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Weak sequentially, acquisition and standalone business both to work in tandem

Craftsman Automation Ltd (CAL)’s Q3 FY23 numbers were weak overall in the challenging demand environment especially on the 2W side. Revenues grew by 35% yoy and fell by 3.5% qoq to ?7.49 bn on weak festive season. Power train business expanded 39% yoy riding on CV excellence. The segmental EBIT margins were reported at 24.7% v/s 23.8% yoy and 24.6% qoq. Margins were stable as capacity utilisation rate was high in the range of 75-80% thus offering operating leverage. Automotive Aluminum products business was the laggard as its revenues witnessed a sharp fall of 10.5% qoq to ?1.76 bn as the company faced lower offtake on account of weaker 2W demand. At EBIT levels the margins which have always been volatile came in at 3.9%, down 370 bps qoq and 50 bps up from 3.4% yoy. This was mainly due to drop seen in Aluminium prices globally on a qoq basis leading to accumulation of high priced inventories, and lower level of utilization rates (much below normal levels of 60%) stemming from weak 2W demand (70% of segmental revenues). In the industrial Engineering segment, revenues moved down by 18.3% qoq to ?1.65bn as the storage business shrunk as the underlying e-com and retail businesses reduced their spending on challenging demand environment. Therefore, even the margins were subdued at 5.8% v/s 12.8% qoq and 8% yoy. Overall EBITDA margins came in at 21.2%, down 110 bps qoq and 200 bps yoy led by margin fall at Aluminium and Industrial Engg business. PAT grew by 37% yoy but declined 17.6% qoq.

Power-train business to remain buoyant on CV growth

With rise in CV industry and thereby sales of CV OEMs, CAL’s Power-train business saw a healthy growth in the quarter at 39% yoy. Margins came in at 24.7% v/s 23.8% yoy and 24.6% qoq. However, there was in fact a very strong growth in Value Addition (Gross Profit) at ?2.49 bn v/s ?2.32 bn sequentially and ?1.9bn yoy. We are observing strong trends in the underlying CV industry in the current fiscal. We believe this to happen quite comfortably as we expect the CVs to grow at mid-to high teens this year. Also FY23 has been good for the farm sector despite high base, thus we expect FES business also to support the segmental performance. Management expects some pre-buying in Q4 on the back of real time emission norms to be applicable from April 2023. This may lead to some impact on sales in Q1 FY24, but shall regain its momentum shortly. The business has been performing at ~80% utilization rate, owing to which management is planning to expand its overall capex in more than ?3 bn - 3.25 bn range for FY24. We bake in 35%/23%/20% growth for this segment in FY 23E/FY 24E/FY25E respectively

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