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Order ramp up in Aluminum division and mix to drive growth in FY24E

* CRAFTSMAN’s 4QFY23 operating performance was in line while transition to new tax regime boosted its adj. PAT to INR703m (v/s est. INR537m). We believe growth in the Aluminum division (ramp up for Stellantis and new orders from domestic SUVs) and Industrials (traction in construction activity and exports) should drive overall growth in FY24E/25E.

* We have slightly cut our FY24E EPS by 2% to account for higher interest costs while we retain our FY25E EPS. We reiterate our BUY rating on the stock with a TP of INR3,950 (premised on 18x Mar’25E consolidated EPS).

PBIT margin for Aluminum division spiked 7.5pp QoQ

* CRAFTSMAN’s standalone revenue/EBITDA/adj. PAT grew 20%/9%/37% YoY to INR7.85b/INR1.7b/INR703m (v/s est. INR7.9b/INR1.7b/INR537m) in 4QFY23. FY23 revenue/EBITDA/adj. PAT grew 35%/24.5%/48% YoY.

* Revenue growth of 20% was driven by 16%/18%/30% YoY growth in Auto powertrain/Al products/Industrials & storage segments. Gross margin contracted 50bp YoY/ (+70bp QoQ) to 50.2% (v/s est. 49.0%). This was offset by higher other expenses that led to an EBITDA margin of 21.3% (- 220bp YoY/+10bp QoQ), v/s est. 21.5%. Adj. PAT grew 37% YoY to INR703m (v/s est. INR537m) aided by lower tax due to shift in tax regime.

* Revenues for Auto powertrain/Al products/Industrials & storage segments stood at INR3.9b/INR2b/INR1.6b (+16%/+18%/+30% YoY). PBIT margins for Auto powertrain/Al products/Industrials & storage were at 23.6%/11.4%/9.3% in 4QFY23 (v/s 25.5%/6.3%/13% in 4QFY22).

* DR Axion’s 4QFY23 performance (derived): Revenue came in at INR1.9b (~20% of consolidated revenue). EBITDA was at INR209m with margin at 10.7%. EBIT margin came in at 7.3% during the quarter.

* CFO improved to INR6.1b (v/s INR3.2b in FY22). FCFF rose to INR2.7b (v/s INR1.1b in FY22) mainly led by improved operating performance. Capex for FY23 stood at INR3.4b (v/s INR2.1b in FY22).

* The Board declared a final dividend of INR11.25/share for FY23 (v/s INR3.75/share in FY22).

Highlights from the management interaction

* Management indicated 20% YoY growth on value additions for FY24E (slightly higher for Aluminum and Industrials divisions) largely driven by growth in volumes for existing customers and new customers/product additions. While 1HFY24E growth will be driven by CV/PV, the other segments such as Farm Equipment and Construction will witness traction from 3QFY24E onwards.

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