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Action Construction Equipment Ltd
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Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call for Action Construction Equipment Limited hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
This conference may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involves risk and uncertainties that are difficult to predict.
I now hand over the call to Mr. Vikram Suryavanshi from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Thank you, [ Herman ]. Good afternoon, and very warm welcome to everyone. Thank you for being on the call of Action Construction Equipment Limited. We are happy to have the management with us here today for question-and-answer session with the investment community.
Management is represented by Mr. Sorab Agarwal, Executive Director; Mr. Rajan Luthra, Chief Financial Officer; and Mr. Vyom Agarwal, Head, Investor Relations. Before we start with the question-and-answer session, we'll have opening comments from the management.
I will hand over the call to Mr. Sorab Agarwal for the opening comments. Over to you, sir.
Thank you, Vikram. Good afternoon, everybody, and welcome to this earnings conference call for the fourth quarter and financial results for the year ended March '22.
Last financial year was yet another extraordinary year, we had the impact of COVID second wave in the first half, a strong rebound thereafter. And a macroeconomic headwinds because of war and rising inflation by the time we entered the year. As is, we took these uncertainties as opportunities to gain market share, and we made significant progress on our strategic priorities, this has been possible through the collective efforts of our employees and partners who serve the needs and aspirations of our customers.
Along with me today in the con call, we have Mr. Rajan Luthra, who is our CFO, and our Head of Investor relation, Mr. Vyom Agarwal.
I hope you all have had an opportunity to look at the company's financial statements and earnings presentation, which have been circulated and uploaded at the stock exchanges.
To begin with, it gives me immense pleasure to report that we have crossed INR 1,600 crores turnover March in this fiscal and also recorded our highest ever sales in the quarter gone by. Our growth of 33% was significantly ahead of the market. We consistently grew our brand and gained market share in the last year. Our EBITDA margin for the year was sustained at 10.3%. And we delivered a performance of balancing growth and profitability in the backdrop of extremely challenging inflationary scenario.
Our EBITDA for the year grew by 24.3% to approximately INR 168 crores as against INR 135 crores in the preceding year. We were able to increase our profit before tax from about INR 108 crores in FY '21 to approximately INR 138 crores in FY '22, which is a growth of 27.5%. Similarly, our PAT also increased from INR 80 crores in the last year to INR 106 crores, thereby registering a growth of 32% in the last year.
So briefly on the financial performance of fourth quarter of last year, the operational revenues grew by 11.8% on a year-on-year basis to approximately [ INR 512 crores]. Despite the unprecedented inflationary pressures, your company was able to sustain the EBITDA level of 10.4% and PBT at 8.8% in the last quarter. The EBITDA and PBT for the quarter stood at INR 53 crores and INR 45 crores, respectively.
Now moving on to segmental business performance. For the year gone by, our crane business has registered a strong growth of 40%. The growth was both in value and volume terms. Our numbers for cranes increased from 4,558 in FY '21 to 5,328 FY '22. In the crane segment, we have been able to sustain our margins at around 12% under hyperinflationary scenario. Further, the construction equipment segment clocked yearly growth of 32% and we did a revenue of INR 172 crores with sustained margins of around 5% to 6%.
The Material Handling segment recorded revenue of -- revenue growth of 48% and stood at INR 152 crores with margins at 12%. The Agri division registered revenue of INR 198 crores, while recording margins at 6.5%.
The tractor industry remained subdued in the second half of FY '22. The outlook remains positive due to good crop prices and prediction of normal monsoon going forward.
On the operational side, in our endeavor to closely and effectively work with the Ministry of Defense, we have started executing the pilot order of 4x4 multipurpose tractors, along with special attachments, which have been specifically designed for Indian Army.
Further, the operating environment remains challenging, commodity inflation continues to be a significant headwind for the industry. The recent global developments have added further volatility to commodity markets and have pushed the price of various commodities, including [ branch ] steel and light metals to an all time high levels. CPI inflation has also been increasing. It has now vis-à-vis [indiscernible] for last 3 months in a row, thereby encouraging an interest rate high by the Central Bank.
In such a challenging macro environment, robust performance of the company is reflective of our strategic clarity, strength of our brand and our execution progress along with our agility and adaptability. Looking ahead, in the near-term, operating environment will remain challenging, but we expect to see some moderation in the inflationary pressures due to recent government actions regarding steel [ duty structures ] and fuel, et cetera, which should enable us to expand our margin profile in the second half of this year. Having said that, the drivers for value creation at ACE remains same. We remain focused to deliver on our growth agenda, growth that is consistent, competitive and profitable. We will try and continue to manage the delicate balance of ensuring competitiveness of our brands and keeping EBITDA margins in a healthy range. We will continue to drive cost savings harder and take calibrated pricing actions, whilst ensuring we protect and grow our markets.
Further, with the continuous focus of government on infrastructure development and their efforts to strengthen the manufacturing sector, we do expect a growth of at least 15% in crane segment in the coming years, along with 20%, 25% in the metal handling segment. For our agri and construction equipment portfolios, we are looking at growth rates of about 15% to 20% and 30%, 35%, respectively.
On the whole, we are looking at a 15% to 20% increase in our top line for FY '23 with better EBITDA margins. We hope we are in a position to revise these projections by end of second quarter, which will predominantly depend on how the economic scenario pans out post the recent disruptions.
Further, we remain optimistic about the medium to long-term prospects of the company and believe that our building blocks are firmly in place and are on path of sustainable growth in all the 4 segments where we operate, leading to expansion in top line, bottom line and margins of the company.
With this, I would like to open the call for question-and-answer session.
[Operator Instructions] The first question comes from the line of Himanshu Upadhyay with Q3 Securities.
See, I had a question on Construction Equipment. Can you break this [ 533 ] what we did in what was backhoe loaders and what was others? And again, for FY '21 also. And what we have seen a significant amount of CapEx being announced, okay? So what are you seeing on both construction equipment and crane segment? Any thoughts on that? And your order book type of situation or inquiries.
See, with respect to CapEx and construction and activity, I think it is in full swing. And things especially in April were looking very good. Yes. This slightly subdued in May, primarily because of people start looking at stock markets and then with RBI increasing some interest rate. So there is a small [ breather ] in the month of May, but I think April was very good. And we are sure this breath will continue.
With respect to detailed breakdown of that number, I think Luthra Sahab with respect to the numbers for construction segment product wise, if you can just provide that.
Sir, I will tell what the volume-wise. So backhoe loaders, we did about -- [ 466 ] backhoe loaders we've done and [indiscernible] we've done 29 numbers, compactors we have done 28, motor graders 8 or 9.
466 backhoe loaders.
Yes.
And forklift side.
Forklift comes in with a material handling, forklift [indiscernible].
What is the total of [indiscernible]?
The total number of all these volume-wise is -- I think maybe [indiscernible] in the presentation also volumes.
Yes. So that is [ 533 ]. And similarly, can you break for FY '21? So what growth are we seeing in backhoe loaders because that was one of the special emphasis for the company. So that is what I'm trying to understand. And what is happening in that segment because that is the large market also, and we have been focusing on that segment. So this 466 is versus what was there last year?
If I'm not wrong, last year, the numbers were 500.
For backhoe loader?
Yes. Last year, there were 500. There's a small degrowth there, very unfortunate. The industry for backhoe loaders has degrown by about 28%, 30% in the last year. And unfortunately, because of that BS IV becoming prevalent in the second half of last year and the pricing and inflationary. So there has been a slight pullback in the overall market. And like I mentioned, the overall market has also gone down a little. We could have still done better, but I think we got stuck at this number.
On the whole, everything seems to be in place. And the numbers in this segment are also appearing to be less because with respect to our BS IV soil compactors and motor graders, again, there was a delay with which we could bring it in the market. So the numbers there are again slightly reduced, but I'm sure we'll more than make up on the whole in this year. And in any case, on revenue front in this segment, we have been able to grow by 32% in the current year.
Okay. And see, the number of dealers who would be selling our backhoe loaders would be how much currently versus last year and what further penetration or on the distribution side we are trying to do?
Now we are trying to be reach each and every corner of the country. I don't have the exact number of dealers between last year and this year, but I can for sure tell you at least 15 to 20 more locations have been added in this year, which has gone by. And it is a continuous process. So hopefully, by end of this year, the current FY '23, we should be in position to be offering this machine in every [indiscernible] corner of the country.
How much would be our distribution reach versus the market leader? The number of distribution points.
As of now it's about 70%, 80% of the area. But the only difference is that the market leader again has further lost many outlets as compared to us, given at smaller city levels. So this process in every state, we'll have main dealerships, which we have in most of the areas. And in certain bigger states, maybe 3, 4 dealerships. And they keep on increasing further outlets. So that the touch points keep on increasing. So our current touch points would be a little over 100 with respect to backhoe loader, which I think in this year, again, we should be increasing by about 40, 50 more.
Okay. And one thing. On the cranes side, we saw a pretty significant growth rate. Do we think it will continue? And what product is driving this growth? And what is the estimate?
We are market leaders in pick and carry cranes with now close to about 65% market share. And tower cranes again, which is a little more than 65%. So these 2 are the leading product segments within the cranes where we do our maximum number, I would say, 97%, 98%, 96% of our numbers come from these 2 products. And going forward, I'm sure that this year is going to be better than last year. And as I mentioned in my address, we are looking at least a 50% -- 15% growth rate in numbers. It can definitely be much more than that, but a prudent time to project that would be, I think, another 3, 4 months down the line. Because on the whole with respect to infrastructure activity in the country and also the focus that the government has on manufacturing and pick and carry cranes are used in both. So I think we are on a very good slate with respect to the demand coming up.
And luckily in the last year, real estate segment has also started to pick up. The numbers of tower cranes are also increasing, which are definitely higher ticket size as compared to pick and carry cranes.
Till what height do we make tower cranes?
We can -- currently, what we are doing is maximum required in the country is about 230 to 240 meters range which we are doing. But yes, if people want to go higher than that then special solutions can be provided for 300, 400 meters also.
The next question comes from the line of Jasdeep Walia with New Mark Capital.
Am I audible?
Yes, yes, sure. Yes, you are.
Sir, you've been mentioning over the last few quarters that you wanted to close an acquisition. And as per your comment on the third quarter call, you said that you'll definitely close something by fourth quarter, which is the quarter just gone by. So could you just update us with the status with respect to M&A -- on the M&A front?
Yes. We are very hopeful that we will be able to do it in the last quarter. Unfortunately, it has trickled into this quarter. So if everything goes well, 100%, I think we are on track to be able to announce something. Both of these acquisitions, we are looking at are smaller ones based on our philosophy to consolidate the [indiscernible] market at the lower end. And I think over the next 15, 20 days, 30 days, we should be in a position to close and announce. Yes.
Got it, sir. Sir, like you just mentioned, you want to consolidate the market at the lower end. I guess you mean that you want to acquire companies with, let's say, [ 3% to 5% ] kind of market share in the crane segment. Sir, to me, the rationale is not clear because the market has already consolidated with top 2 companies having more than 80% market share. And if I go back, let's say, 1, 1.5 years, you yourself used to say on the call that you don't bother about competition from smaller companies in the crane segment because they have insignificant market share and every couple of years, some new company comes up and then it dies an automatic kind of debt in [ 2 tiers ]. So why to acquire a small company in the crane segment, sir?
We are looking at a couple rather, there's another [ third ] target, French players, and we'll merge it with our business. The main aim is that what has happened in the recent past that this input commodity price increase and inflation, which has been happening, sudden price movements, and we are forced to increase our prices. So there is utter confusion in this market. And the smaller French players end up getting some benefit there, maybe not with the selling price, but at least with the numbers with which they are able to do slightly better in some months because we have increased our prices.
So we thought it was an opportune time to totally consolidate the market wherever possible and which eventually will hand us more power to price our products suitably in certain smaller retail markets. That is the main contention behind this. And obviously, some numbers will get added.
Got it, sir. But you will acquire some smaller comps -- some small company [indiscernible].
I would just like to add one more thing that we operate in 4 segments, cranes, agri, construction equipment and material handling. So acquisition can be in any of the lines. I think you have pinpointed cranes. So it would won't be right on our part to comment on that.
The next question comes from the line of Mudit Jain with HEM Securities.
Congratulations for a very good set of numbers. Sir, we have witnessed strong growth in crane segment, but there's a substantial decline in number of quantities sold in construction equipment and agriculture equipment in quarter 4 as compared to quarter 3. So sir, I just wanted to know what is the reason for that?
Cranes, we have definitely done good, a, because of price increase, b because of the numbers increasing. Unfortunately, the construction equipment side, the market overall [indiscernible] by 28%, 30%, and especially in the second half as soon as the BS IV happens. So that was the main reason that in the second half, we were really not able to increase our numbers and surpass our numbers by 30%, 40%. But nevertheless, due to our product mix, we have been able to grow that segment by about 32% in the last year, which I just mentioned. This I'm talking about the construction equipment sector, where from about INR 133 crores of turnover in FY '21, we were able to do INR 176 crores, yes, this could have been much better, less you would have been able to do some more numbers in the construction equipment sector.
And something similar, I would say, with respect to the agri, especially Q4, our numbers are really not good. And they reduced -- our revenue has reduced there on a year-on-year basis about 14%, 15%. So on a whole year basis, our revenue for agri is flattish and that is the main reason because the markets were quite subdued. And also coupled with the continuous price increase that we have been trying to take every 2, 3 months in the last year. That has also reasonably destabilize the market. But I'm sure the worst is behind us with respect to these inflationary tendency and government taking such positive and drastic steps to at least bring the biggest commodity under control which has been playing havoc and has more than doubled in the last 1, 1.5 years. And so taking forward [indiscernible] fall in place.
Okay. Sir, my second question was regarding raw material only. Sir, in the previous con call, you have mentioned that around 60% of the input costs of steel. And recently, Government of India announced exclude duties and production and import duties of certain raw materials which are used in steel manufacturing. Is it how would it affect our raw material cost?
See, in the month of April and early May, steel had peaked touching about INR 79 to INR 80 a kg, even slightly higher in some cases. I'm talking of [indiscernible] products.
In the last 15, 20 days, they have definitely reduced by about INR 4, INR 5 a kg and OE prices of Tata Steel or so [indiscernible] which was Essar earlier or Steel Authority of India has already gone down by INR 4, INR 5. And the market prices or trade up prices are already INR 3, INR 4 lower than that and has been like that in the last 2 weeks.
With this introduction of 15% export duty and especially again with the 45% export duty on iron ore, we think that there is a scope of at least 10% to 15% correction from here onwards. So the steel prices could be anywhere between INR 65 to INR 70. Maybe quickly, maybe even like 1 or 2 months.
That will bode very well for us because what has happened in the last year that -- we increased our revenue by 33%. And whatever operating leverage we got out of that, that was also something to subsidizing the machines for our customers. And even then if you look at our balance sheet, our raw material costs have gone up by 2%, 2.5%.
So I think in such a scenario, it should be easy for us, especially in the second half of this year if the steel prices continue to go down, to increase our profitability by at least 2%, 2.5%, if not more. But this is something time will tell because a lot of factors are involved here because it's a supply-demand game and who [ bends ] first. So -- but we are hopeful that from the current levels of INR 75, INR 76, it should go down by at least 10% to 15%, which will bode very good for our company. So our profitability, our margin expansion will happen. And the sacrifice in the last 1 or 2 years, we have done on account of our operating leverage which we've given away to the inflationary pressures and our raw material cost of goods sold increasing. That should start to definitely improve in the next 1 or 2 months, provided the steel prices go down.
Okay. And sir, my last question is can you go on the CapEx guidelines for this year?
In the current year, we have already started to expand our facilities because in the current year, we intend to launch a 100 ton and a 160 ton crawler crane and some more bigger cranes going up to 80 tons or slightly bigger in the truck crane variety, which we a bigger facility for fabrication, for machining and even for assembly.
So we have started investing in this project already. So in the current year, apart from INR 15 crores, INR 20 crores of maintenance CapEx, I think another about INR 30 crores, INR 35 crores would go into setting up this plant. We already have a lot of land. So we are expanding in that. Keeping in mind that India is growing as a country. Now in the last 6 to 8 months, the bullet train project has also taken off very well and so much elevated construction is happening all over the country, whether it is metro, bridges, flyovers or increasing connectivity.
So a lot of these bigger cranes, 100 tons, 160 tons are going to be required in the country. And currently, Indian market is depending on imports, especially from China. So now to enter into this bigger crane segment and to further expand our portfolio for truck cranes and crawler cranes. We are doing this CapEx. So I think, all in all, by the end of the year, we should be somewhere around INR 40 crores to INR 50 crores. Right, Luthra, sir.
That's right, sir.
The next question comes from the line of Abhishek Mody with Emkay Global.
Am I audible?
Yes.
Sir, my question pertains to the investment, if I look at your balance sheet, I think from INR 13 crore, it appears to jump to around INR 76 crores, if I'm right, a stand-alone basis and [ console ] also from, it's jump. So can the management please explain the jump with regards of the investments?
Yes, because the surplus money that is available with us. And the [indiscernible] which are happening on account of the profitability increasing in the company. So those have been parked as very safe and sound investments. And if we need any more details than that, then Mr. Luthra will be the right person to answer.
You're right. what number you're talking about only but long-term investment [indiscernible] my current investment is also -- which is INR 110 crores to 200 crores.
It's not audible. I think we'll have to be closer to the mic, sir.
I was telling that the numbers, what you spoke about the only got long-term investment. But beside that, we are on short-term investments also, which is nearly INR 110 crores or piece. The total investment in the company is roughly about [ INR 208, INR 200 crores plus ]. This is because of we want to pull over profits back into the surplus cash available in -- and not to put in the business and just keeping it as a safeguard for future investment, future equation or something like that. But we don't want to we are [indiscernible] actually, we don't -- if we become slightly lose, then this money will probably go up and adding up the inventories or [indiscernible]. So we don't have as a company policy, whatever we are handling. We are just putting into our investments and all those things as of now.
So just to -- not let it lose in the company, and we will get consumed in the working capital. We want to keep our working capital well in control. So that is also the reason we are parking our money in short-term and long-term investments. This is what [ Luthra, sir, is trying to say ].
So just what you had one of the questions was asked earlier. This is regarding the hoping to be one of the upcoming acquisition.
The upcoming acquisitions and obviously, our CapEx plan and obviously, our plans to grow the company further. So this is the kitty we have in the company to use for all these activities.
And just my -- going to my first question. This is -- you have put money from -- this is the completely operating income, which is being put into long-term and short-term investment. There is no...
And also the money we raised through QIP in September.
So QIP money and this so it is 50-50 or IT just kind of, of course, not fixed but a broad breakup. So largely skew, but the operating money will...
It should be close to about 60-40, right, Luthra, sir?
Right. QIP Money was only INR 130 crores. And balance which is mainly used for reducing or get also [ term loan debt ] also. So we have become a debt-free company as on 31st March, and the rest was the pulling back of the operating profits.
So around -- of the INR 200 crores you spoke, INR 130 crores approximate is the QIP portion and it's around INR 60 crores, INR 70 crores will be the profit which the company has booked up?
Yes. But Luthra, sir, is also saying that our short-term borrowings and long-term, which were standing at [indiscernible] crores last year. They also have been more or less nullified.
Yes, I think INR 7 crores, INR 8 crores if I'm right, looking at the balance sheet.
That has also been nullified in making us not use any debt.
[Operator Instructions] The next question comes from the line of [ Kushal Chan ] with -- an individual investor.
Congrats on great set of numbers. Sir, just wanted to know that last year, in the last quarter, you had mentioned that generally the run rate which we have for the entire year is what we achieved in Q4 of that particular year. So can expect a similar run rate of revenue of around INR 500 crores going forward per quarter? So I expect your top line of around INR 2,000 crores?
Whenever the economic scenario is okay or good, we are generally able to multiply our quarter 4 and Q4 and derive our upcoming revenue for the next year. And accordingly, we are giving a guideline from about INR 630 crores of operating revenue and 15% to 20%. So I think on a whole year basis, doing upwards of INR 1,900 crores should be possible easily. But yes, you have to keep one thing in mind that in our business, always Q1 and Q2 are about 40% of the revenue, 40% to 45% and second half is about 55% to 60%.
So maybe Q1 and Q2, you might not see INR 500 crores, maybe less than that. But then that is generally made up in the second half of the year. Because some 3 months are nearly lost because of monsoons and the demand gets a little subdued in the second quarter.
[Operator Instructions] The next question comes from the line of Aman Shah with Jeetay Investments.
My question is, what was our CapEx for FY '22 full year?
We did about INR 40 crores.
Okay. So basically, our annual maintenance CapEx of INR 15 crores, INR 20 crores. And over that would be the paint shop that we did?
Yes. Paint shop and we did expand some cabin manufacturing facilities. Apart from maintenance CapEx it has gone into the paint shop and the paint shop work is still continuing and expanding into one of the other plants, which will be done in this year.
Okay. And current year?
On the whole this year, we should be looking at INR 12 crores to 50 crores.
Okay. Okay. Sir, and the second is the QIP money that we have raised around INR 130 crores. Will these acquisitions actually take -- it will take a lesser part of the QIP, right, sir?
Yes. They will be miniscule, yes. The smaller one.
Okay. So post that, will we be looking at another acquisition or something?
Yes. These 2 we have nearly lined up, and there would be another one, which we are trying. So which would be slightly larger in size as compared to these 2. So let's see how and when it happens in the next 2, 3, 4 months.
And we are not reaching a consensus with respect to valuation with respect to that particular acquisition. So if it happens, it can go through in the next 2, 3 months.
Okay. Do you want to share like the line of activity that -- the potential upgrade comes on.
Like we mentioned, out of the 4 segments we operate in, it is not [indiscernible] is totally related. It will help us add value to our existing business.
Sure, sure. It will be on -- the product side or more on the backward integration on that side.
See, there are 2 more options, one on the product side, one on the backward integration side. So like I said, 2 smaller ones are more or less we have identified and they are sort of done. We just need to be finalizing that. It's nearly final. There are other 2 options, which will unfold in the next 2 to 3 months. So rather we have 3 options to be very frank with you. 2 on the product side and 1 on the backward side.
Okay. Okay. Sir, and lastly, on Agri Equipment. Basically, how do we plan to increase and deepen our engagement and because it's actually stagnant at this level for quite some time.
I know again the last 1.5 years, we have beaten our teams, our financial tariffs have even strengthened. Everything seems to be in place. And we are very hopeful that although we are projecting with the segment about 15% to 20% growth in this FY '23, but we should be able to do more than that, much more than that.
[Operator Instructions] The next question comes from the line of Krishna Agarwal with [ Niveshaay ].
So in the last call, you had corrected that around INR 100 crores of defense order book you have to -- what would be expected order book right now? And what opportunities do we see in it?
At the current juncture, we have we have a little over INR 100 crores of order book from defense, which will be executed in this year. And there was another 3, 4 projects where we are actively working and engaged. Rather, we have close to about INR 120 crores, if I'm not wrong -- sorry -- to calculate INR 110 crores, INR 120 crores as of now from the defense for the current year already, which will get executed in this year. And apart from that, there are certain other projects in the pipeline to the tune of INR 50 crores to INR 100 crores at least -- but sometimes it takes time and defense to realize these orders. And we have bid for another about apart from this pipeline project, maybe another INR 150 crores, INR 200 crores of similar equipment that we do with the slightly specialized to meet the army requirements.
So let's see, I'm sure, at least [ INR 1500 crores ] of fresh business would come in this year apart from the 1 that we already have.
And how is -- like in the defense if you get the order for like one product, then repeat order like how does that shape up?
Once we have executed some orders and within 1 to 2 years per similar generic machines, which army requires in bigger numbers. So they provide the inflation adjustment with respect to their formula if they are set up and if it is acceptable then they release repeat orders. So in the current year, we are also expecting some repeat orders for certain products.
Okay. So in the coming years, we can expect around INR 200 crores, INR 300 crores of order from defense, right?
In the -- we already have about INR 100 crores plus. And we are expecting at least INR 50 crores to INR 100 crores in this year. At least we [indiscernible] about INR 125 crore to INR 150 crore at least in this year could be more orders could also be from 50 to 100 fresh orders could also go to INR 150 crore, but that time will tell because -- it's a slightly time-consuming process where...
Okay.
Thank you.
Mr. Himanshu Upadhyay, your line is unmuted please go ahead and ask your question.
My question was on the financing side, have NBFCs and everyone raised the rates and at what rate the rate would have been increased for construction equipment and even cranes?
So NBFC rates for construction equipment before the RBI rate increase was anywhere between the range of 7.25% reducing rate going up to 12%, 12.5%, depending on the customer profile.
And post this, we are hearing that another 0.25% to 0.5% rate increase would be affected by the NBFC. So that is what is [ done ].
Okay. And is there any mix expected to change versus a customer directly buying or rental means the proportion between people who want to rent and who want to run the equipment will remain the same or it does get impacted when interest rates go up?
The interest rate, we do not bother this to be very frank with you. Overall [indiscernible] some increase in the last 1.5 years. We think that, and what we are seeing in the past that in the current year, it will more be of end users. There's a little shift in the share of end users buying a little more machines as compared to rental companies because the rental prices have gone up for different equipment in the industry, but not at par with the increase in costing because of BS IV or the commodity prices going up.
So looking at that, we feel that in this year, the share would move a little more towards end users buying directly because they might not get certain equipment on rental, if they are not willing to increase the price.
Okay. And one more thing. We have seen commodity prices moving up, okay? What are our plans for exports and some of these African countries and even Middle East are very heavily dependent on commodities. And we were thinking about growing that business and with CapEx, which might increase, what are your plans on that side? And how focused are we on that part of the business?
Commodities, we only buy especially steel and in different forms. We don't export any commodity.
No, no, I am not saying you are exporting, but the geographies are very dependent on the commodity prices, okay? So are we seeing increased demand from Africa and some of those geographies?
To be very frank, in the last year, the demand for us was similar or muted to the year before that, although we have done 18% more revenue in exports.
In the last year, we are definitely much better placed with respect to our presence in different countries of Africa, which are worthwhile and in the Middle East also.
The next question comes from the line of Akshay Kothari with Envision.
Sir, what would be our export revenue this year?
The year which has gone by?
Yes.
The export revenue is about close to INR 76 crores. Vis-a-vis around INR 64 crores of last year.
Okay. And sir, during the rainy season, how is our business impacted? Like during 2 quarters, we get some less orders and then post that, we get more orders so regarding that?
Like I mentioned that the first 2 quarters are about 40% of our business, 40%, 45%. And the second half is about 55%, 60% of our business, primarily because March is generally strong, and then it did sort of tapered off a little in Q1. And then in Q2, primarily, it is raining in most of the parts of the country and the construction activity slows down.
So it just gets a little subdued in quarter 2. But then in quarter 3 and quarter 4, the second half of the year, it picks up. The festival season coming in and the buying season coming in, so things started to September onwards, October onward, they'll start to increase it.
Okay. For agriculture equipment also it is the same?
For agriculture, generally, quarter 3 is the biggest month. Vyom, you can add here with respect to Agri, if you want.
This is Agri going forward this quarter as well as the next quarter, it should do well because of good crop prices as well as prediction of a reasonably good monsoons.
Apart from that, even in the export side, we are targeting some good geographies, which will add numbers in the coming year.
But seasonality agreement with respect to tractors, I think Q4 is generally a slower month, a slower quarter then Q1, Q2, Q3 are fast quarters, right?
Q3 is the best [ Q2 ] generally is slightly slow.
The next question comes from the line of Anshul Saigal with Kotak AMC.
I have 2 questions. One is that on the 4 segments that we have, how do we see the mix between these segments changing over, say, the next 3 to 5 years? Which segment will become larger in size and [ buy ].
And second, if I look at the last 10 years, our margins in this year are amongst the highest that we have been in the last 10 years. Of course, it has been on the back of a weak industry environment, but is this the peak that we anticipate on margins or, say, 3, 5 years out, there are reasons for margins to be higher?
See the first part of your question, our current mix is about -- crane is about 67%, and construction equipment about 11% and metal handling is about 9% and agri is about 13%. That total of 100%.
Going forward over the next 3, 5 years, we feel that -- and obviously, on an increasing base. So when I say that certain segment, if the contribution is going down, does not mean it will not grow, but the others will grow faster.
So we feel that in the next 3 to 5 years, cranes would still be the leader at about 50%. But another 20% each will be added by agri and construction equipment especially. And forklifts will remain at 9%, 10%. So that is what -- how we see it as. Because the potential to grow in agri as well as construction equipment is much more because our market shares and our presence there is -- there's a lot of scope of growth.
So that's how the mix would look maybe 3 to 5 years from now. 50% on cranes, 20% on construction equipment, 10% on metal handling and 20% on agri. And I have forgotten the second part of your question.
Yes, please. I was saying that the margins that we have seen over the last 10 years have been in this year, the highest. Is this a peak? Or is there a likelihood that margin because of either this product mix change or other reasons, scale, et cetera, that margin will be higher? Say, again 3, 5 years out?
Yes. What I'll do is first, I'll talk a little on the past. So 7, 8 years, let's say, between '13, '14 and slightly before that and till '18 -- '17, '18, these 5, 6, 7 years were relatively slow years when operating leverage was not playing in. We were stuck around 5%, 7%, 8% EBITDA margin levels. Because somehow the country was not growing and at the pace of steel at which we were ready to service it with our fixed expenses in place.
Now that our -- in the last 3, 4 years, our revenue has crossed INR 1,000 crores and is increasing further. So definitely operating leverage is playing in -- so operating leverage alone can easily add 2% to 4% to our margins in the next 2, 3 years, provided we are able to grow the company 20%, 30% every year.
Apart from that, our margins as of now have been adversely affected at least 2%, 2.5% on account of input cost because finally, we have to ensure reasonability and viability of the end product. So whatever benefit we got out of operating leverage in the last 2, 3 years -- the last 1.5, 2 years. And that has also gone away in discounting or subsiding the price for our customers.
Going forward, there is a clear scope of 2% to 3% increase in margins on account of commodity prices, if they cool off especially steel coupled with our revenue going to INR 2,400 crores, INR 2,500 crores possibly by FY '24, if not FY '25. I think in the next 2 years, there's a possibility that we can reach there. If that happens, then another 2%, 3% or maybe slightly more on account of operating margin. So there is a scope of expansion of anywhere between 2% to 4%, maybe slightly more than that.
The next question comes from the line of [ Sarika Cutia ] and Individual Investor.
You have been vocal in the past that [ M&A ] activities are going to be affecting our operating margins more. So since we are pretty close to closing [ one ].
You have to be a bit louder and a bit clearer, sorry.
Is it better?
Somewhat better.
Okay. So just wanted to understand, since we are pretty close to acquiring 2 companies, 2 or 3 companies. what impact would it bring to our margins, over and above the business [indiscernible] which are definitely going to be margin aggressive for the year?
I think these 2, 3 acquisitions are going to affect or help us improve margins in at least 8% to 10% of our business in the crane segment primarily. And we will get [ offended ] with me on that. But nevertheless -- so there is a possibility to rev it up. So on the whole on a company basis, about 0.5% to 1%, is possible with these 2 that we have lined.
Over and above the product change?
Yes. Over and above, right. Yes.
And the impact would be felt during the year itself?
Should be felt in the second half of this year.
The next question comes from the line of [ Anik Mitra ] with [ Walford Research ].
Am I audible?
Yes, you're audible. Yes.
Sir, like the expansion, what you are doing, like what is the time line of commercialization this facility? This is one question. And second one is like what sort of revenue addition can we expect post commercialization of this new facility?
See, the time line would be that we want to commercialize and start producing for way something as soon as December, January. So we are already May is finishing. So with all probability, it will be Q4 when it gets commercialized into production. And the revenue that can be generated from the CapEx that we are doing would be close to maybe about -- it will be capable. The capability would be to -- revenue of INR 300 crores to INR 400 crores. But yes, let's say, in the next year, we should expect INR 100 crores because the capacity is building a bit more than what we will require immediately.
There's no point building a small plant and then trying to increase it after 1 or 2 years. So -- and then most of our capacity, otherwise are also fungible. So even if it is required for some of the activities can be used.
So the total capacity, that's the revenue addition possible after this about INR 30 crores, INR 40 crores CapEx would be close to about INR 300 crores to INR 400 crores at least.
Sir, what is our current capacity utilization?
In cranes, we have utilized about 70%, 75%. In metal handling, we are utilized about 75%. And for construction equipment and agri, we are utilized 30%, 35%.
Okay. And sir, like is there any possibility of improvement in this utilization in agri segment in this year?
Yes. I think 15%, 20%. We are looking at increase in revenue. It can be much more, 25%, 30%, but we would like to see at 15%, 20%. 100% is capacity, capacity utilization go to 40%, 50% in this year also.
The last question comes from the line [ Somnath Pal ], an Individual Investor.
Sir, it is good to hear that you are positive on the business and the outlook looks good. I just wanted to know, sir, what is the biggest fear that you think, which you would have given the uncertainties persist, with something which bothers you probably. Or which you can share probably for the next 2, 3 quarters or so?
Nothing to do with business per se. I'll be very frank, more to do with China attacking India. That is the biggest fear Pakistan has gone to the [indiscernible]. I think China is a fear factor, god knows.
The way they are being pressed and oppressed all over the world, I do not know how they will react.
Okay. But I think that would be kind of an unexpected event, right? I mean I was just trying to understand from the business perspective -- sorry, I would just like to understand from the business perspective, do you think anything which worries you, given the raw materials are cooling and demand is coming up and everything looks good.
Nothing really because I think we are rightly priced. There's no fear as such. The only worry is that it has been some time we have not been able to rev up our agri business. So I think we need to work hard on this. That is one worry that we have.
Apart from that, I think the way our country is poised at the current juncture with respect to the possible growth in all our operating segments. I think if you are not able to capitalize in the next 3, 4, 5 years and maybe 10 years. and become double, triple or even bigger, but bigger than that. So we would have missed an opportunity.
So it's just not in the books, so you sort of feel quite confident and do you think that this is the right time to catch the bus, Otherwise, we would miss it. Would that be the understanding?
We are already on the bus. We are on the driver seat, we are market leaders of the 2 of the segments. And going forward, very soon, we want to be the market leader in metal handling as well as leave our mark in the construction equipment space.
And one thing very proudly, I can tell you that today, after Kubota taking over majority stake in Escorts, we are out of the big 15, 20 construction equipment company. We are the only Indian company, all other are multinationals, and we are giving them a run for the money [indiscernible].
Right. So very encouraging. I will just put up a couple of more points and questions. Sir, do you think that there is scope for any kind of cash sales in our in our machines and hence by improving the working capital even further? I mean -- or is there any plan from the management side to do that?
See, definitely more needs to be done on our debtor side, and upfront payment sales also do happen. But I think at the current juncture, what has happened with us to further improve our working capital. But definitely for some good bad reason, we are carrying a little extra inventory.
Because the last COVID wave within this year. And before that, we had seen a lot of supply chain problems happening, we are carrying at a INR 50 crores, INR 80 crores excess inventory, which we think start to normalize over 3, 6 months, 9 months, supply chains totally settled and semiconductor issues settled, then perhaps we can work on reducing this.
But other than the inventory you think the debtor and the [ payable ] can be...
Debtors are very well in control. And one thing that can be improved in debtor and we are already working on it, that post -- the lockdowns in '20 and '21, the financiers have been delaying payments on some projects or the other for 15, 20 days. Earlier, we would get fit as far as the machine is dispatched from the financiers. But now they want the machine to reach its destination and get registered half of the -- half of the cases and then pay us.
We have taken it up very strongly with all our NBFC partners, and they have accepted it. So hopefully, our debtors will start to improve further. But as it is, we are in sync with our traditional pattern. So even if after a lot of squeezes, I really do not know how much we can improve it.
Definitely on the creditor side, because the whole of last 1.5, 2 years from 2020 onwards, we have -- we were [ okay pay masters ]. But now we have become very prompt pay masters because of 2 things, because actually the vendor base and the suppliers have suffered during the COVID time. So we do not want that they go out of business or delay because of lack of payments or cash flow.
Secondly, with the commodity and the cycle increasing, input costs increasing. So the working capital requirements of our vendors have increased actually by 50%, 60%, 80% with price decreasing.
So that's why you will see that our creditors for this year are although we've done more revenue, but the creditors are less as compared to the year before that FY '21.
So that is a very conscious decision we've taken to support our -- vendor support structure. Because finally, these are the people who help us grow further when we need to make more.
Said very thoughtful. And I think I'll just put up a last question. So in terms of acquisition or whenever you plan to acquire, so what is the kind of ROCs or your internal IRRs, just on a rough estimate kind of?
The 2 smaller ones we are doing will help us increase our bottom line.
Sorry, my point was on the cost of -- in terms of -- not in terms of how they help, in terms of finances and in the terms of the valuation at what you buy, I mean, just some sense of what are your [ IRRs ]?
See, we are working on something even better than that to be very frank with you. We have just -- I really can't -- I really don't want to give out those details, but we are hardly paying anything for that. We have sort of brought them in a situation that we are relieving them.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand over the conference over to Mr. Vikram Suryavanshi for closing comments.
We thank the management of Action Construction Equipment for giving us an opportunity to host the call and taking time out for interacting with the stakeholders. Thank you all for being on the call.
Thank you. On behalf of PhillipCapital India Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.
Thank you. Thank you, everybody.
Thank you.
Thank you.