ACE Multibagger (Hidden Gem)

ACTION CONSTRUCTION EQUIPMENT (ACE) CMP-64

PROS :

1. ACTION CONSTRUCTION EQUIPMENT LIMITED (ACE) is India’s leading material handling and construction equipment manufacturing company with a majority market share in Mobile Cranes and Tower Cranes segment. In addition to Mobile Cranes, ACE also offers Mobile/Fixed Tower Cranes, Crawler Cranes, Truck Mounted Cranes, Lorry Loaders, Backhoe Loaders/Loaders, Vibratory Rollers, Forklifts, Tractors & Harvesters and other Construction Equipment.

2. Its Equipment are successfully used in many sectors like Infrastructure Construction, Power Projects, Ports & Shipyards, Dams, Metro Rail, Roads, Mining,Steel Industry, Engineering Industry, Railways, Cement, Petroleum, Defence, Chemicals & Fertilizer Plants, Warehousing, Logistics, Building Construction etc.,

3. A healthy promoter holding of 73.10 % as of 31st March 2017, shows the confidence that promoter have in this company. Edelweiss Oppurtunity fund also holds around 1.08% stake in the company.

4. ACE took entry in domestic tractor market 6-7 years back and has been successful in states of Punjab, Haryana, Uttar Pradesh, Jharkhand, Bihar and Tamil nadu. Tractor and harvestor sales in India are highly dependent on monsoon, ACE is expected to grow its top line in coming quarters.

5. Financials

Consolidated revenue increased to 757 crores from 647 crores (yoy). Net Profit increased to 20.50 crores from 9.98 crore (yoy), resulting in increase of EPS from 0.84 to 1.50. Consistent dividend paying company (Rs 0.30 per equity). Long term burrowings of the company has increased to 37 crores from 24 crores (yoy). Debt Equity Ratio is 0.26. In line with strong growth in profitability, i expect cash flow from operation to improve in coming quarters, which could be used to partly repay debt and re invest the balance back to business.

CONS :

1. Loss of substantial market shares to competitors like Escorts, Sanghvi Movers, BEML, John Deere, needs to be monitored in coming quarters.

2. Increase in raw material prices can affect margin expansion

At CMP of Rs 65 ACE is trading at PE 38.53 with Industry PE being 110.34. Topline and bottomline have increased over last one year which have made the valuations attractive. With increase in EPS to 1.50, ACE looks undervalued, so one can initiate buying with conservative target price of Rs 90.

Current Action – Buy (Range 55-70)

Comments

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