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Strong performance, agri segment laggard…

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

* The company has a capacity of 12000 construction equipment and 9000 tractors annually

* ACE’s product portfolio is divided into four main categories viz. agricultural equipment, construction equipment, road construction equipment and earth-moving machinery

Q2FY23 Results: ACE reported good Q2FY23 results.

* Revenue for the quarter was at | 491.8 crore, up 36% YoY, down 1% QoQ

* Absolute EBIDTA was at | 45 crore, up 11% QoQ & 29% YoY

* PAT was at | 33.9 crore vs. | 23 crore in Q2FY22 & | 45.3 crore in Q2FY23

What should investors do? ACE continues to tread on its growth path. The management has upgraded revenue guided for 25% growth across segments.

* We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value ACE at | 385 i.e. 20x PE (FY24E).

Key triggers for future price performance:

* Cranes segment is doing well. Contract from Government of Ghana and strong traction from the defence sector

* Upcoming government & private capex are providing fillip to the sector

Alternate Stock Idea: We also like SKF in our capital goods coverage.

* It is one of the leading bearing manufacturers known for its deep groove ball bearings and has a presence across the industrial and auto sector

* BUY with a target price of | 5215 i.e. 40x P/E on FY24E EPS

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