and agriculture sectors. It has state of the art manufacturing facilities in Paliwal, Haryana. The product portfolio consists of different types of cranes, construction equipment and loaders, material handling equipment such as forklift trucks and warehousing equipments.
The agricultural equipment segment consists of tractors and harvesters. ACE is the world’s largest pick and carry crane manufacturer and has a over 63% market share in the mobile crane category. It also has around 60% market share in the tower crane construction equipment segment.
The company has a capacity to manufacture 12000 construction equipment and 9000 tractors annually. As per company reports , the mobile crane segment is expected to grow at the highest CAGR over the next 5 years owing to growing construction activities on the back of rising investment in the infrastructure development sector. ACE aims to focus on improving its market share by increasing the capacity utilisation to capitalise on the buoyant demand. On the other hand, in the construction equipment space, it is seen that the growing population has resulted in increased residential construction activity. Hence, demand for construction equipment has gone up .
The company is quite bullish on the loader equipment machinery segment and aims to capture at least 50% annual growth rate over the next few years. Because of increased investment in the Logistic & Warehousing equipment sector, the Material Handling Equipment can become a major driver for growth. ACE is targeting to capture a 25% market share over the next 3 years particularly in the food, beverage and pharmaceutical industry. Tractors and Harvesters are agricultural equipments which are expected to grow at a much faster clip on the back of government initiatives owing to rise in rural development and farm mechanisation.
ACE aims to increase market penetration with launch of special tractors and light weight harvesters.
The company has diversified over the last few years to counter the cyclical domain with increasing export revenue coupled with opportunities in the Defence sector.
The company is in a sweet spot as growth across all its product segments and verticals look quite strong.
ACE also plans to become debt free in the next two years and leverage its strong balance sheet with future capital expenditure funded largely from internal cash flows.
The company expects both its ROCE and ROE to improve substantially over the next couple of years. The Action Construction Equipment stock currently trading on the stock exchanges at Rs 168 can be purchased with a one-year investment horizon for a Rs 220 price target.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.