(BSE Code - 532762   NSE Code - ACE)
(P/E - 7, Equity - Rs18.58 cr, Market cap - Rs436 cr)

About company: Action Construction Equipments Ltd. (ACE) is one of the prominent players in the construction equipment space and a leading player in the hydraulic tower and mobile cranes segment in India. ACE has an expanding product portfolio, uses competitive pricing and well-established distribution network, which could help it capitalize on the ongoing infrastructure boom, over the next two-three years.

The demand environment for construction equipment companies appears bright, given the government's increasing focus on infrastructure and construction. While this augurs well for all companies in this space, it has also intensified competition.

In the hydraulic cranes segment, which contributes about 90% of total revenues, ACE is likely to continue enjoying a higher visibility in the market for two reasons– one, its market share of about 50% and two, its pricing strategy. ACE prices its cranes at a significant discount to other players. To reduce its dependence on the cranes segment, ACE has forayed into the forklift and backhoe loaders segment.

ACE products are being successfully used in many industrial sectors like infrastructure, construction, roads, engineering industry, coal mines, chemical and fertilizer plants, power stations, ports, heavy project engineering industry, railways, cement industry, oil industry, defense etc. ACE range of cranes can be adapted to satisfy a vast range of possible applications due to their versatility.

The company has sold its equipments to most leading Private and Government sector companies in India such as Reliance Ind, Punj Lloyd, Welspun, Nagarjuna Construction, Simplex Concrete, NTPC and BHEL. The company also caters to its international clients in Middle-East Asian, South East Asian and African countries. ACE has built additional capacities to capitalize on the strong demand growth and is aggressively foraying into international markets.

ACE plans to expand in the overseas market and is eyeing Middle East, Asia, Africa and Eastern Europe for its products. ACE's acquisition of 74% stake of a Romanian company in 2007 is likely to give it access to the European market.

Financials:

- For the six months ended September 2010, ACE posted net profit of Rs17 cr.(up 92.5%) on net sales of Rs282.89 cr(up 59%). The half yearly EPS stands at Rs 1.9. For the Q3 ended Dec. 2010, ACE has posted net profit of Rs10.62 cr. (up 78%) on net sales of Rs183.68 cr.(up 70%). 

- For the year ended March 2010, the net profit stood at Rs24.44 cr. on net sales of Rs427.12 cr. The EPS on equity of Rs18.58 cr.(Promoters' stake- 65.67%, FII/DII' stake - 13.54%) on a Rs2 paid up share stood at Rs2.63 and the dividend declared was Re1 per share. 

- As the new plants have started functioning, production as well as sales volumes will achieve new heights. Management is focused to reduce the overall costs and thereby enhance margins. The company's ability to neutralize cost increase and improve margins together with purchasing efficiencies and expenses control is expected to boost profitability.

- At the current price of Rs47 (Rs2 paid up), the stock is available at 11 times its FY11E earnings of Rs 4.25 and 7.3 times FY12E EPS of Rs 6.5.  The historical earnings growth managed by ACE and its business plans suggest that it is well-placed to take advantage of the boom phase in the construction segment.

Recommendation: Investors can start accumulating the ACE stock at current levels and add more on declines for decent returns of 40%-50% over the next 6-9 months.