Rationale
The assigned ratings
continue to draw comfort from Action Construction Equipment Ltd.'s (ACE)
well-established market position in the construction equipment sector,
especially in the crane and forklift segments. The company's strong business
profile is supported by a well-diversified portfolio spanning applications in
infrastructure, industrial and agriculture sectors. The company's presence in
the infrastructure sector is especially strong and it is a market leader in the
mobile and fixed tower crane segment. In this segment, it has 60-65% market
share, which is supported by the wellestablished ACE brand, wide product
offerings, frequent product innovations and cost competitive products. Besides
its market leading position in the cranes segment, ACE is the third largest
player in the material handling segment. The ratings are also supported by
ACE's healthy financial risk profile, characterised by low leveraging,
comfortable credit metrics and an adequate liquidity position. The company has
comfortable credit indicators with gearing ratio at 0.2 times as on March 31,
2020 (0.1 times as on March 31, 2019) and DSCR at 2.6 times in FY2020 (3.4
times in FY2019). Going forward also, with minimal capex requirements and
scheduled repayment of existing term debt, the credit metrics are expected to
improve gradually over the medium term. Further, company enjoys a comfortable
liquidity profile, supported by surplus cash and liquid investments (Rs. 21.8
crore as on July 31, 2020) and moderate utilisation in the working capital
facilities (average buffer of Rs. 62.5 crore in the working capital facilities
against the drawing power in the 12-month period ending in July 2020). It also
generates comfortable cash flows from operations, and has certain long-term
investments in fixed maturity plans (FMPs) and debentures (Rs. 22.8 crore as on
July 31, 2020), which lends it financial flexibility. Against these, the
company has debt repayments of Rs. 33.7 crore (including buyer's credit) and
modest capex requirements in FY2021, which are likely to be serviced
comfortably.
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