ACE Ltd has entered the defense industry after its share price soared 1400% in five years.

Ace Co., Ltd. : There is one major revolution in India that I would like to continue to focus on: the infrastructure revolution. India’s main focus over the next 25 years will be on infrastructure development and attracting investments to transform it into a developed country. The government has invested heavily in modern infrastructure in recent years, taking the country to new heights.

In the interim budget presented in February, total capital expenditure expenditure increased by 11.1% to around ₹11.11 lakh crores. The quality of a country’s infrastructure plays an important role in determining its economic trajectory.

So as investors, what opportunities does this strong growth present for us? Well, you would have seen rapid construction work going on everywhere in Tier 1 cities like Mumbai. You may also have seen the majestic ACE cranes gracefully reaching into the sky to help with construction.

action construction equipment(Ace Co., Ltd.)

So, in this article, we will learn about Action Construction Equipment (ACE), India’s leading material handling and construction equipment manufacturing company. In one year, the company’s stock price rose a whopping 215%.

Additionally, ACE has been a 10-bagger for 5 years and has delivered a 4-year CAGR of 77%! Over the same period, NIFTY 50, the most followed benchmark in India, had a four-year CAGR of just 19%. However, there is one important development that deserves closer examination. ACE Ltd noted that it will enter the defense industry as there are huge opportunities there. But how? Isn’t it interesting? So, let’s explore.

Company Overview

Established in 1995, Action Construction Equipment Ltd (ACE Ltd.) specializes in manufacturing and marketing cranes, construction equipment, material handling and agricultural machinery.

The company’s manufacturing facility is located in Haryana. Ace Co., Ltd. occupies an overwhelming position in the mobile crane market with a market share of over 63%, and in the tower crane sector, it holds over 60% of the domestic market share. It is also a leading producer of pick and carry cranes.

Notably, ACE Ltd holds exclusive rights to manufacture missile handling systems in India with orders from the Ministry of Defense.

ACE Ltd boasts a diverse revenue structure, deriving a significant portion of its revenue from a variety of sectors including infrastructure, construction, logistics, and agriculture. The company is expanding its global presence by exporting its products to more than 25 countries throughout the Middle East, Africa, Asia and Latin America.

With four manufacturing units, including the main plant at Palwal (Haryana), which acts as the parent plant, two manufacturing units and an R&D unit at Faridabad, ACE Ltd has a strong operational setup. We also maintain an extensive sales and service network covering over 100 locations supported by 13 regional offices across India.

Segment Review

ACE Ltd provides products to four main sectors: cranes, construction equipment, material handling equipment and agricultural equipment.

(Source: 2024 Q2 Investor Presentation)

Crane: As of FY23, the crane segment accounted for 70.7% of the company’s total revenue. Sales were 6,584 units in FY23 compared to 5,328 units in FY22. The segment’s revenue grew by 38.39% to ₹1,527.85 crores in the fiscal year ending March 31, 2023, compared to ₹1,104.01 crores in FY22.

Construction equipment: As of 2023, the construction equipment sector accounted for 11.5% of the company’s total sales. Sales were 738 units in FY23 compared to 533 units in FY22. The segment’s revenue grew by 41.55% to ₹249.46 crores in 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. Sales were 1,321 units in FY23 compared to 1,418 units in FY22. The segment’s revenue grew by 11.23% to ₹169.14 crores for the fiscal year ending March 31, 2023, compared to ₹152.06 crores in FY22.

Agricultural equipment: As of FY23, the crane segment accounted for 9.8% of the company’s total revenue. Sales stood at 3,667 units in FY23 compared to 4,085 units in FY22. Revenues from this segment increased as follows:

It increased by 6.82% to ₹211.54 crores for the financial year ending March 31, 2023, compared to ₹198.03 crores in FY22.

ACE Ltd – Finance

In fiscal 2023, ACE saw a notable increase in revenue, up 32.5% to Rs 2.16 billion, compared to Rs 1.63 billion in fiscal 2022. After analyzing four years from FY2020 to FY2023, the company recorded a solid Compound Annual Growth Rate (CAGR) of 23.2%.

At the same time, net profit showed a significant increase, growing by 64.8% from ₹150 million in fiscal 2022 to ₹173 million in fiscal 2023. Over the four years from fiscal 2020 to fiscal 2023, cumulative net profit recorded an impressive CAGR of 49.3%.

In FY23, ACE maintained positive financial metrics, boasting a strong return on equity (ROE) of 18.68% and return on equity (ROCE) of 26.04%. In the same fiscal year, the company’s debt-to-equity ratio was 0.06, demonstrating a strong balance sheet.

future prospects

● In financial year 2023, ACE Ltd’s export contribution to total sales was 6.8%. Therefore, ACE plans to significantly increase the contribution of exports to total imports in the medium term. Going forward, it will also be important to increase the utilization of construction equipment.

● They are also taking important steps to enter the defense sector. Action Construction Equipment (ACE) has announced that the Ministry of Defense (MoD) DRDO has placed an order for the supply of the crane in January 2023.

● For the Ministry of Defense (MoD), DRDO, Program MRSAM (Army), ACE Ltd has created its own unique mobile cranes to grow its business in the defense sector. The aforementioned crane has a specified tonnage and is the first of its kind built by an Indian company using state-of-the-art technology.

So could the new effort yield dividends in the future? Let us know your thoughts in the comments below!

Written by Nalin Surya

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