Action Construction Equipment Limited (ACE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Action Construction Equipment Limited Q1 FY '27 Earnings Conference Call hosted by Anand Rathi Share and Stock Brokers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aniket Jain from Anand Rathi. Thank you, and over to you, sir.

Good afternoon, everyone. I would like to invite the management of Action Construction Equipment and thank them for this opportunity. Today, we have with us Mr. Sorab Agarwal, Executive Director; Mr. Rajan Luthra, Chief Financial Officer; and Mr. Vyom Agarwal, President. I shall now hand over the call to the management for their opening remarks. Over to you, sir.

Yes. Thank you. Good evening, and welcome, everyone, to this earnings conference call for discussing the results for the quarter ended June 2026. Along with me in today's earnings con call, we have our CFO, Mr. Rajan Luthra; and our President, Mr. Vyom Agarwal. I hope you have had an opportunity to review the company's financial statements and the earnings presentation, which have been circulated and uploaded on the stock exchanges. I will now take you through some of the key highlights of our performance during the quarter. Following the normalization witnessed during the second half of previous financial year, demand across the construction equipment industry remained stable during the quarter, and we have maintained our growth momentum. The financial year has begun amid an unpredictable domestic economy as the global operating environment has become increasingly uncertain. India's macroeconomic fundamentals continue to remain strong. However, escalating geopolitical tensions in West Asia, volatility in energy markets, firm steel prices, elevated freight costs and inflationary pressures across most of the industrial commodities have added to cost volatility and supply chain uncertainty for manufacturing businesses worldwide. Against this backdrop, our company registered its best-ever Q1 performance with continued focus on disciplined execution, operational excellence and maintaining a healthy balance between growth and profitability. Our continued emphasis on product quality, manufacturing efficiencies, cost optimization and calibrated pricing actions enabled us to record our best ever Q1 performance in terms of revenues and profits. Now to brief you on the financial performance for quarter 1 FY '27 on a stand-alone basis. On a yearly stand-alone basis, the total income grew by around 19% to INR 836 crores with an expansion of 12 basis points in EBITDA margin to 20.40%. The EBITDA during the quarter increased by 19.66% to INR 170.58 crores as against around INR 142 crores. The PBT expanded by 73 basis points and grew by 23.81% to approximately INR 156.39 crores. The PAT expanded by 41 basis points and grew by 22.47% to INR 118.59 crores as compared to INR 96.83 crores in the last year's corresponding quarter. The PBT and PAT margins now stand at 18.75% and 14.18%, respectively, for the quarter on a sequential basis, that is a quarter-on-quarter basis. And as per our past trend, the total income recorded a drop of 18.15% and the EBITDA, PBT and PAT have expanded sequentially by 438 basis points, 395 basis points and 353 basis points, respectively. Moving on to the segmental business performance. The company has sustained its growth momentum across all operating segments. In the Crane, Construction Equipment and Material Handling segment during the quarter gone by, we registered consolidated revenue of INR 738.37 crores as compared to INR 605.43 crores in quarter 1 FY '26, which is an increase of around 22%. The volumes grew by 17.25% year-on-year. The margins also expanded to INR 134.09 crores versus INR 107.83 crores, thereby registering a growth of 24.35% year-on-year. The Agri Equipment division clocked a revenue of INR 42.67 crores while registering a margin of INR 4.34 crores. Our performance during the quarter reflects continued operation discipline and prudent cost management. Going forward, we continue to closely monitor commodity markets and remain focused on protecting profitability through sustainable operational improvements rather than relying solely on price actions. The strategic joint venture with KATO Works Limited announced during the previous quarter will commence by end of July, and it marks another important milestone in our long-term growth strategy. This partnership combines ACE's manufacturing strength and domestic market leadership with KATO's globally recognized technology and footprint in the heavy crane segment. The joint venture provides an excellent platform to expand our domestic presence in truck cranes, tower cranes and rough terrain cranes, while also supporting technology upgradation, localization and export opportunities over the medium to long term. This initiative further strengthens our positioning in the higher value-added heavy crane segment and complements our existing leadership across pick and carry cranes and tower cranes. Our defense business also continues to progress steadily, and we have started manufacturing the rough terrain forklift in the current quarter. Further, we remain committed to developing specialized products for defense applications and expanding our participation in this strategically important sector. Over the past few years, we have consistently invested in expanding manufacturing capacity, modernizing our facilities and strengthening automation across our plants. These investments have significantly enhanced our manufacturing flexibility, product quality and operational efficiency. With our existing capacities and improved manufacturing capabilities, we remain well positioned to cater to future demand across our product portfolio while maintaining disciplined capital allocation. Coming to margins. Commodity prices remained volatile during the quarter owing to continuing geopolitical developments and fluctuations in the global energy market. Commodity prices like steel, rubber, oil and all its derivatives, along with freight costs and currency movements continues to be at elevated levels. Amid these evolving market conditions, we remain focused on protecting profitability through a combination of operational efficiencies and calibrated pricing actions wherever necessary. Our endeavor continues to be maintaining the right balance between volume growth and sustainable profitability while maintaining and preserving our margin profile. This disciplined approach has remained consistent over the past several quarters and continues to be central to our operating philosophy. Looking ahead, the structural growth drivers for the Indian construction equipment industry remain firmly intact. Continued government emphasis on infrastructure creation, investments in roads, railway, urban infrastructure, manufacturing and logistics, together with sustained public capital expenditure continue to provide a strong foundation for long-term industry growth. In addition, increasing private sector investments, expanding industrial activity and continued focus on domestic manufacturing are creating new opportunities across several end user sectors that we serve. Historically, our business has exhibited a seasonal pattern with approximately 40% to 45% of our revenue being generated during the first half of the financial year and the remaining 55% to 60% during the second half, supported by post-monsoon project execution, improved construction activity and the festive season. Our healthy balance sheet, expanded and upgraded manufacturing capacities, diversified product portfolio and strong market position provide us with a solid platform to create sustainable long-term value for our stakeholders. With this, now I would like to request the moderator to open the floor for the question and answer session. Thank you.

[Operator Instructions] The first question is from the line of Shivam Gupta from Trinica Asset Managers.

My question is how much defense and export order contribute to this quarter revenue? And what's the order book visibility in this segment for the rest of FY '27?

See, I think for the current quarter, exports has been slightly subdued because of the shipping issues and the prices that have really gone up. And all our Middle East orders, especially Saudi Arabia, we have not been able to ship them in the last quarter and some were pending from March onwards. I think as a percentage of this quarter, export sales is close to 3%, but I'm sure it will catch up because all these orders are live and pending. And I don't really have a number for defense. Luthra, do we have a number for defense as a percentage for this quarter?

This quarter was around 4%, 5%.

Defense was around 5%. Export was close to 3% and defense was 5%. And as a matter of fact, on a whole year basis, we are looking at at least 6%, 7% contribution from export, if not more, and about a 5%, 6% contribution from defense. So totally, it will go somewhere between 10% to 12%.

Okay, sir. And my second question is, can you give a progress update on the KATO JV?

More or less, all the formalities are complete and the JV should become functional in end of July. So we will start having some revenue from quarter 3 onwards. And quarter 3, quarter 4, a lot of time will be spent on upgrading our products. It's already in process. It will further be seeded. So actual meaningful revenue from the joint venture will start to come only next year onwards, FY '28 onwards.

The next question is from the line of CA Garvit Goyal from Serene Alpha.

Hello, am I audible?

Yes, you are audible.

How are you seeing the demand and supply chain situation? So sorry if you answered it in the opening remarks. I just wanted to understand like what is the current demand and supply chain situation during Q2 FY '27 and onwards? And how should we think in terms of the growth at company level for rest of the year? I just wanted to understand because last year, we did not grow, right? So can we make for the last year -- entire last year FY '26 in FY '27?

This is one question, especially with respect to demand and supply chain, which rather I would like to put to all of you people on the lighter side. Demand had been very strong till May, June. And obviously, traditionally, it slows down a little in the rains. So that is what we are experiencing, but we experience this every year. And supply chain, so far, we have not experienced any major problem. But yes, we did face problems with our engine supplier and the casting suppliers and especially castings for the engines in the last one month or so, but our suppliers have found ways and means to overcome that. And hopefully, that should [indiscernible] out in July. Apart from that, I don't think there was any major supply chain issue so far apart from the inflation and the costs. And as far as the demand or the growth scenario, we can talk of. We had mentioned in the last con call also that sometime or end of September, we would like to give a full year growth target with respect to our revenue. And we still maintain that. But in saying this, I would like to say that we are definitely looking at growth because what we see that growth is going to come to us from 3, 4 different avenues. And primarily, the hydra type of crane market, which was very much subdued due to price increase and technological changes last year, that has started improving. So that will add to our numbers. Then as it is, let's say, apart from Hydra, our construction equipment numbers, our road machinery [indiscernible] numbers, forklift numbers, tower cranes, here, we are definitely looking at growth in numbers within this year, obviously, coupled with cranes, but especially hydra type of cranes. And I think we'll get some extra revenue on account of inflation. We will get extra revenue on account of the big defense order we got. So the execution is getting started in August onwards. So August should be the first lot supply. So we are looking at growth. But to put a number to growth is slightly difficult because we are in unpredictable times with so much geopolitical things happening. And another thing we want to wait till September end before we give out a whole year guidance is primarily that we have increased prices 3 times already in the first 6 months of this calendar year. So it was January and then we again increased prices in May. And then again, the biggest chunk came in June, so which is still underway. So you see, obviously, there's a lot of resistance. And this is coupled at a time when the market is at its cleanest because of rain. So the buying sentiment because of rain as it is subdued and there is a phenomenal price increase on top of it, which has been posted one month back. So on the whole, we will grow. To put a number to it, I think September -- let's say, August beginning -- sorry, I think September beginning, middle of September or the final figure we can give by September. And like I mentioned in my initial address, generally 40%, 45% of our revenue happens in the first half. So obviously, whatever we do in quarter 2, which will definitely be better than last year and which should be similar to our current quarter 1 because quarter 1, quarter 2 are similar. So if you just apply the 40%, 45% ratio in first half and 50%, 55% -- 55%, 60% in the second half, so you will be able to get a range in any case. But to put a number to a percentage growth we want to refrain from doing this, keeping in mind our conservative nature and in light of prudence. That's what I say.

Got it. Got it. And secondly, how the competitive landscape is shaping us for now in the industry? Have you seen any kind of increase in competition for us, specifically in the domestic market in the last maybe 3 or 4 months?

Not really. I mean we have had players in the segments for a long time. And the competitive intensity remains the same. But yes, like I said, the biggest challenge -- current challenge and going forward is inflation because of 2 things. A, inflation will make things expensive and our product is expensive. So obviously, making customers to realize and to get that price increase is a difficult task, is a time-consuming task. And sometimes in some few percentages, we're really not able to recover that also. And another part is if the inflation is increasing and generally, everything is becoming expensive so it can depress the economic growth somewhere, which is also evident from different forecast of leading banks and financial institutions which have been coming. They've already reduced India's GDP forecast a little bit. So I think the biggest challenge is inflation and competitive intensity remains same, and we have been doing a good job of it in the last so many years. So -- and I'm sure that is not an issue at all.

And lastly, are you seeing any kind of issues in terms of contractors getting the payment from the government departments or government projects? Is there any kind of issue prevailing right now?

See nothing in particular that comes to us -- comes to our knowledge. But yes, in some cases and especially state government level, sometimes there are issues, but they generally get sorted out. So it is a part and parcel of being an EPC company or a contractor. Certain things can get delayed or postponed or preponed. But we really don't see a problem or an issue on that front.

The next question is from the line of Aditya from Old Bridge Mutual Fund.

Congrats on a good set of numbers. Sir, my first question is regarding the pick and carry cranes market structure. So you said you expect a good volume uptick coming in the hydra segment. Sir, my sense was that post the CEV-V norms emission implementation, a lot of market has shifted to the new generation cranes. And that is why we are seeing mix improvement as well in our crane construction equipment volumes. So going ahead, what kind of trend we should be seeing in that market? Will the mix keep improving towards the new generation? And if not, then will we see a detriment impact on our mix coming up going ahead if hydra cranes pick up much faster?

I would say let's talk of last year or the year before that, I'm talking about FY '25. So the hydra type of cranes were close to 60%, 65% and new generation was 30%, 35%. Last year, because hydra went straight from BS III to BS V emission now, so their price increase was much more as compared to new generations, which went from BS IV to BS V. And last year, the market was somewhere around -- I would say, hydra was a little less than 60% and new generation was a little more than 40% overall volume share. But the hydra as a machine forms a core with respect to our -- all the industrial areas and industrial bases in the country and which is these are the main pick and carry lift and shift machine, whereas new generation forms the core for most of the infrastructure and construction activity. And obviously, even after the price increases, there is still, I would say, about a 40% price gap -- 35% to 40% -- between -- just a second, maybe I'm a little wrong, maybe 30% to 35% between a new generation and a hydra type of crane. What happened last financial year that when the new emission norms came, so the retail segment, which primarily uses hydra crane then will get out on rent even to the industrial areas, they were a little skeptical about the electronic engines and the change in technology, coupled with a sizable price increase with respect to all the emission norm changes. So -- but all of that has settled in the last, I would say, 7, 8 months. And I feel that in this year, the Hydra [ LNG ] will again go back to 60-40, where 60 is Hydra, 40 is [ LNG ]. So this is one part of your question. The second part is that going forward, we feel that Hydra [ LNG ] share would eventually maybe in the next 1 or 2 years, maybe 3 years, land up at around 50-50 and should stabilize there. But what I'm saying is the number of absolute cranes hydra, which were sold last year reduced mainly because the retail segment was skeptical, that skepticism has gone. So that's why we see the numbers of Hydra, which have already started increasing in the last 3, 4 months. So they will come back, and they will also bring growth to our company because the numbers will increase.

Okay. Okay. So like -- so part of my question was, so if we see hydra mix improving this year, then will we have some negative impact on realizations as well?

I don't think so. Realization will only increase for 2 reasons. That even in the hydra, we are seeing a shift towards higher tonnages. And in the last 3 years, 4 years, we've also launched models which are 18 tonnes, 20, 25 tonnes bigger. So there, again, we are seeing a shift happening. In any case, prices of hydras have increased last year because of emission norm changes. So -- and the product mix both hydra LNG and within new generation itself, we are again seeing higher tonnages gaining traction. So on the whole, I think our average selling prices are only going to increase within the pick and carry segment.

Okay. Okay. And sir, you said 3 price increases have taken place so far. So first question is regarding is this price increase across the product segments you have taken? And what would be the quantum of this price increase taken till now?

We pushed 1%, 1.5% in January, then 3%, 4% across the range in March and in June, another 5%, 6%, depending on models and products. So the June price increase is still work in progress. So hopefully, it should be totally realized within the month of July. And so if you put all of this together, it's close to about 10% in which the last 4%, 5% is under implementation as of now.

All right. All right. One last question, sir. Sorry, second last. This quarter over last year, we have seen a gross margin contraction of almost 140 basis points. So is this all related to commodity cost headwinds that we are facing? Or is it something related to mix as well.

I think in all probability, it will be related to commodity cost only, but I think Mr. Luthra, Mr. Vyom would be able to give a better answer on this if they differ.

Yes. Basically, it is commodity prices, impact of commodity prices because the steel -- as you are aware that the steel prices have gone up by nearly 20%. And not only steel, all other commodities like tire, belt, rubber, plastics, everything has gone up. And because of all the geopolitical tensions and all the prices of everything is going up and up. So that is what -- which has led to the decrease in the gross margin. But we are taking necessary actions to mitigate this increase by increasing selling prices so that we maintain our margins for the full year.

And this is the first time -- maybe the second time that each and every possible commodity or any input material or component that we were buying, I'm saying any, practically, prices have increased all across the chain. This is a massive commodity increase rather our -- I'm sure for all other companies as well, the procurement and the vendor development teams has been totally busy over time in terms to satisfy classify the vendors and manage the least possible increments.

Right. Okay. Just one last question from my side. So we were looking to -- we were moving to increase our tower crane capacity. What's the progress on that new facility? Are we -- have we made any progress or sites have been finalized? Or what would be the progress on that?

We have already taken a plan for that and all our plans are ready. And as a matter of fact, we wanted to begin work from April onwards. But unfortunately, this war unfolded in March. So we are -- we'll be waiting till September, and we'll finally take a call on the timing of the expansion in September. So maybe we'll start it off immediately looking at the market scenario or we might defer it by another 6 months. But it can start in October or it can be deferred by another 6 months. So that will decide only in September. But in saying this, last year, what we had done, we further did some minor arrangements, rearrangements and also did rent a small factory premises very close to our existing. And so we've actually, in the last one year, been able to increase our capacity to about 1,000 cranes now. So that should suffice in the current scenario with respect to demand.

Okay. What would be the location of this plant?

This plant will be very close to our existing facility, about 4, 5 kilometers.

The next question is from the line of Suraj Malu from Catamaran.

How many back loaders were sold this quarter and last quarter and last quarter of previous year?

I think we've been averaging close to 150, 160 units -- back loaders, close to about -- construction equipment close to about 150 plus -- 150, 160.

And sir, how do you see this segment evolving over the next 3 years?

We are very hopeful, yes. I mean we have not tested success so far, but we see a tremendous potential with respect to exports of back loaders as well as domestic market. And we are very hopeful that going forward, this could and this will be one of our fastest growing segments within the crane construction equipment.

The next question is from the line of Raksha Srivastava from Narnolia Finance.

Congratulations on a good set of numbers. In last quarter, you had mentioned that the specific proof of concept regarding the backhoe loader segment would be ready by June or July. Can you share the outcome of this initiative? And also what kind of volume and revenue contribution we can expect from this in this financial year?

It is a work in progress as of now. But yes, we have tested success by something we were trying to do around finance company. And hopefully, by July and August, we should have full clarity, but it's definitely working in the right direction. We had implemented it in 3, 4 specific pockets. So hopefully, that should help us increase our numbers at a much faster pace. And that is what in the previous answer I just mentioned that, that gives us a lot of confidence that, yes, backhoe loaders, especially could be our fastest-growing segment going forward.

The next question is from the line of Aman Saifee from Stallion Asset.

I hope I'm audible.

Yes, you're audible.

Yes. Sir, what has been our volume in pick and carry segment for this quarter?

Luthra, you have the exact volume data? Just send us an e-mail. I think we will send you all the volumes.

I think that will be better if I can send an e-mail to them.

Okay. Sure, sure. And sir, when I see our unit economics and realization per unit, how much of it for the last 2, 3 quarters has been due to price hike? And how much is it due to the mix change?

See, the price hike we did in January was all of 1%, 1.5%. So the realization increase in Q4 of last year would have been primarily the product mix. And even in the last quarter, our -- let me just -- so I think it is a combination of both, but especially in Q1, more to do with the, I would say, price increase. But yes, that also happened May onwards. So the effect was only in June. So you will see a substantial improvement in quarter 2 with respect to further the price increase that was done in May and June. In this current quarter, Q2, you will see even -- we should also see even a better average price. I hope I've been able to answer your question. So if you want to ask something more otherwise we move on to the next question.

Sir, he has left the queue. The next question is from the line of Preet from InCred AMC.

Congratulation on good set of results. I just wanted to ask on the commodity cost pressure. What was the commodity cost inflation for our mix we saw in this quarter? And what kind of pressure do we expect in the next quarter Q2?

We've seen a lot of pressure in the last 3, 4 months ever since the war started. And the pressure was tremendous. Like I did mention in our last con call also, I think in the month of May, led by steel because steel is one of our biggest inputs. So we feel that the overall inflation is going to be somewhere in the tune of the final effect, which hopefully should be finally settled in July or latest by August with respect to reflection in our costing, would be anywhere between 11%, 12%. And we've already pushed around a 9%, 10% price increase. So maybe going forward, if further volatility happens and there is any further push because of all the unforeseen things which are happening in the world and the Iran war further escalating and maybe some more choke points being created. So I mean, yes, we are expecting it to be around 11%, 12%. We have already booked towards a 10% price increase. We might have to do another 2-odd percent going forward. Yes. But if there is any further pain that comes into the system over the next 1, 2 or 3 months, which cannot be ruled out, so I think our next price action will be depending on what happens in the month of August and September.

Sure, sir. That was helpful. And sir, despite 11%, 12% price hike in the commodities, we were able to maintain our gross margin. And you mentioned that in the last half of the June, we have taken another 4%, 5% price hike. So are we expecting margin improvement from quarter 2 onwards?

No, no, that is not the aim. The aim is just to be able to recover our costs. We are not looking at margin expansion. It just happens that basically some 2, 3 months of inventory is generally rolling in the system at the vendor end. So the price increase happens in 1 month, 2 months, 3-month lag depending on the different suppliers. And obviously, there is some inventory available with us also. So in rotation, the full effect comes generally in 2, 3 months. So our final price increase would have become effective totally by July end. Final impact of inflation will also happen by July and September -- sorry, July and August. So it should more or less marry each other. So there will not be -- we are not expecting or planning for any net increase in our margins. We are just planning currently to maintain and sustain our profitability, and that is our aim.

Got it, sir. And sir, if you could just give me a breakup of how much raw material cost inflation we have seen in quarter 1 and how much we would be seeing in quarter 2 out of that 11%, if you could just break it up?

If you want to break that 11%, 12%?

So, Preet, we may not have the exact number, but close to around 5% to 6% could be there in Q1. And going ahead, we have to see the impact coming in Q2.

More than that has slowed down. 7%, 8% has slowed down.

Slowed down in Q1. So some of them will spill over in Q2 now. Because the price increases happened with a lag with some price increasing happening in April, some of them happening in June. So the complete effect will hit us in Q2. So as you...

Price increases are -- and some price increases are still pending, which will happen in July and early August.

Yes. So that is why our pricing actions in the market as well as the price increases that we have taken with our vendors will marry each other in the next couple of months.

Got it, sir. And sir, do we expect to maintain the same 15%, 16% kind of margins for the full year? Or what would be our guidance on the margin?

Yes. Last year, on an operating EBITDA level, we did a little over 15% and that is our aim to be able to maintain and sustain. And that is our primary aim in quarter 2 and maybe even in quarter 3 to maintain our profitability.

The next question is from the line of Aniket Madhwani from Steptrade Capital.

Hello, am I audible.