Action Construction Equipment : Transcript Concall 22.05.2024

"Action Construction Equipment Limited

Q4 FY'24 Earnings Conference Call"

May 22, 2024

MANAGEMENT: MR. SORAB AGARWAL - EXECUTIVE DIRECTOR -

ACTION CONSTRUCTION EQUIPMENT LIMITED

MR. RAJAN LUTHRA - CHIEF FINANCIAL OFFICER -

ACTION CONSTRUCTION EQUIPMENT LIMITED

MR. VYOM AGARWAL -PRESIDENT-ACTION

CONSTRUCTION EQUIPMENT LIMITED

MODERATOR: MR. ANUPAM GUPTA - IIFL SECURITIES LIMITED

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Action Construction Equipment Limited

May 22, 2024

Moderator:	Ladies and gentlemen, good day, and welcome to the Action Construction Equipment Limited
	Q4 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. As a reminder, all
	participant lines will be in the listen-only mode and there will be an opportunity for you to ask
	questions after the presentation concludes. Should you need assistance during the conference
	call, please signal an operator by pressing star then zero on your touch-tone phone. Please note
	that this conference is being recorded. I now hand the conference over to Mr. Anupam Gupta
	from IIFL Securities Limited. Thank you, and over to you, sir.
Anupam Gupta	Yes. Thanks, Muskan. And it's my pleasure to host the management of Action Construction
	Equipment to discuss the fourth quarter FY '24 results. Representative management, we have
	Mr. Sorab Agarwal, Executive Director at Action Construction; Mr. Rajan Luthra, CFO; and
	Mr. Vyom Agarwal, President at Action Construction. To start off, I'll hand it to Mr. Agarwal
	for the opening remarks, post which we'll have the Q&A. Over to you, sir.
Sorab Agarwal:	Yes. Thank you, Anupam. Yes Good afternoon, and welcome, everyone, to this earnings
	conference call for the fourth quarter and the year ended March '24. Along with me in today's
	earnings con call, we have our CFO, Mr. Rajan Luthra, and our Head of Investor Relations,
	Mr. Vyom Agarwal.
	I hope you have had an opportunity to look at the company's financial statements and the
	earnings presentation, which have been circulated and uploaded at the stock exchanges. This
	has been yet another year of strong and relevant performance by our company, and we have
	been able to deliver [aspirational 01:44] return ratios with better quality and consistency in
	earnings while maintaining a strong balance sheet position.
	Our ROCE and ROE for the last year stands at upwards of 42% and 30%, respectively. Let me
	take you through some of the highlights of these results. To begin with, it gives me immense
	pleasure to report that we have achieved INR2,911 crores operational revenue in this fiscal and
	recorded our highest ever sales, profits and margins in the year gone by. Our growth of 35% is
	significantly ahead of the market in our 4 sectors.
	Our EBITDA margin for the year expanded by 510 basis points to 16.5% from 11.4% last
	year. And PBT expanded by 470 basis points to 14.9% and PAT increased by 380 basis points
	to 11.3%. In absolute terms, EBITDA grew by 94% to INR479 crores as against INR247
	crores in the preceding year. We were able to increase our profit before tax by 97% from
	INR219 crores in FY '23 to INR433 crores in FY '24.
	Similarly, our PAT also increased from INR161 crores to INR328 crores, whereby registering
	a growth of 103% in the last year. To brief you on the financial performance of the fourth
	quarter of FY '24, the stand-alone operational revenues stood at INR836 crores for the quarter,
	which is up 11% sequentially and grew by 36.4% year-on-year basis.

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Action Construction Equipment Limited

May 22, 2024

The EBITDA for the quarter stood at INR150 crores, whereas the PBT and PAT were at INR132 crores and INR98 crores, respectively. Our company was able to expand EBITDA margins to 17.53%, which is an expansion of 131 basis points sequentially and 446 basis points year-on-year. The PBT grew to 15.51% which is an expansion of 75 basis points sequentially and 377 basis points year-on-year. And the PAT grew to 11.46% which is an expansion of 308 basis points year-on-year. The strong margin profile was led by capacity utilization, favourable product mix, improved price realizations, along with efficient cost control measures and softening of commodity prices. We continue to be long-term debt free with sufficient availability of liquidity for the future.

Further, the Board of Directors have recommended final dividend of 100%, that is INR2 per share for the year ended 31st March '24. Now moving on to segmental business performance. We have strengthened our role as a market leader in crane industry with our consistent efforts. We are scaled the business to over INR21,06 crores in this fiscal -- in the last fiscal. Last year, our Cranes business has registered a strong growth of 37.75%.

The growth was both in value and volume terms. Our number of Cranes has increased by 37% from 6,584 cranes in FY '23 to 8,970 cranes in FY '24. In Cranes segment, we have been able to grow our profit by 76% to INR343 crores with a margin expansion to 16.3% versus 12.77% for the last year. Further, we maintained the growth momentum in 3 segments, wherein we have surpassed our projected growth.

The Construction Equipment segment has clocked a yearly growth of 55% with revenue of approximately INR387 crores and increased margins at around 12.84% versus 9.5% on a yearly basis. The Material Handling segment recorded revenue of 8.6%. And so that INR184 crores is margined at 13.2% as compared to 12.33% last year.

The Agri division registered revenue of around INR237 crores, growing by 12%, with a marginal improvement of 75 basis points at EBITDA levels. The company has also expanded its global footprint and increased export sales by 72% year-on-year. The contribution of export sales to the overall revenues has increased to 8.5% as compared to 6.7% in the last year. We expect that going forward in the medium term, the export segment will contribute 10% of the overall revenue, which is in line with our long-term target of 15% to 20% contribution.

Looking ahead, India is one of the fastest growing economy in the world and its prospects remain very strong for the medium to long-term ahead. The infrastructure growth story continues to play a significant role in the economic growth and will have a multiplier effect on the economy. Our strategic positions in 4 sectors of infrastructure, manufacturing, logistics and agri will provide necessary emphasis to our growth trajectory.

It is crucial for us to highlight that our organization revenue is supported by all the above 4 sectors. Manufacturing and logistics contribute approximately 25% of our revenue, while agriculture and export each account for 8% to 9%. The real estate sector makes up at around 10% and institutional sales is about 3%. The Construction & Infrastructure represents the remaining 35%.

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Action Construction Equipment Limited

May 22, 2024

This balanced revenue distribution is the outcome of our strategic effort over the past year to steer the company towards countercyclical domains. Further in the last year, company has expanded its business in the defence sector by securing prestigious orders to supply specialty design forklifts, rough terrain cranes and truck mounted cranes for the Indian Armed Forces.

Our relentless innovation and commitment towards developing new products empower us to deliver such specialized equipment under the government's Atmanirbhar Bharat and Make in India initiative. We are confident that going forward, this dynamic line of activity will contribute in excess of 5% to our revenue in the medium to long term. It will not be out of place to mention that we are expecting some of our biggest orders so far from the Indian Defence Forces over the next few months.

In the past year, we have successfully completed our capital expenditure as planned, and our Cranes division's capacity has increased by 46% from 9,000 units to 13,200 units annually of different types of cranes, while the Material Handling segment's capacity has grown by 50% from 1,800 units to 2,700 units annually. This expansion underscores our commitment to strengthen our core business.

Looking ahead, within the current year, we plan to further enhance our operational capabilities with modernization and automation, aimed at boosting our capabilities and market competitors. In line with our focus on product improvement, we are upgrading our offerings to meet the revised CEV IV emission norms, it will be effective from January of 2025. This transition is not only about compliance but also about elevating the overall performance and eco-friendliness of our products. Our proactive approach and relentless focus on quality and reliability enhancement will facilitate to position us well in the export markets for sustained growth and long-term success.

Going forward, in the first few months of FY '25, we expect muted growth due to ongoing General Election in the country, followed by monsoon season. However, on a whole year basis, we are optimistic and expect a growth of at least 15%, 20% in our Cranes, Material Handling, and Agri portfolios. For the Construction Equipment segment, we are looking at a growth rate of 30% to 40% on an increase basis.

On the whole, we are looking at a 15% to 20% growth in our top line for FY '25 with further possibility of margin expansion. We hope we are in a position to revise these projections at the end of second quarter, which will predominantly depend on the results of the General Elections, policy continuity and the onset and intensity of the monsoons. Furthermore, we remain highly optimistic about the medium to long-term prospects of our company, and are committed to deliver our growth projection.

We will continue to aggressively pursue cost savings and implement strategic pricing actions, ensuring that we both protect and expand our market. We believe that our foundational strategies are firmly in place, setting us on a path of sustainable growth across all our operational segments. This approach will lead to expansion in our top line, bottom line and overall margin profile, driving value for our investors as well as stakeholders.

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Action Construction Equipment Limited

May 22, 2024

Thank you. And now I'd like to open the call for the question-and-answer session.

Moderator:Thank you very much. We will now begin the question and answer session. The first question is from the line of Garvit Goyal from Nvest Analyst Advisors. Please go ahead.

Garvit Goyal:Good evening sir, Congratulations for good set of numbers. Sir, basically, you have reduced our guidance for FY '25 due to some external factors. But the factors that you have mentioned may result in deferment of demand for few months, but it should accordingly end up with higher demand in second half, considering the positive demand from the industry, which you also mentioned in last quarter con call. So, considering this, why are we giving a very conservative guidance of 15% to 20% for FY '25.

Sorab Agarwal:If you notice, we generally give a conservative guideline because for our base to be very clear with respect to what is achievable easily and what can be achieved. So that is why going by our trend, we are seeing 15% to 20%. And I believe we should be able to exceed it, primarily for the reason that, hopefully, the current government will continue again. So, all the focus and impetus on the growth of the country will continue.

And secondly, from 1st of January 2025, we have five norms. For construction equipment, they are called CEV V. So, CEV V, CMVR norms will be applicable. So we expect that in the end of quarter two and especially quarter three, there will be a lot of pre-buying for machines, which are moving straight from BS-III to BS-V. Currently, we have two types of machines. One, we are already in BS-IV regime and about -- I would say, about 40% of the company's machines which are in BS-III regime.

So all of this is going to BS V and there is going to be a substantial price increase, especially from BS-III to BS-V. So the numbers, there'll be a lot of pre-buying. So we are very hopeful, it will definitely be better than that. But on the safer side, I think the middle end of second quarter is the best time to project the more easily possible growth trajectory.

Garvit Goyal:Understood, sir. And sir, previously mentioned that upcoming loans of some new products like Electric Crane and Aerial Work Platform, so where the company anticipate gaining a first mover advantage in India. So could you please provide an update on the status of these product launches?

Sorab Agarwal:Yes, the Electric Crane has been ready with us. Unfortunately, the government regulation -- wherein the regulation would have been formulated for the registration of this license with Indian RTOs. It got delayed and now it will happen only after elections. We have been trying to meet and I've also met the Ministry of Road Transport and Highways for a number of times on this. So we are very hopeful that this will go through in June now.

So hopefully, we will be able to start to sell our Electric Cranes by July onwards, which has been ready with us for quite some time now. The Aerial Work Platforms, more or less everything is in place and the product has productionized. So we expect to start delivering this product. Earlier, we are planning to do it beginning of March, but due to some supply chain constraints. But now I think this will start to happen in the month of June with respect to deliveries of our new product Aerial Work Platform.

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Action Construction Equipment Limited

May 22, 2024

And in the same breadth, I would like to say that we are also working on a new model of next- generation cranes, which we believe can be a game changer. So that we're already working on and within this current financial year, we expect to introduce that. Apart from a Reach Stacker, which is a much bigger version of a forklift, you can say in a way, capacity of 40, 45 tons for container handling.

And we are also working on a special model of Backhoe Loaders. As a matter of fact, it is currently under and we expect to launch it sometime in July, August. So this is a very special Backhoe Loader equal wheel, all-wheel steering, which is popular outside the India -- outside the country, and we are especially designed it for the export market. It has no market in India.

Similarly, we are very hopeful that in July, August, we'll be able to launch new telehandler, which has been designed again, especially for the export market. It has no market in India. It is again equal-wheel and all-wheel steering and all-wheel drive.

Garvit Goyal:Following up this discussion, basically, last quarter, you mentioned, I think, a product crane that is currently getting imported from China, and we were expecting to launch that product in two to three months. So, what is the status of that?

Sorab Agarwal:See those products up to 75 tons capacity, 80 tons capacity, we have been manufacturing for the last 10 years. It is just that in the last 4 years, 5 years the market has increased. The Chinese were able to sell more than us because of their very aggressive pricing. So herein we were expanding our capacity from 4, 5, 6 units a month or let's say, 50, 60 units in a year to 400 units. It has already happened and our capacity is in place now.

So this year we will see increased results. So we will be able to if not triple actually double our sales in these bigger cranes within the current year that is what we believe. We should from a figure of approximately around 40, 50 units I think we will cross a figure of 100 units can be much more for this year.

Garvit Goyal:Understood. Sir, and just last question on our margin. So you mentioned last quarter like margin sustainability basically depends upon how the commodity prices will prevail. So looking at the current scenario where commodity prices are rising so can you help me to understand how do you -- how do you think EBITDA margins to shape up in FY '25 from current levels of 14%?

Sorab Agarwal:See, obviously, if the commodity prices are increasing you see they are within range 2%, 3%, 5%, 7% up down that is easily manageable, but obviously like in the year FY '22 or -- I mean FY '23, sorry the Ukraine war or just before that then it was mayhem. So those types of scenarios are very difficult to immediately manage, but generally we are able to pass on any commodity increase with the leg of 2 months, 3 months for our customers.

In any case, we take our annual pricing. We're still looking at all the actions that we take to control our pricing -- our selling prices, I think the 16% plus scenario is hopefully here to stay. And with our revenue further increasing in this year there is only scope of further improving our margins.

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Action Construction Equipment Limited

May 22, 2024

Garvit Goyal:Understood sir. Thank you very much sir and all the best for the future.

Moderator:Thank you. The next question is from the line of Jaspreet Waliya from Clock Wine. Please go ahead.

Jaspreet Waliya:Sir in the last couple of calls you have been mentioning of the changes you're doing in the material handling business. So if you could just tell us what changes have been done and what do you think would be the impact of those changes in the coming years? Would you be able to drive higher growth in this business in the coming 2 years, 3 years?

Sorab Agarwal:Yes. We are very sure that the rate of growth in the material handling segment is about INR180 crores, INR190 crores for us, it will be faster than what it has been in the last 1 year or 2 years and primarily it was inefficiencies within the system of the company and we worked all across within the segment with respect to our plant manufacturing and upgradation and now things are on line with respect to, I would say, the quantity of production as well as further improve quality and performance of the machine.

And going forward from first of January onwards with the new BSV regime, we also plan to introduce a totally new range of material handling machines especially forklifts which will be even better upgraded to meet international level of performance as well as styling. So that is also in the pipeline to happen in January next year.

So everything is on track and we are very hopeful that this year we'll grow faster than what we've been doing. It has been growing, but at a slower pace. So hopefully we might even exceed 20% growth this year in that category.

Jaspreet Waliya:Got it, sir. Sir, as of now what part of the forklift market in India are you able to address and the products that you are going to introduce going forward, would they increase the addressable market size?

Sorab Agarwal:See, currently we are doing forklifts up to 12-ton capacity which we're manufacturing in India. And obviously there is also a niche market about 20%, 25% of the market which is addressed by forklifts imported into India from premium brands like Toyota or even Hyundai or Volvo. So it will also give us access to the premium segment with our upgraded machines and our intention is to sell the upgraded machine not only in the premium segment, but even in the regular segment to gain the market share.

Jaspreet Waliya:Got it, sir. Sir, in the last call, you mentioned that you're talking to a big brand for manufacturing a particular product in India for the Indian market as well as for the world, so what is the status of that initiative, sir?

Sorab Agarwal:It is in very advanced stages. More or less everything is true. It is just that we have an NDA so really can't disclose. There is some further, I would say, a technical -- it's not really a technical problem, but it's something in the interest of the joint venture that we'll be delaying this formation of the joint venture of announcement by maybe another two quarters, three quarters which I really can't disclose to you. But it is in the interest of the joint venture and the overall sustenance and profitability of the venture.

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	Action Construction Equipment Limited
	May 22, 2024
Jaspreet Waliya:	Got it. So you also alluded to some -- making some large announcement in the crane market,
	which would have an implication on the -- on your business in cranes, so has there been any
	progress on that front?
Sorab Agarwal:	See, in cranes we are leaders. Pick and carry cranes, tower cranes and now trying to become
	big in the bigger segment cranes that is 60 tons, 70 tons and bigger where the Chinese have
	taken over the market in India and we have set up and expanded our capacity. So that is only
	news in place, but yes in saying this definitely something -- some big things are lined up in
	defence sector because last year about 2.5% of our revenue came from defence at about
	approximately INR68 crores.
	And in the opening of this year we had pending orders worth about INR65 crores and in the
	next -- over the next 2 months, 3 months we are expecting some really big orders from the
	defence which I also mentioned in my opening address. So they could be variable in the tune
	of INR400 crores to INR700 crores, maybe slightly more. So maybe this year can be the game
	changing year for us with respect to contribution of defence with respect to our company.
Jaspreet Waliya:	So, I think you were referring to some acquisition in the crane segment?
Sorab Agarwal:	I was referring to what?
Jaspreet Waliya:	Some acquisition opportunity in the crane segment.
Sorab Agarwal:	Yes. Things are going on. They are in the liquid state. As soon as they solidify and something
	is up for obviously we are a listed company so it will be informed, but...
Jaspreet Waliya:	That will be outside India or in India?
Sorab Agarwal:	We are actually open for inorganic growth in the country and outside country also. We have a
	couple of targets in mind within the country and obviously which is work in progress. And
	outside the country we want to acquire a smaller company with a good product which we have
	in mind. I can't say any more than that. We have already located some companies.
	And so that - they can help us swing more faster into the export markets. So that we can start
	doing white labelling for our own company outside India and also moved some of the specific
	export products to that company apart from their own products which are manufactured in
	their country.
Moderator:	The next question is from the line of Ankur Jain from Future Investment Private Limited. We
	can't hear you. Hello?
Sorab Agarwal:	I think we can go to the next question and maybe he can come back in the queue.
Moderator:	The next question is from the line of Aman Soni from Nvest Analytics Advisory.
Aman Soni:	Sir, we were supposed to get some crane license for export. So, what is the update on that?
Sorab Agarwal:	You're talking about some crane license for export?
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	Action Construction Equipment Limited
	May 22, 2024
Aman Soni:	Yes, sir.
Sorab Agarwal:	I don't think there's any such requirements. In India, we follow BIS standards. And obviously,
	the countries wherein we are exporting to, we make sure that we are meeting the regulations of
	that country. But there is no requirement for any specific export licenses.
Aman Soni:	Particularly about the newer crane products that we are targeting into the export market. So,
	are we noting any requirement to getting the export license for those products that we are
	looking for?
Sorab Agarwal:	There is no need of any export license apart from maybe some export benefits that we get, if
	you're talking about those licenses, then obviously -- Luthra sir, what are the different -- we get
	some benefit on exporting, right, 1% or 2%?
Rajan Luthra:	But I don't think there is any requirement of any license for exporting. This is a freely
	exportable product. As regards export incentives, definitely, these all products are covered in
	that export authenticity. So, once we start exporting, we will get the export benefit
	automatically. So, there is no requirement for any export
.Sorab Agarwal:	There's no requirement as such for any export license from the country. And we take adequate
	care, whichever country we are supplying the machines to whether cranes or any other
	machine, to make sure that we meet their homologation requirements. And as a matter of fact,
	we -- over the last 3, 4 years, we've evolved special left-hand and right cranes also for some of
	the Middle East and African markets.
Moderator:	The next question is from the line of Garvit Goyal from Nvest Analyst Advisors.
Garvit Goyal:	My question is answered. Thank you very much.
Moderator:	The next question is from the line of Rajeev M from Raj Investments.
Rajeev M:	First of all, I would like to congratulate on the very good set of results. I have a couple of
	questions. First question is, I see a rise in interest expenditure. So any specific reason for that if
	you compare it with the previous quarter or the Y-o-Y comparison?
Sorab Agarwal:	I think primarily it is more to do with the interest rate being higher in the last year, but I think
	Mr. Luthra will be a better person to take that question.
Rajan Luthra:	Yes, there are 2 reasons for increasing interest expenditure. One is the increase in the average
	cost of borrowing because you must be aware that RBI has been giving the rates steadily for
	last 1.5 years, that is 1 factor. Second thing, we have gone aggressively on discounting of
	supporting our vendors, especially MSME vendors and which payment terms have been
	brought in faster, not at free of cost, but definitely, we are getting discounts on the payments.
	So, we are leveraging the alpha between the cost and the discount for that. So that is why the
	interest cost is slightly higher.
Rajeev M:	So would this be a one-off effect in this quarter or going ahead it will come in the same range
	of INR8 crores, INR10 crores?
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	Action Construction Equipment Limited
	May 22, 2024
Rajan Luthra:	It will be in the similar range because the practice is still continuing, and we are trying to
	further leverage our financial stand to get a more discount from a vendor by gaining the
	advanced payments and supporting them to maintain our supply chain issues.
Rajeev M:	So we are benefiting in terms of the discount channel?
Rajan Luthra:	Yes, that's right.
Rajeev M:	Okay. Another thing is, Mr. Agarwal, you had mentioned about the election effect. So I would
	like to know, if we compare the month of April and May, so has it been materially impacted in
	terms of the work because of the election? Or how is it lying going forward means for the first
	2 months?
Sorab Agarwal:	That is only what happens. First 2 months have definitely been slightly muted as compared to
	the momentum that was there till March. And what we have also noticed in the past is during
	the election month, those 2, 3 months, the market, let's say, the buyers, even if they have
	requirements of work, they just go on to wait and watch more -- parts of the market. So that is
	what we are experiencing. I'm sure 4th June onwards things should come back to normalcy.
Rajeev M:	Okay. So the impact will be for the first 2 months and then maybe the demand would again
	come back for those who have built it up?
Sorab Agarwal:	Sure, because there is no material change aspects, which has happened. And we are also very
	confident that on a year-on-year basis, we should be doing reasonably well even in the current
	quarter.
Rajeev M:	And the final question is any update on the Ghana part, which was stuck up, I think, because of
	some funding from the World Bank or something. So any update on that?
Sorab Agarwal:	Yes, Ghana has not bottomed through so far. We were very hopeful that was the commitment
	which we were getting from Government of Ghana. Current situation is that there has been
	some default from Government of Ghana with respect to certain credit lines given by Exim
	Bank. And this project was supposed to be funded by Exim Bank.
	So that default or the dispute between the Government of Ghana and Exim Bank has not been
	resolved. And Ghana is about to get some IMF release package with -- on the basis of which
	they are going to fulfil their requirements with Exim Bank. So, right now, it is in a status quo
	type of scenario that even we do not know whether it will happen in 1 month, one quarter, or 2
	quarters. But the order on us very much stands. And but even we are not getting any clarity
	that when it will get solved within this quarter and next quarter. So that is the current situation.
Rajeev M:	It is still in the pipeline, or it's stuck up as of now?
Sorab Agarwal:	As of now it is stuck up, but one thing which I can tell you is that because, obviously, we do
	not want to go ahead or do anything without our payments being secured, so that will be very
	foolish because this line of credit, our security was coming from Exim Bank for all our

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