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ACE Limited: The Crane that Can Lift Your Portfolio 🏗️

Updated: 6 days ago

Imagine a bustling construction site - towering cranes pivoting gracefully, heavy-duty machines rumbling, and an air thick with the promise of progress.

At the heart of this organised chaos is a company that’s been silently driving India’s infrastructure revolution. As much as we wish it were, and as much as Indians love to watch its khudai, it’s not JCB!

We’re talking about a relatively less popular - Action Construction Equipment Limited (ACE). From urban skyscrapers to rural farmlands, its machines are quietly but indelibly shaping the future.

And on the other hand, also shaping people’s portfolios - with a near 3x return in just the past year, and 8x over the past three years.

As India continues to build its way through to the top 3 economies globally, will ACE continue to add to investor returns?

Action Construction Equipment, Who?

Incorporated in 1995, ACE is not just any construction equipment manufacturer. It stands as the world's largest pick-and-carry crane manufacturer, with a staggering 63% market share in the mobile crane segment and 60% in the tower crane segment within India.

The company’s diverse product lineup includes hydraulic mobile cranes, mobile tower cranes, forklifts, backhoe loaders (no double meaning 😛), compactors, motor graders, tractors, harvesters, and rotavators.

ACE Limited

ACE's reach spans multiple sectors, including construction, infrastructure, manufacturing, logistics, and agriculture. Essentially, if there's building or farming to be done, ACE's machines are probably on the job.

With its IPO launched in 2006, ACE has steadily built a reputation for reliability and innovation, making it an excellent proxy for those looking to invest in the infrastructure boom, both in India and globally.

The Growth Engine Roaring Ahead

ACE’s financial performance in recent years has been nothing short of phenomenal. From FY21 to FY24, the company’s revenue soared from Rs. 1,240 crore to Rs. 2,990 crore, reflecting a robust compound annual growth rate (CAGR) of 34%.

Meanwhile, EBITDA margins went from 11% to 16%, marking an EBITDA CAGR of 50% over the same three years - led by better capacity utilisation, a favourable product mix, and a little bit of help from softening commodity prices.

This growth isn't just a fluke. It's powered by several factors, notably the Indian government’s aggressive infrastructure initiatives like the Gati Shakti plan, the Smart Cities project, and extensive investments in railways and highways. These projects have created a fertile ground for ACE’s cranes and construction equipment to stand upon.

The ACE Advantage

What sets ACE apart in the fiercely competitive construction equipment market? For one, ACE capitalises on the shortcomings of its competitors.

While cranes from European manufacturers come with hefty price tags and unfavourable payment structures for buyers, Chinese manufacturers offer cheaper alternatives with a one-year credit period.

However, ACE manages to strike a balance. By offering competitive prices without the logistical expenses and customs duties associated with Chinese imports, ACE positions itself as the ideal choice for customers.

Moreover, the company combats issues like Chinese dumping, particularly in larger cranes, by ensuring sustainable pricing practices.

Additionally, ACE's management is renowned for its commitment to over-delivering and under-promising. Despite guiding for 30% revenue growth, ACE consistently surpasses these expectations, underscoring the company's strong corporate governance and operational excellence.

Lifting the Bar for the Future

To sustain and accelerate this growth in the future, ACE has been investing heavily in capacity expansion.

In FY24, the company undertook Rs. 75 crore in brownfield capex and acquired 80 acres of land for Rs. 170 crore. These investments are very lucrative, as they are expected to generate north of Rs. 1,000 crore (1/3rd of FY24 revenue) in incremental revenue by FY25 - which would again mean north of 30% growth!

Moreover, the strategic land acquisition is poised to elevate ACE's revenue potential substantially. With the current land bank, the company's revenue would have been capped at Rs. 4,500 crore.

However, with this expansion, ACE now possesses ample land to explore new avenues for growth and scale its operations.

But it’s not just about increasing numbers; ACE is focusing on high-capacity cranes, where Chinese manufacturers have traditionally dominated. The company’s innovations include India’s first fully electric mobile crane and the country’s largest mobile crane, a 180-tonne crawler crane.

Moreover, ACE is tapping into new opportunities, such as a significant prospect with the Indian Army. The company has tailored 1,800 units of RTFLT (Rough Terrain Forklift) to meet the Army’s specific requirements. If successful, this deal could add Rs. 650–700 crore to ACE’s revenue, which represents 23% of its FY24 revenue.

A Speedbreaker in Sight?

Despite its stellar growth, ACE faces a few near-term challenges. The first half of FY25 might see a modest growth rate of 15%-20% (yes, that’s called modest in ACE’s universe lol), down from the previous 30%. This is due to several factors:

  1. Elections: The elections and now ambiguous results have introduced a degree of uncertainty, causing delays in the purchasing decisions of the customers

  2. Monsoon: An early onset of monsoon could dampen construction activities in 2QFY25

  3. Regulatory Changes: New emission standards (BS-V) for construction equipment are set to take effect, leading customers to delay purchases until compliant models are available. These standards affect 40% of ACE's portfolio for equipment with <50 horsepower engines and the rest, 60%, for those with >50 horsepower engines

However, this is not all bad news, as these new products come with a silver lining for ACE. With the transition from BS-III to BS-V, prices see an increase of 6-12%, and the shift from BS-IV to BS-V results in a 4-5% price hike.

These challenges seem transient in nature, after which ACE is poised to benefit from pent-up demand and the new, slightly higher-priced, compliant products. Hence, the speed breaker does not look like a deal-breaker.

A Promising Future

Looking further ahead, ACE’s future shines brightly. The company’s revenue guidance for FY26 and FY27 stands at Rs. 4,400 crore and Rs. 5,500 crore, respectively. Ambitiously, ACE aims to triple its revenue within five years, translating to a 25% revenue CAGR on an already elevated base.

In conclusion, Action Construction Equipment Limited. is more than just a player in the construction equipment market. It's a key driver of India's infrastructure development. With a solid growth track record, strategic capacity expansions, and promising future prospects, ACE is well-positioned to continue delivering substantial value to its investors.

So, fasten your seatbelts and prepare for an exciting journey ahead, because ACE is ready to reach new heights, and it's inviting its investors along for the ride.

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