IGI Logo

Adding gravity & low pressure die casting to its strength; maintain Buy

For Craftsman Automation, strong y/y growth across divisions was the highlight of the quarter. Value addition across the powertrain and aluminium business has sustained in percentage terms; we expect the pace to continue in the near term. Demand for M&HCVs is robust, PVs were good while 2Ws were tepid after the festival season, but are expected to return to normalcy in the long term. We maintain a Buy, at a revised TP of Rs3,891 (19x FY25e).

Foraying into gravity and low-pressure die castings. During Q3 FY23, Craftsman automation acquired DR Axion India, which manufactures aluminium cylinder heads through gravity and low-pressure die castings (Craftsman primarily does high-pressure die castings) for passenger vehicles. The cost of acquisition was Rs3.75bn for a ~76% stake. The consolidation is expected to be completed by Mar’23. Post consolidation, the revenue mix for the Auto Aluminium segment would be ~60% PVs, ~40% 2Ws and other segments from the current levels of ~80% 2Ws and ~20% other segments. We expect three types of synergies to play out in the near future 1) operational synergies with respect to the casting process, 2) diversified customer mix (entry of PVs in the aluminium segment), and 3) supply of new products to existing customers and existing products to new customers. Domestic demand remains robust for CVs while exports witnessed some demand contraction in Brazil, but management said this was a one-off and would return to normal in the next few months. Accordingly, we expect 10% growth in FY24 and 12% in FY25.

Better margins in the next two years. The Q3 FY23 EBITDA margin contracted 91bps sequentially due to high inventory costs in the aluminium business. RM prices have declined and management expects some benefit in subsequent quarters. Value addition in powertrain and aluminium has sustained, Rs2.4bn (Rs2.3bn) and Rs615m (Rs680m) respectively, and we believe absolute value addition would increase going forward. Hence, we expect margins of 23.5% in FY24 and 24.5% in FY25.

Valuations. We expect an 18% revenue CAGR over FY22-25, and 39% earnings growth, leading to an EPS of Rs204.8. We maintain a Buy rating, with a revised target price of Rs.3,891 (19x FY25e).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  https://www.rathi.com/LeadGenerate/Static/disclaimer.aspx
SEBI Registration No.: INZ000170832

Above views are of the author and not of the website kindly read disclaimer