IPO Note - Craftsman Automation Ltd By Ventura Securities
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Craftsman Automation Ltd (CAL), established in 1986, is a diversified engineering company primarily engaged in three segments, namely Automotive Powertrain, Automotive Aluminum and Industrial Engineering. 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 the construction equipment industry. They are also among the top 3-4 players in machining of cylinder blocks for the tractor segment in India. They have a diversified client base which reduces portfolio concentration risk.
We recommend a subscribe on the IPO at the price band of Rs. 1488-1490 per share. Our optimism stems from the following:
* Total revenue is expected to grow at a CAGR of 14.6% over FY20-23 to Rs. 2243 cr. EBITDA over the same period is expected to grow at 12.7% CAGR to Rs 570 cr with margin contraction of 130bps to 25.4% in FY23 and PAT is expected to grow at 76.0% to Rs 224 cr with margin expansion of 720bps to 10.0% over FY20-23. ROE in FY23 is forecasted to be 17.0% and ROCE to be 16.7%.
* At Rs 709 cr the automotive – powertrain segment contributed 47.5% of FY20 revenue although it degrew 10% over FY18-20 to Rs 786 cr citing the financial crisis and overall slowdown in the economy. However, the EBITDA margins have grown by a handsome 772 bps to 35.7% in FY20. At the same time this segment has incurred a substantial capex of Rs 206 cr and given the strong economic rebound, we forecast revenues to grow at a CAGR of 20% to Rs 1225 cr over FY20-23.
* At Rs 258 cr the automotive – aluminum products segment had a 17.3% revenue share in FY20. Although the revenue growth was tepid at 5% CAGR over the last 3 years to Rs 258 cr, EBITDA margins expansion of 644 bps to 16.7% have more than made up for the slower revenue growth. Going forward this segment is expected to grow at 18.8% CAGR to Rs 432 cr by FY23 given:
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