Action Construction Equipment Limited (NSE:ACE) (BSE:532762)
Action Construction Equipment Limited is an India-based company engaged in material handling and construction equipment manufacturing. In addition to Mobile Cranes, it also offers Mobile / Fixed Tower Cranes, Loaders, Vibratory Rollers, Truck Mounted Cranes, Crawler Cranes, Forklifts, Tractor and other Construction Equipment. The Company has its presence in Infrastructure, Construction, Heavy Engineering and Industrial Projects. Its equipment is used in many sectors such as infrastructure construction, power projects, ports and shipyards, dams, metro rail, roads, mining , steel industry, engineering industry, railways, cement, petroleum, defense, chemicals and fertilizer plants, warehousing, logistics and building construction.
Action Construction Equipment (ACE) reported mixed set of 1QFY2016 numbers, with revenues slightly lower than expected; and PAT ahead of our estimates, led by better-than-expected EBITDA margin. Reported revenues were up 2.7% yoy, and down 18.6% sequentially to Rs134cr. Despite revenue disappointment, ACE impressed us by reporting good set of EBITDA and PAT margins. EBITDA margin expanded from 4.6% in 1QFY2015 to 5.1% in 1QFY2016. PAT margin improved by 12bp yoy to 0.8% for the quarter. This is despite 25.8% yoy decline in other income and increase in effective tax rate to 42.5% (vs 40.8% in 1QFY2015). Key Positives: Strong yoy growth seen across Material Handling & Construction Equip (MH-CE) and Agri segments; Margin expansion ahead of our estimate. Key Negatives: Unfavorable terms for minority shareholders in the ongoing amalgamation with the promoter backed entity; miss on Cranes segment sales. Valuation: At current market price of Rs52/share, ACE is trading at FY2016E and FY2017E P/E multiple of 50.0x and 13.4x, respectively. Despite expected improvement in business fundamentals, due to concerns over potential unfavorable terms of the proposed amalgamation with the promoter entity, we are downgrading our rating on the stock to NEUTRAL.
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