ACE Ltd : There is one major revolution in India you might want to keep a keen interest in, which is the infrastructure revolution. Over the next 25 years, India’s primary focus will be on developing infrastructure and attracting investments to transition into a developed nation. The government has significantly invested in modern infrastructure in recent years, propelling the country to new heights. 

In the interim budget announced in February, the total capital expenditure outlay was increased by 11.1 percent to approximately ₹ 11.11 lakh crores. The quality of a nation’s infrastructure plays a crucial role in determining its economic trajectory. 

So, are there any opportunities as investors this robust growth offers us. Well, you might have noticed the rapid construction works going on everywhere in Tier 1 cities like Mumbai and you would have also seen the majestic ACE crane gracefully reaching skyward to assist the construction. 

Action Construction Equipment(ACE Ltd)

So, in this article, we are going to delve into India’s leading material handling and Construction Equipment manufacturing company, Action Construction Equipment (ACE). Over one year, the share price of the company has given a humongous 215 percent. 

Not only that, ACE was 10 baggers over five years giving a 4-year CAGR return of 77 percent! Over the same period India’s most followed benchmark, NIFTY 50 has only given a 4-year CAGR of 19 percent. But, there is one important development that needs some scrutiny. The ACE Ltd has mentioned that they are going to enter the defence sector as there is a huge opportunity in the same. But how? Interesting isn’t it? Well, let’s explore.

Corporate Overview 

Established in 1995, Action Construction Equipment Ltd (ACE Ltd.) is a company specializing in the manufacturing and marketing of cranes, construction equipment, material handling, and agricultural machinery. 

The company’s manufacturing facility is situated in Haryana. ACE Ltd holds a dominant position in the mobile crane market with a market share exceeding 63%, and in tower cranes, it commands over 60% of the domestic market. Furthermore, it is the leading producer of pick-and-carry cranes. 

Notably, the ACE Ltd has secured orders from the Ministry of Defence and holds exclusive authorization for manufacturing missile handling systems in India. 

ACE Ltd boasts a diversified revenue structure, with a significant portion of its income derived from various sectors such as infrastructure, construction, logistics, and agriculture. The company extends its global reach by exporting products to more than 25 countries across the Middle East, Africa, Asia, and Latin America. 

With four manufacturing units, including a main plant in Palwal (Haryana) serving as the mother plant, two fabrication units, and an R&D unit in Faridabad, ACE Ltd has a robust operational setup. Additionally, it maintains an extensive Sales and Service network, encompassing over 100 locations supported by 13 regional offices throughout India. 

Segment Review 

ACE Ltd provides products in four main segments : Cranes, Construction Equipment, Material Handling Equipment and Agriculture Equipment.

(Source: Investor presentation Q2FY24) 

Crane: As of FY23, the cranes segment accounted for 70.7% of the company’s total revenue. The sales volume stood at 6,584 units in FY23, compared to 5,328 units in FY22. The revenue from this division increased by 38.39% to ₹1,527.85 crores for the fiscal year ending March 31, 2023, compared to ₹1,104.01 crores in FY22. 

Construction Equipment: As of FY23, the construction equipment segment accounted for 11.5% of the company’s total revenue. The sales volume stood at 738 units in FY23, compared to 533 units in FY22. The revenue from this division increased by 41.55% to ₹249.46 crores for the fiscal year ending March 31, 2023, compared to ₹176.24 crores in FY22. 

Material Handling Equipment: As of FY23, this segment accounted for 8.7% of the company’s total revenue. The sales volume stood at 1,321 units in FY23, compared to 1,418 units in FY22. The revenue from this division increased by 11.23% to ₹169.14 crores for the fiscal year ending March 31, 2023, compared to ₹152.06 crores in FY22. 

Agriculture Equipment: As of FY23, the cranes segment accounted for 9.8% of the company’s total revenue. The sales volume stood at 3,667 units in FY23, compared to 4,085 units in FY22. The revenue from this division increased by

6.82% to ₹211.54 crores for the fiscal year ending March 31, 2023, compared to ₹198.03 crores in FY22. 

ACE Ltd – Financials

In the fiscal year 2023, ACE saw a notable increase in revenue, surging by 32.5% to reach ₹2,160 crore as opposed to ₹1,630 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a robust Compound Annual Growth Rate (CAGR) of 23.2% in revenue. 

Simultaneously, there was a substantial upturn in net profit, experiencing a 64.8% increase from ₹105 crore in FY2022 to ₹173 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased an impressive 49.3% CAGR. 

In FY23, ACE maintained positive financial indicators, boasting a strong Return on Equity (ROE) of 18.68 percent and a Return on Capital Employed (ROCE) of 26.04 percent. The company debt to equity ratio for the same financial year stood at 0.06 exhibiting a strong balance sheet. 

Future Outlook 

● In the financial year 2023, the ACE Ltd export contribution as a percentage of total turnover was 6.8%. So, ACE intends to increase the contribution of exports in total revenue to a significant share over the medium term. Increasing the utilization levels of construction equipment in the future also remains important.

● They are also making significant steps to tap into the Defence sector. Action Construction Equipment (ACE) announced in January 2023 that the Ministry of Defence’s (MoD) DRDO has placed an order with them for the provision of cranes. 

● For the Ministry of Defence (MoD), DRDO, program MRSAM (Army), ACE Ltd has created an in-house unique mobile crane to grow its business in the Defence sector. The aforementioned cranes, which have the designated tonnage, are the first of their kind to be created by an Indian company employing cutting-edge technology. 

So, will the new endeavors gain dividends in the future? Let us know your thoughts in the comments below! 

Written by Nalin Suriya

By utilising the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investment.

The post ACE Ltd Ventures into Defence Sector Following a Remarkable 1400% Stock Surge Over 5 Years appeared first on Trade Brains.