Action Const.Eq.

Action Construction Equipment reported a resilient FY26 with total income of INR 3,395 crores, maintaining a flattish trend compared to the previous year. Despite this, the company achieved significant margin expansion, with EBITDA margin growing 81 basis points to 18.33% from 17.52% in FY25. PAT margin also increased 73 basis points to 12.53% from 11.8% in FY25, leading to a 5.4% growth in PAT to INR 425 crores from INR 404 crores in FY25, demonstrating strong operational discipline.

The fourth quarter of FY26 saw strong sequential growth, with total income rising 15% to INR 1,021 crores, and a 5.58% year-on-year increase. The core cranes, metal handling, and construction equipment segment recorded an income of over INR 2,946 crores for FY26 with an 18.6% margin and a profit of INR 548 crores. The agri division also showed robust performance, growing 9% to achieve a revenue of around INR 251 crores for FY26, with margins at 1%.

ACE finalized a 50-50 joint venture with Japan's KATO Works Company, targeting the heavy crane segment, including truck cranes, crawler cranes, and rough cranes. This partnership aims to leverage ACE's manufacturing capabilities with KATO's globally recognized technology for accelerated upgradation, localization, and export opportunities. Management projects INR 300 crores in revenue from this JV in 3-4 years under current conditions, with potential to reach INR 700-800 crores if antidumping duties are implemented. Additionally, ACE will export material components to KATO Japan for other construction equipment, creating an additional revenue stream.

The company successfully completed its planned capital expenditure for FY26, totaling approximately INR 200 crores. This includes INR 130-135 crores for the completion of a new land parcel for future expansion and INR 40-50 crores for a new plant within the existing complex, dedicated to defense machines and new products. An additional INR 20-25 crores was allocated for maintenance capex. ACE is also considering a significant INR 400 crores capex for a new, highly autonomous tower crane factory, which would take 12-18 months to set up, with the decision being need-based and dependent on market momentum.

Facing substantial raw material cost inflation, particularly steel (65% of total cost, up 20-22% since January), ACE has implemented multiple price increases. These include a 1-1.5% increase in January, approximately 4% on May 1st, and another 5% planned from June 1st, bringing the total to 9-10%. Management anticipates an eventual need for at least a 12% price increase to offset the 11-14% overall cost inflation. The company aims to sustain EBITDA margins in the 15-16% range through calibrated pricing actions, noting that competitors are also increasing their prices.

The company acknowledged ongoing turbulence from the West Asia crisis, which has led to supply chain disruptions, demand-side hyperinflation, and input cost volatility. A significant concern is the non-implementation of the DGTR's antidumping duty order (25-52%) on Chinese imports by the Finance Ministry, which would otherwise significantly improve the competitive landscape. Despite this, Chinese competitors are seeing their costs rise by 8-10% due to local assembly efforts, making ACE more competitive in the domestic market.

ACE is strategically focusing on defense and exports as key growth drivers for future revenue. The defense segment, with INR 575 crores in pending orders, is expected to contribute 5-6% (INR 200-220 crores) to total revenue this year, a notable increase from ~3% last year. Exports are also projected to contribute 6-7% of revenue, bringing the combined share of defense and exports to 11-13% of total revenue. Execution for rough terrain forklifts for defense is expected to commence next quarter.

The company maintains a debt-free status with sufficient liquidity, including INR 700-750 crores in liquid non-current investments (bonds with 1-3 year tenures). While ROCE has seen a slight dip from 40% to 32% over the last two years due to invested but idle cash, management is committed to utilizing capital productively to increase ROCE. They aim to maintain ROCE above 30-33% by strategically timing investments to demand and ensuring an 8-10x investment-to-turnover ratio for new capacities.