ACE - Action Construction Equipments Ltd. Share Price

Management's outlook for Action Construction Equipment Limited (ACE) remains cautiously optimistic despite global uncertainties. For FY '26, the company targets a top-line growth of approximately 14% to 15%, adjusting from previous ambitions of higher growth due to geopolitical issues and implementation of BS V emission norms, which may affect pricing for customers. Management expects to maintain a stable margin profile in the range of 17% to 18%.

In terms of financial performance for FY '25, ACE achieved a total income of INR 3,420 crores, marking a 14.47% growth year-on-year. The EBITDA margin expanded to 17.52%, and profit before tax (PBT) increased by 25% to INR 543 crores. The company reported a profit after tax (PAT) of INR 404 crores, up 23% from the previous year.

Key forward-looking points include:

1. Defense Orders: ACE secured its largest order to deliver 1,121 rough terrain forklifts valued at INR 420 crores to the Indian Armed Forces, expected to contribute 5% to revenue in the medium term.
2. Revenue Distribution: Revenues are balanced across sectors, with manufacturing and logistics (45%), agriculture (7-8%), real estate (12-13%), and construction/infrastructure (35%).
3. Capacity and Expansion Plans: Crane capacity is at 13,200 units, with plans for modernization to improve competitiveness.
4. Product Compliance: ACE has upgraded products to meet BS V emission norms, enhancing overall performance and eco-friendliness.
5. Geopolitical Impact: Rising geopolitical tensions are acknowledged as a risk, but management is confident of navigating through with India's economic resilience expected to support growth.

Overall, despite challenges, management is committed to executing its strategic roadmap focused on cost efficiency and disciplined capital allocation for long-term value creation.

Major Questions and Answers from the Earnings Transcript:

1. Question: "Can the management clarify the inconsistency in guidance and what has changed that our growth guidance literally got halved compared to Q3 when the doubling guidance was reaffirmed?" Answer: Confidence has not vanished; we were hopeful about doubling the revenue from FY23 to FY26. However, we recognize that we might fall short now due to several factors like weather impacts, leading us to revise our guidance to 14-15% growth instead of previously projected 20% for FY26.

2. Question: "Is the execution timeline for defense now down, as mentioned before for exports and defense collectively being 15% of revenue?" Answer: Defense alone should contribute about 4% of our revenue in FY26, increasing to about 5% in FY27, as the execution of the INR 420 crores order begins in September. We anticipate close to INR 80-90 crores from this in FY26.

3. Question: "What kind of impact are we witnessing from BS V emission norms and their expected duration?" Answer: The impact is temporary, resulting from a pre-buying rush. Pricing increased by 12-13% for 60% of our products, affecting demand. We expect market acceptance issues to resolve within Q1 as customers adjust rental prices for end-users.

4. Question: "Are we witnessing any slowdown in government capex affecting our growth?" Answer: We are not seeing any delays from the government on capex or payments, with planned expenditures exceeding INR 11 lakh crores. However, there has been a slight slowdown in inquiries and orders recently due to geopolitical tensions.

5. Question: "What are our margin expectations for FY26?" Answer: We expect to maintain margins between 17% to 18%. The last reported margins were in this range, and we anticipate stable performance moving forward, benefiting from potential operational leverage in the second half.