Action Construction Equipment demand takes a hit by COVID-19

Action Construction Equipment (ACE), the leading material handling and construction equipment manufacturing company has stated that its business has been significantly affected by the COVID-19 pandemic.

Since the last one year, the company has also been struggling with industry slowdown. This slowdown coupled with Coronavirus outbreak has put the company in a very troublesome scenario.

The company’s revenue and profitability are likely to be impacted even more. In Q1FY21 (April-June), volumes and revenues seem to take a hit as the operations were partially shut in April 2020 and gradually ramped up during May 2020 and June 2020. However, recovery is likely to be expected during Q3FY21E and Q4FY21E.

Looking at the demand side, it has been declined due to the lockdown, which is likely to improve in Q2FY21 and normalise by Q4FY21E.

The company’s 60-65 per cent business comes from infrastructures and remaining from manufacturing and others. The company’s FY20 revenue mix comprises of cranes (72 per cent), material handling equipment (7 per cent), construction equipment (9 per cent) and agriculture equipment (12 per cent).

As the company derives its major revenue portion from infrastructure, revival in the Infra sector may lift up the demand of the company and ramp-up the revenue.

On the liquidity front, the management has presented some plans to bring down the inventory by 37 per cent and the debtors by 12.5 per cent by October 2020 to improve the liquidity. This move would free some working capital thereby, improving the liquidity.

The stock has delivered a negative return of 25 per cent in the last six months. However, with the hope of some demand revival, the company has registered share price recovery and gained nearly 70 per cent in the last three months.