Buy Action Construction Equipment Ltd For Target Rs.365 - ICICI Direct
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Long term outlook positive…
About the stock: Action Construction Equipment (ACE) is an Indian construction equipment and material handling company.
* ACE has eight manufacturing and one R&D site in Faridabad, Haryana
* ACE’s product portfolio is divided into four main categories viz. agricultural equipment, construction equipment, road construction equipment and earth-moving machinery
Rationale: Significant traction in tendering activity points to a strong capex cycle.
* Tendering activity has seen a robust pace as tenders worth | 369031 crore have been issued despite macro concerns. Tendering activity has seen 58% YoY growth. From a pre Covid level, the tendering activity is up 240% YoY
* Fresh projects investments have almost doubled from FY20 levels, with private share coming with a strong rebound. Order inflow in Q1FY23 was at | 52090 crore vs. | 36138 crore in Q1FY22. We believe ACE is likely to benefit in terms of strong volumes, operating leverage and strong b/s
* With construction equipment, agri segment expected to perform better in coming quarters coupled with focus on backward integration, ACE is on course to achieve its | 2500 crore revenue target by 2024E. We build in revenue, EBITDA, PAT to grow 23.1%, 41.6, 43.7%, respectively, in FY22-24E
What should investors do? For the past year, ACE has remained richly valued given its clean balance sheet, above 65% market share in cranes, contract from Ghana government and introduction of newer products, which will drive strong double-digit volume growth in the medium term.
* We continue to remain positive and retain our BUY rating on the stock
Target Price and Valuation: We value ACE at | 365 i.e. 20x P/E on FY24E EPS.
Alternate Stock Idea: Apart from ACE, in our capital goods & power coverage, we like NRB. It offers a play on needle roller bearings. We recommend BUY with a target price of | 220 per share i.e. 18x P/E on FY24E EPS.
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