ACE — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

ACTION CONSTRUCTION EQUIPMENT LIMITED. · MOD ERA TOR:

MR. RAJAN LUTHRA - CHIEF FINANCIAL OFFICER,

MR. VYOM AGARWAL - HEAD, INVESTOR RELATIONS,

MOD ERA TOR

MR. VIKRAM SURYA V ANSHI -PHILLIPCAPITAL (INDIA) PRIVATE LIMITED At~I~ IP PhillipCapital Action Construction Equipment Limited August 12, 2022

Himanshu Upadhyay: · So, have we bought these companies or we will be running these companies?

So, have we bought these companies or we will be running these companies?

Action Construction Equipment Limited August 12, 2022 Both these companies are manufacturing companies?

Yes, both of them are manufacturing companies, operating in the crane space.

But the price points will be lower?

Yes, alternate brands at slightly lower prices.

So, basically out of the three, four players two have been in a way eliminated as competition for us and they will take care of the balance one or two which operate in the market at a lower price point.

And generally what is the price discount between us and these lower players or the lower end of the market we want to cater to?

Can be anywhere between 5% to 10% in some cases even more.

And they will be a separate brand, they will not?

Totally separate brand, not ACE brand at all.

And the distribution structure would be what for these companies?

It is going to be pan India these companies are on regional level, area level so, distribution is generally through some companies staff and some small dealerships.

So they will continue to operate the way they were operating.

Okay.

So, what would be the synergies which we bring to the table in these two companies?

I would say nearly half of the lower end of the market is with us now.

And with the help of these companies we will also take up the balance half.

So, over a period of next six months to one year and going forward this will help us in improving our pricing capability in the market with respect to the current cost of our operations as well as inflation which is very jittery as of now.

This will give us pricing power going forward.

But in terms of cost of operation would be also reduced because many of the parts we are already manufacturing?

That is also one of the main reasons that these companies will be able to reduce their costs and would eventually start making profits even the smaller companies.

And what is the size of these businesses in terms ofrevenue?

At~I~ IP PhillipCapital Action Construction Equipment Limited August 12, 2022

Okay.

And one thing I was just looking at the Sanghvi movers results okay.

And we had seen that a lot of crane rental companies have started going for CAPEX.

They are also giving orders in the market to buy more cranes and they given a projection of nine to 10, they can carry cranes.

So are we seeing crane renters starting to buy or become more aggressive for the CAPEX in the market, is inquiry level significantly higher than what we would have seen in last three years?

Moderator · Conference Operator

Thank you.

The next question is from the line of Devesh Kasliwal from Antique Stock Broking.

Please go ahead.

Devesh Kasliwal

Actually, I had a query regarding the exceptional gain, the other income gain that we had by selling the land for around 19.8 crores.

If we exclude that we see an EBITDA margin of around 9.1% to 9.2%.

So is this drop it's around a 100 bps drop year-on-year.

So is this because of the commodity price is increasing or is there something else to be concerned about?

Moderator · Conference Operator

Thank you.

We'll move on to the next question from the line of Suraj Deora from Paladin Capital.

Please go ahead.

Suraj Deora

I have two questions.

One is on the backhoe loader you mentioned the market is down 30% to 40% what is the reason for that?

Moderator · Conference Operator

Thank you.

The next question is from the line of Himanshu Upadhyay from 03 Securities.

Please go ahead.

Himanshu Upadhyay: · So, have we bought these companies or we will be running these companies?

This construction equipment, we have seen for us at least Y-o-Y some growth is there.

And even Q-on-Q so what percentage of this would be from backhoe loaders or do you have stagnant for us, can you just elaborate on how much of a backhoe loader?

Okay.

It is moving, the product is moving at a slower pace than what we expected?

Okay.

And one of the challenges what we faced few years back in agricultural equipment was that dealers were not profitable when the cycle turned and that impacted us very negatively.

But what is the situation now for agricultural equipment and even construction equipment.

At~I~ IP PhillipCapital Action Construction Equipment Limited August 12, 2022

Okay.

And one last thing, on the material handling equipment.

What we hear is a lot of manufacturing activity getting started, new factories getting put.

Are we seeing those sentiments being positive on the material handling equipment or the inquiry levels or you don't see something of that sort because the numbers have been flattish or downward, Y -o-Y and Q- on-Q both in material handling.

So, can you elaborate what is happening in the market on that?

And one last thing on the defense side we have given thought that we should be in triple digits for this year okay FY23. So, we continue to maintain this and we will reach to that number?

And anything else than what orders we have got backhoe loaders for defense.

Anything else we can do specialize in the market where the entry barriers are high and we can get better value addition?

Moderator · Conference Operator

Thank you.

The next question is from the line of Tanuj Khiyani from Kamayakya Wealth Management.

Please go ahead.

Tanuj Khiyani

I just had one question regarding the contract with the Republic of Ghana, how much could the revenue potential be?

Moderator · Conference Operator

Thank you.

The next question is from the line of Devesh Kasliwal from Antique Stock Broking.

Please go ahead.

Devesh Kasliwal

Actually, I had a question regarding the export potential that we had because of the Russia Ukraine.

So, I was just asking about the export potential like last year, we had an order from Bangladesh for the export, on the export side.

And we launched two separate types of products.

One was the range of tractors as well as the phantom the backhoe loaders.

So, we actually could not do what we expected because of the Russia Ukraine crisis.

So what I was asking over here is like this year, what is the overall potential that we have from the export segment like as a percentage of revenue, as well as because it's a higher margin like we gain a lot of margin on this more than what we do in the domestic field is there a potential that overall, our margins might look better with this in place?

Moderator · Conference Operator

Thank you.

The next question is from the line of Deepak Mehta, Retail Investor.

Please go ahead.

Deepak Mehta

Sir, I wanted to ask what is the current utilization?

Moderator · Conference Operator

Thank you.

The next question is from the line of Rajesh Jain from NB Investments.

Please go ahead.

Rajesh Jain

My question is, you have given a very ambitious growth.

What I just wanted to know is with the increase in inflation and also rise of interest rate, do you think that demand will get subdued since most of the customer buying the machine on credit or loan from the bank?

Moderator · Conference Operator

Thank you.

The next question is from the line of Jaspreet Walia from Clockwise Capital.

Please go ahead.

Jaspreet Walia

Sir, this EPC contract that you have taken from Ghana government, so is it a fixed price contract and the risk of commodity prices or any other cost going up, is on you, is that the right understanding?

Moderator · Conference Operator

Thank you.

The next question is from the line of Aman Shah from Jeetay Investments.

Please go ahead.

Aman Shah

Congratulations on good set of numbers especially in the maintenance of margins in this environment.

Moderator · Conference Operator

Thank you.

The next question is from the line of Jaspreet Walia from Clockwise Capital.

Please go ahead.

Jaspreet Walia

Sir, Kubota taking over cost, have you seen a difference in the way they approach piping for their various products in the market or it's too early to not to be looking at those kinds of things, as of now?

Moderator · Conference Operator

Thank you.

Next question is from the line ofDeepak Mehta, Retail Investor.

Please go ahead.

At~I~ IP PhillipCapital Action Construction Equipment Limited August 12, 2022

Deepak Mehta

Sir, my question is around government is forcing for infra and real estate is also picking up.

So, in the best case scenario what can be our utilizations of crane and assets and what can be then turnover, asset turnover?

Moderator · Conference Operator

Thank you.

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Sorab Agarwal

We have discussed most of everything.

And I would just like to finish the call by reiterating that, we are looking at a 15% to 20% growth in our revenue this year, with at least a double digit if not slightly more with respect to our margins.

And definitely with the inflation cooling off and specially a seal which is one of our main commodities.

So we should expect at least 1.5%, 2% maybe slightly more expansion in our margins on quarterly basis, especially quarter three onwards, but yes definitely we can see some benefit in quarter two also.

On the whole our government is very much focused on developing infrastructure and infrastructure assets and also increasing manufacturing in the country.

And then we are definitely seeing positive effects of that all around.

So, going by that, we are ourselves very much bullish on the medium to long term prospects of our company with increasing revenues as well as increasing margins, that's it.

Thanks a lot, everybody, good evening.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen on behalf of PhillipCapital (India) Private Limited that concludes this conference call.

Thank you for joining us and you may now disconnect your lines.

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin with the question-and-answer session.

The first question is from the line of Himanshu Upadhyay from 03 Securities.

Please go ahead.

Himanshu Upadhyay: · So, have we bought these companies or we will be running these companies?

My first question was on acquisition, is there any probability that those acquisitions which you were targeting will happen or it is now a low probability event looking at the situation and the market conditions what they?