In the recent Q2 FY24 conference call, Action Construction Equipment (ACE) showcased robust performance and outlined strategic initiatives in the face of a complex economic landscape.
1. Strong Performance in Lean Quarter:
ACE reported yet another quarter of robust performance, notably during the leanest period of the year, emphasizing the company’s resilience.
2. Segment-wise Performance:
– Crane Segment: 30% YoY growth with 15% margins.
– Construction Equipment: Impressive 100% YoY growth with 12.72% margins.
– Material Handling: 26% YoY growth with 12.8% margins.
– Agriculture: 33% YoY growth with 4% margins.
3. Demand Dynamics:
– Global economy experiences a slowdown, while the Indian economy remains buoyant with robust public investment.
– Subdued consumption and demand, especially in rural areas, attributed to subpar monsoons and food inflation.
– Optimism prevails for a good festive season, increased agri output, rising manufacturing, and private capex.
4. CAPEX Initiatives:
– 75% of brownfield CAPEX for the year is complete, set to be fully operational in Q4.
– New facilities, including high-capacity cranes, forklifts, and tower cranes, will significantly boost production capacity.
– Full utilization of new capacity aims to achieve a topline of 4000 Cr.
5. Inventory Management and Market Dynamics:
– Inventory increased for the festive season to address heightened demand.
– Competitor dynamics: Liebherr, a European company, has set up a new plant in India, but ACE remains confident in its technological prowess, especially in tower cranes.
6. Product Development and Export Focus:
– ACE is working on evolving specific models of backhoe loaders and a machine called telehandler, targeted for export markets.
– 55-60% of business expected in H2.
7. Changing Emission Norms:
– Emission norms transition from BS4 to BS5 from April 1st, with efforts to defer implementation by 6-8 months.
– Price hikes expected in the range of 5-10% for different horsepower categories.
8. Challenges and Defence Orders:
– Hurdles in selling electric cranes due to pending Central Motor Vehicle rules.
– Despite challenges, the company is receiving repeat orders from the defence sector regularly.
Outlook and Guidance:
– Revised guidance for the Crane Segment at a minimum of 25%, up from the previous 18-20%.
– Upholding previous guidance of 50% growth in the construction segment and 15-20% in material handling and agri segments.
– Overall topline expected to grow by more than 25%, with an expansion in margins from the current level of 15%.
– The company aims to double revenue by FY27, contingent on macro conditions and upcoming elections.
In conclusion, ACE’s Q2 FY24 con call highlights its proactive strategies in a challenging economic environment, with a focus on technological prowess, capacity expansion, and navigating regulatory transitions. The company’s resilience and strategic outlook position it for continued success in the dynamic construction equipment sector.