Small-Cap Stock To Buy: This Construction Stock Can Gain 28%: Highest-Ever Revenue In Q4

Brokerage firm Emkay Global recently suggested investors to buy the stocks of Action Construction Equipment (ACE). The company has reported its highest-ever quarterly revenue in Q4.

Target Price, CMP, and performance

The Current Market Price (CMP) of Action Construction Equipment (ACE) is Rs. 187. Emkay Global has estimated a Target Price for the stock at Rs. 240. Stock is anticipated to give a 28.30% return, in 1 year. The company is a small-cap company with a market capitalization of Rs. 2,275 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 187
Target Price	Rs. 240
Potential 1 year return	28.30%
52 week high share price	Rs. 291.75
52 week low share price	Rs. 161.55

Action Construction Equipment has reported sales growth of 12% YoY in Q4FY22, led by a growth of 17%/13% in construction equipment (CE)/cranes segments. For Q4FY22, Action Construction Equipment has also reported sales growth of 17%/13%/3% in the Crane/CE/MH segments, leading to overall 12% growth for the firm. For the year, sales grew by 33% YoY, with the crane segment growing by 40%. Despite a lower gross margin, EBITDAM has improved to 9.4% from 9% in Q3FY22 on account of operational efficiency. For FY22, ACE reported 33%/28% YoY growth in sales/EBITDA, outperforming the construction equipment industry.

Advantages and risks: Emkay Global

Action Construction Equipment is evaluating backward integration or acquisition of smaller companies. Maintaining the buy rating, Emkay Global said, "ACE expects to grow its revenue by 15% given the present demand scenario. Lower steel prices could in the future help to improve the gross margin. We cut our FY23E/FY24E EPS by ~2.5%/5.6% and introduce FY25E EPS of Rs. 14.4. We build in sales/EBITDA/ PAT CAGRs of 13%/15%/17% during FY22E-FY25E. We believe that we are in the initial stage of a larger infrastructure and industrial capex cycle. Hence, the medium-term outlook remains bullish for the CE sector." Emkay thinks the company's stable margin is a positive side.

However, as a risk factor, the company's agri sales declined by 14% YoY. The gross margin has been affected by higher commodity prices (mainly steel) for the last few quarters. Q4 gross margin fell to 17.8% from 20.2% QoQ. On the key risk, the brokerage firm mentioned, 'any delay/deferment of capex and higher steel prices.'

About the company: Action Construction Equipment

Action Construction Equipment Ltd. (ACE) is a leading construction and material handling equipment manufacturing firm with a major market share in the domain of Mobile Cranes and Tower Cranes. Apart from the Mobile Cranes, they are also specialized in offering Crawler Cranes, Truck Mounted Cranes, Lorry Loader Cranes, Mobile / Fixed Tower Cranes, Lorry Loaders, Backhoe Loaders/Loaders, Vibratory Rollers, Forklifts, Truck Mounted Cranes, Tractors & Harvesters along with other Construction Equipment. They have been successful in consolidating our presence in some of the major Construction, Infrastructure, Heavy Engineering and Industrial Projects across the country.

ACE's clients are: Reliance Punj Lloyd, Kalpatru, Grasim, Gannon Dunkerley, Simplex, Patel Engg., Alstom, IVRCL, Tata, Gammon, Paharpur, L&T, ACC, Petron, KEC, Shapoorji, Jindal, Havells, NCC, Welspun, ISGEC, KRUPP, Adani, Ambuja, Spice Jel Engg., ISPAT, ESSAR, UB Engg., etc.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.