IPO Note - Craftsman Automation Ltd By Geojit Financial
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A diversified engineering business…
Craftsman Automation Ltd. (CAL) is a diversified engineering company with vertically integrated manufacturing capabilities, engaged in three business segments, (i) Automotive-powertrain and other products (ii) Automotive- Aluminium products and(iii) Industrial and engineering products segment. They are the largest player involved in the machining of cylinder blocks and cylinder heads in the intermediate, medium and heavy commercial vehicles segment as well as in the construction equipment industry in India. They are present across the entire value chain in the Automotive-Aluminium products segment, providing diverse products and solutions.
* In line with automotive demand, domestic sales for powertrain sector is expected to grow at 14% CAGR while the aluminium casting market is expected to record a CAGR of 8% by FY24.
* CAL exported products to over 20 countries, which represented about 10% of its revenue from operations.
* CAL owns and operates 12 strategically located manufacturing facilities across seven cities in India.
* The total revenue has increased by 23% in FY19 compared to FY18, while it degrew by 18% in FY20 due to BS-VI norms and the COVID-19 pandemic.
* PAT grew at 15% CAGR in FY18-20 and improved the EBITDA margin from 19.9% in FY18 to 28.1% in 9MFY21 with strong process controls resulting in better operational efficiencies.
* Sales to the top four customers represented 43% of the revenue from operations for 9MFY21.
* The company had a capital expenditure of Rs.808cr in the last 3 years which equipped them to offer a diverse product mix, enhance operating efficiency and drive productivity.
* GoI’s ‘Make in India’ initiative, impending scrappage policy, other regulatory & policy supports and strong relationships with domestic and global OEMs are positive for the company.
* At the upper price band of Rs.1,490, CAL is available at a PE of 46.6x (annualized basis on FY21E EPS of 31.9) which is aggressively priced. GoI’s ‘Make in India’ initiative and other regulatory and policy supports with well established relationships with domestic and global OEMs are positive for the company. We assign a Subscribe rating, with a long term perspective, on the back of healthy growth in the OEM segment due to lower base and reduction in debt.
Purpose of IPO
The Offer comprises of Fresh Issue and Offer for sale. The Company intends to utilize Rs.120cr of the Net Proceeds from fresh issue towards repayment of outstanding borrowings (total debt is Rs.890cr) and general corporate purposes.
Key Risks
* Higher capital expenditure arising due to technological changes like electrical vehicles.
* Regulatory and policy changes.
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