Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Action Construction Equipment Ltd (BOM:532762, Financial) reported its best-ever Q1 performance in the company's history, with operational revenues growing by 12.82% to INR734 crores.
- The company achieved an expansion of 212 basis points in EBITDA margin to 17.11%, driven by operating leverage, better product mix, improved price realizations, efficient cost control measures, and favorable commodity prices.
- The crane, construction equipment, and metal handling segment saw a 20% year-on-year increase in revenue and volumes, with margins expanding by 24%.
- An in-principle agreement has been reached with Kato Works Limited to establish a 50-50 joint venture in India, which will help produce medium and large-sized cranes for the Indian market and potentially for export.
- The company expects a growth of 15% to 20% on a consolidated basis with sustained margins, driven by government infrastructure development and efforts to strengthen the manufacturing sector.
Negative Points
- Despite the overall positive performance, the company experienced a sequential drop in revenues by 12% due to tepid business momentum owing to general elections.
- EBITDA, PBT, and PAT margins contracted sequentially by 85 basis points, 70 basis points, and 33 basis points, respectively.
- Material costs and administrative expenses increased, impacting EBITDA margins, although these are expected to be temporary issues.
- The agri division's performance was subdued, clocking revenue of INR42.96 crores with a margin of only 3%, although future demand is expected to improve.
- The company faced some challenges in scaling up its construction equipment segment, although it still expects a 30% growth in this area.
Q & A Highlights
Q: My first question is on the EBITDA margin. There is an impact of 300 basis points on a Q-on-Q basis. What caused this fall in EBITDA margin?
A: The margins have gone down by about 80 basis points. The material cost has slightly increased, and some admin expenses have gone up. Additionally, we made provisions for slow-moving inventories earlier than usual. The revenue drop due to elections also contributed to the margin dip.
Q: Are the increases in material costs sustainable, and can they be passed on in upcoming quarters?
A: We can pass on material cost increases. There was a slight increase in steel prices, but they have since decreased. We plan to implement our annual price increase in January, which will also account for new CEV V BS V norms.
Q: Are you planning to add further capacity in FY25 for cranes?
A: Currently, we are at about 65% utilization in the crane sector. We have enough legroom, and our ongoing CapEx will increase our crane capacity to 15,000-18,000 cranes by Q3, providing additional capacity for future growth.
Q: What are the prospects for the agri segment, given the current market conditions?
A: The agri segment has seen subdued growth, but we project around 15% growth. Factors like increased MSP for crops, good monsoons, and improved liquidity should enhance demand, especially during the festive months.
Q: Has there been any indication of tightness in credit supply from lenders for construction and agricultural products?
A: Not in the last quarter. There were some indications earlier, but no significant issues were reported by our channel partners or in direct sales.
Q: Can you provide an update on the joint venture with Kato Works Limited?
A: The joint venture will produce medium and large-sized cranes for the Indian market and export. It will help us establish a foundation for larger crane segments, contributing to our medium- to long-term growth strategy.
Q: What is the status of the EV cranes?
A: EV cranes are ready, and we have sold some units. We are awaiting government CMVR approvals, which should come anytime soon. There is significant interest from major companies.
Q: How do you see the higher tonnage crane market in India?
A: The market for higher tonnage cranes is growing. We are producing up to 35-tonne pick-and-carry cranes and plan to introduce larger capacities. The joint venture with Kato will also help us produce bigger cranes for both domestic and international markets.
Q: What are the strategic benefits of the joint venture with Kato?
A: The joint venture will produce high-end truck cranes, crawler cranes, and rough terrain cranes, leveraging Kato's proven technology. It will cater to the growing Indian market and export through Kato's network.
Q: How is the momentum and order book currently?
A: The momentum has been tepid due to heavy rains, but we expect improvement around mid-August. The order book is okay, and we anticipate better performance in the second half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
