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Craftsman Automation is a diversified engineering company with vertically integrated manufacturing capabilities, engaged in three business segments, namely powertrain and other products for the automotive segment (Automotive-Powertrain and Others), aluminium products for the automotive segment (Automotive - Aluminium Products), and industrial and engineering products segment (Industrial and Engineering).

Investment Rationale

* Positive demand outlook on MHCV/tractor industry to aid Revenue Growth: Company manufactures powertrains and aluminum products for the MHCV and Tractor industry. This contribute 70% of the total revenue of company, The MHCV and tractor industry is expected to grow at higher single digit growth rate and this aids in positive revenue growth for craftsman automation.

* Healthy Financial Performance in Over the years: Despite being dependent on MHCV/Tractor industry, Craftsman has delivered an Revenue/ PAT CAGR of 15%/16% in last 5yrs. and has registered robust Revenue/PAT growth of 35%/41%. It has a ROE/ ROCE of 15%/17.8%. We believe, positive momentum in the sector to benefit company.

* Diversified Revenue Streams: Company has a business operations in Automotive Powertrains, Aluminum Products and Industrial and engineering. Company offers High end sub assembly, contract manufacturing and storage solutions. The offerings are in aligned to the recent industry tailwinds and the positive demand outlook of these cyclical natured industry and paves way to benefit for company.

* Outlook and Valuations: We estimate a 15% CAGR in Topline over FY22-25E, which implies a forward PE (x) of 20.1 for FY 25E. We value it with a earnings multiple of 23.5x to FY25 earnings estimate which results per share value of Rs 3327. We recommend BUY on CRAFTSMAN at CMP of Rs. 2849 with Target price of Rs. 3327 (17%).

Observation

* CRAFTSMAN is currently nearing its 52-Week high, while maintaining its Higher Top, Higher Bottom formation which tells that the stock already is in a strong momentum.

* Post the breakout of inverse Head and shoulder pattern in July 2022, prices have sustained well above the Neckline and have shown a bounce on the upside indicating continuation of its prior uptrend.

* The stock have witnessed increase in its volumes on every up swing. Currently the stock is above its all volume consolidated zone and point of control of Volume profile.

* Prices in the latest trading session have closed above upper Bollinger band (Daily) indicating rise in volatility of the prices.

* RSI have shown a range shift on weekly timeframe that reflects the rising momentum in the prices.

Inference & Expectations

* The breakout is in sync with indicators and Higher Timeframes.

* Going ahead we expect the prices to rise higher till the level of 3290.

* We recommend a strict stop loss of 2700, strictly on the closing basis.

Buy at CMP: Rs 2849 Target: Rs 3327 (17%) SL: Rs 2700

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