This Multibagger Construction Stock Is A Good Buy, Says Top Broking House

Broking firm Emkay Global has a buy rating on the stock of Action Construction and has set a price target of Rs 345 on the stock. The company is India's leading Material Handling and Construction Equipment manufacturing company and are market leaders in Mobile Cranes & Tower Cranes segment.

Buy this multibbagger stock, says Emkay Global

The stock has turned a multibagger rallying from levels of Rs 60 in April 2020 to the current levels of Rs 324. According to Emkay Global, there has been considerably strong revenue growth in the last 2 quarters. "The past 2 quarters saw ACE clock strong revenue growth across Cranes (53% YoY for 1HFY23) and CE (40%), despite heavy rains, which typically have a negative impact on purchase. The management has indicated uptick in buying activity and higher conversion of enquiries," the brokerage has said.

Further expansion to help the company

Action Construction has initiated further expansion via a higher-tonnage Cranes-facility. The company is putting up a facility for higher-tonnage Cranes which will have revenue potential of Rs3-5bn, with capex of Rs350 million.

ACE had raised Rs1.35 billon last year which it intends to deploy through acquisition(s); it is also exploring products that will lead to better backward integration. Negotiations are ongoing from the valuations perspective. "While EBITDAM has been flattish, Management expects improvement in margin due to easing commodity prices. Steel forms 60% of ACE's raw material. While Management believes a 100-150bps improvement is possible, we conservatively factor-in only 80bps over the next 2 years," Emkay Global has said.

Valuation, outlook and risk, according to Emkay

Emkay has said that it rolls forward its valuation to Dec-23 and arrives at a new target of Rs345 per share, based on 21xPER. Average P/E for the FY18-22 period stands at 19x. Our 10% premium factors-in a higher RoE.

"Given the current sales run-rate, expectation of improvement in gross margin, uptick in buying activity and enquiry conversions, we revise FY23E/24E EPS by 16%/15%, respectively, on the back of similar revenue growth. We roll forward our valuation to Dec23 and arrive at target price of Rs 345/share (Rs240 earlier), based on 21x PER. Our increase in TP factors-in the EPS increase (~15%), roll over and the PER upgrade. Our PE of 21x is a 10% premium to 5-year average P/E of ~19x, owing to FY23E-25E RoE of ~16% vs ~13.5% in the past 5 years," the brokerage has said.

Among the risks that Emkay has highlighted include any slowdown in infrastructure and manufacturing activity in the country.

Disclaimer

The stocks have been picked from the brokerage report of Emkay Global . Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.