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Craftsman Automation Limited (CAL) was incorporated on July 18, 1986. The company is led by Srinivasan Ravi a first generation entrepreneur with over 34 years of Industry experience. The company is a diversified engineering company with vertically integrated manufacturing capabilities, engaged in 3 business segments, namely Automotive - Powertrain and Others, Automotive – Aluminium Products, and Industrial and Engineering. It is one of the leading players in the machining of cylinder blocks for the tractor segment. Its customer base includes Tata Motors, Daimler India, Tata Cummins, Mahindra & Mahindra, Royal Enfield, Siemens, Escorts, Ashok Leyland, VE Commercial Vehicles, TAFE Motors & Tractors, etc.

Positives: (a) Diversified engineering company with a focus on providing comprehensive solutions and manufacturing high quality, intricate and critical products, components and parts; (b) Long term and well established relationships with marquee domestic and global OEMs; (c) Experienced promoters and management team with strong domain expertise.

Investment concerns: (a) CAL reported poor consolidated top-line (CAGR of ~0.5% over FY2018-20), hence growth concerns remain;(b) The company’s more than ~70% revenue comes from the Automotive segment (Slowdown in automobile industries could impact the overall sales volume of the company).

Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 73x FY2020 earnings (at the upper end of the issue price band), which is high considering CAL’s historical two year CAGR top-line & bottom-line growth. Further, the company’s return ratios are also low compared to its other peers. Thus, we recommend NEUTRAL rating on the issue.

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