Action Construction Equipment (ACE) Continues Growth Story

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Howdy Toasters!

In today’s issue of the Morning Toast, we discuss:

Action Construction Equipment (ACE) continues its growth story
Sun TV primed to break key resistance level
Results Preview
An education concept to keep you chugging along

Action Construction Equipment (ACE) continues growth story; What’s up and What do you need to know? 🛠🧐

In the business of manufacturing Cranes, Construction Equipment, Material Handling and Agriculture Equipment (AE), the company delivered sales growth of 35% YoY for Q2FY22, aided by market share gains & price hikes
For H1FY22, across Cranes, Construction Equipment, and Material Handling Segments, the company recorded topline growth of 114% / 57% and 107%, showing the increased buoyancy in government-mandated infrastructure spends
With a concerted effort by state & central governments, infra investments across Roads, Metro, High-Speed Rail, Water, Renewable Power, and Airports are at an all-time high, with India at the cusp of a massive CAPEX cycle
Projects such as Sagarmala (INR 4 TN outlay for waterways & coastline), Bharatmala (INR 5.3 TN for 35,000kms roadways), and Jal Marg Vikas (INR 53 Bn for national waterways) showcase the government’s intent towards upgrading the country’s infrastructure

And ACE is best placed to capture this demand? Tell me more? 👀

The company enjoys a leadership position in the crane’s segment, ~60% market share in the Pick & Carry and Tower cranes (which forms a sizeable chunk of the market)
Other products, including Crawler, Truck, Fixed Tower cranes are in similar leadership positions in the market (see image below)
ACE is a legacy brand with a business history of over 2 decades and has developed comprehensive in-house manufacturing and R&D Capabilities to go with a strong on-ground sales network

Interesting! What about cost pressures? And over-dependence on India demand? 🤔

Export revenues are expected to account for ~10-11% in the medium term vs legacy % of ~6% over FY19-21, primarily driven by global expansion efforts and specific region focused product launches
Likewise, the company has grown a customized fleet of offerings for the defense sector (which doesn’t follow quintessential demand/supply cycles), including cranes, forklifts, skid-steer loaders etc.
In the medium term, Exports + Defense should cumulatively contribute ~18-20% to the topline, providing protection against the cyclicality of the CE space
In a recent earnings call, management indicated persistent commodity inflation issues, which continue to hamper margins (especially in the steel segment) with the company having a take a 10-12% hike in H2FY21 and a further 8-10% in H1FY22 to maintain EBITDA % in the range of 10.5-11%

Nice! Final thoughts? Valuations, Stock prices et al.? 🧐

The stocks been in a strong uptrend over the last 6 months, as well during a longer time period, with the market rewarding the company for a strong incumbent growth scenario
The stock currently trades 17.5x FY24F P/E, and is projected to touch 16%+ ROEs in the next couple of years (Source: Bloomberg Estimates)
Historically (over the last 5 years), the stocks traded in 17-18x 1 Yr FWD P/E range, with potential to break that band, given the changing demand scenario & consistent evolution in product offering by the company

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Sun TV primed to break key resistance level 😮🙄

Analysing Sun TV on a weekly time-frame (over 60 weeks), indicates that the stock has been in a constant uptrend, breaking earlier highs and making news ones (HH),
On a weekly time frame (see image below), the stock is taking support at a rising trendline and ultimately making higher lows (HL), with the momentum leading to a breakout above its important resistance level (565)
The stock is currently retesting this key resistance level, with this bullish development likely to help the stock stay in its steady momentum

Interesting! Tell me more? What other indicators can we use to confirm our initial analysis? 🧐

Moving to a daily time frame (see image below) indicates that the stock’s 10-DMA crossed the 20-DMA and 50-DMA (positive crossover) while maintaining momentum, giving us clear indication of limited corrective declines and constant steady up moves
Currently, prices are trading close to 565 which also happens to be the 20-day Simple Moving Average which is a good support level for swing traders
This makes chances for a reversal at these levels more probable, although if prices breach the level 565, stock may show weakness and might experience a short decline.

Interesting! Final thoughts? 😏

The consistent higher high higher low patterns have made sure Sun TV stays in a steady uptrend and the multiple moving averages (10, 20 and 50) on daily time-frame makes the chances of reversals (prices moving higher) more probable
We started on a weekly time-frame with overall price action and trend analysis and took second confirmation on a daily time-frame using moving averages

What else caught our eye? 👀

Pharma Cos want a price hike

A lobby group of 1000 pharma manufacturers are lobbying to increase prices of all drugs by 20% (10% is permissible)
This comes against the backdrop of a pandemic that disrupted supply chains, and input costs that have been rising recently
Note here that they are open to reversing this price increase once the input cost recedes

FPIs give their blessings for T+1

FPIs no longer oppose the shorter inventory market settlement cycle of T+1 days and have called it ‘excellent news’
To be implemented from Jan 1, 2022 the FPIs had sought additional time to deal with the operational challenges
The implementation has been pushed to Feb 25, 2022 and will occur in a staggered manner which is a welcome move

Inox done with the drama

The Inox Group has reached a settlement for the division of businesses
Pavan Jain gets Inox Leisure, and Inox Air Products while younger bro Vivek Jain gets peciality chemicals and green energy businesses such as Gujarat Fluorochemicals (GFL), Inox Wind (IWL), and Inox Wind Energy.
The current patriarch Devendra Kumar Jain, aged 92, has signed a family accord recently with a vision of expanding the business further.

Thursday, 11th November: Astral Ltd, CESC, Endurance Tech, Godrej Consumer, HAL, Minda Industries, NMDC, Page Industries, Tata Steel

Friday, 12th November: 3M India, Amara Raja Batteries, Apollo Hospitals, Ashok Leyland, Bharat Forge, City Union Bank, Coal India, Glenmark Pharma, Grasim Industries, HeroMoto Corp, Hindalco Industries, Motherson Sumi, ONGC, PI Industries