IGI Logo

Complementary business driving diversification towards PV segment CRATFSMA has recently acquired 76% stake in DR Axion India Pvt Ltd (DRAIPL) against cash consideration of INR3.75b. DRAIPL manufactures aluminium (Al) cylinder heads and blocks for PV OEMs. The acquisition is complementary for CRAFTSMA as a) limited overlap w.r.t technology and customers, b) increases share of PV segment, and c) adds Korean OEMs viz Hyundai/Kia. We expect this acquisition to be EPS accretive, resulting in upgrades in our FY24E/FY25E consol EPS by 14%/11% to factor in for consolidation of DRAIPL and associated acquisition debt. We now estimate consol revenue/EBITDA/PAT to grow ~30%/28%/44% CAGR over FY23E-25E. However, we now lower our target PE multiple for CRAFTSMA to 18x of FY25E EPS (vs 20x earlier) as we now consolidate for DRAIPL. Maintain BUY with TP of INR3,925.

* DRAIPL – PV focused business with market leadership in cylinder heads: DRAIPL was one of the subsidiaries (another subsidiary in China) of Korea based company DR Axion. Incorporated in Dec 2006, it manufactures Al cylinder heads (~78% of revenue) and cylinder block (~17%) for PV OEMs. It has one manufacturing facility at Chennai having low pressure and gravity die casting processes with total capacity of ~32k tons/year (current utilization at 70%). It currently supplies to M&M in India (~40% of revenue) and Hyundai/KIA (single source supplier). It is the largest player in India for cylinder head and a sole supplier to Hyundai and Kia. Also, it is the single source supplier for cylinder head for MM.

* Multiple synergies driven by complementary skills: The merger will allow both the parties to create stronger customer and process capability synergies. While DRAIPL employs low pressure and gravity die casting processes, CRAFTSMA specializes in high pressure die castings (~75% of the revenue). Currently, CRAFTSMA accounts for just 4% of its revenue from aluminum (AL) die casting. DRAIPL exclusively serves the PV segment, and this will help CRAFTSMA expand its foothold in the segment. Post the acquisition, the share of PVs within the Al casting is expected to increase to over 60%. Going forward, while DRAIPL plans to focus on high volume gravity and LPDC, CRAFTSMA is expected to focus on high machining and HPDC orders.

* Gaining access to new OEMs and future EV products: CRAFTSMA has been dealing with a few major domestic OEMs. Between CRAFTSMA and DRAIPL, they cater to 100% requirement of cylinder heads of M&M’s new engines and DRAIPL is single source for cylinder block. Also, CRAFTSMA will get access to the Korean OEMs (Hyundai and Kia) in India through DRAIPL, for which it is single source supplier of cylinder heads/blocks. Moreover, the parent company of DRAIPL is supplying EV related components such as motor housing, which can be accessed by CRAFTSMA against royalty of 2.5%.

o Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412

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