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Strong all-round performance; robust outlook

Craftsman (CAL) reported a strong Q2, with revenue up ~65% YoY, at Rs20bn, led by robust growth in the PT/AP segments (+24%/+107% YoY). EBITDA at Rs3bn (EBITDAM up by 20bps QoQ to 15.1%) was led by strong margin expansion in the SA AP segment (which the mgmt highlighted as sustainable). Also order book CAGR of ~20% is expected over the next 3Y, led by existing customers (manufacturing capacities to expand ~50%). CAL is committed to match such demand via calibrated investments, given a minimum 20% pre-tax RoCE on a mature basis. We believe a sustained scale-up in AP (Bhiwadi/Hosur capacities nearing full capacity by H2FY27), strong traction in PT (50%order book in place for large-engine castings; on track for USD100mnpa revenue from FY29), and ongoing turnaround at Sunbeam (double-digit margin by FY27 vs 6% now) should drive CAL’s next leg of growth/profitability. We build in 21/27/49% revenue/EBITDA/EPS CAGR over FY25-28E and revise FY26E-28E EPS by 10-14%; we believe current valuations are attractive (~47% discount to BHFC’s 19x EV/EBITDA Sep-27E), and offer strong re-rating potential (akin to BHFC) led by diversified growth, better ROCE, and healthy FCF generation. We retain BUY and raise TP by ~15% to Rs9,300, at 15x Sep-27E EV/EBITDA.

Strong top-line performance with superior >15% margins

Consol revenue grew ~65% YoY to Rs20bn, driven by strong performance in the PT/AP segments, wherein revenue grew 24%/107% YoY. Consol EBITDA came in at Rs3bn, with EBITDA margin expanding by 20bps QoQ to 15.1% (in line with Consensus’ estimate); increase in RM cost was offset by lower staff costs/other expenses. EBITM for PT/AP was down by ~60bps/up by 160bps QoQ to 14.6%/11.7%. PAT up 48% YoY at ~Rs914mn.

Earnings call KTAs

1) The PT segment is gaining momentum, as global OEMs from Japan, Europe, Korea, and US are increasingly shifting production to India amid labor shortages and rising costs in home markets. India is emerging as the most viable manufacturing hub, catering to both—the domestic market and exports to Middle East, Africa, Asia-Pacific. 2) PT segment is steady, with no major product additions, though plants are fully aligned to serve present customers. 3) Kothawadi plant (PT) has a revenue target of USD100mn by FY29. USD50mn worth of orders already confirmed, with the remainder under active discussions. The mgmt indicated a ~3-4Y lead time for full revenue ramp-up and believes the early start provides a strategic headstart, given absence of new capacity additions globally. 4) AP business continues to ramp up, with new capacities (5.8mn currently at Bhiwadi, 2mn being added under Phase 2 at Hosur) reaching the early stabilization stage; margin at current levels (~11.5-12%) seen as sustainable, as startup costs have largely normalized; entire capacity is expected to be fully operational by Q2FY27. 5) Sunbeam’s (AP) quarterly revenue run-rate is ~Rs3.3bn; the mgmt targets double-digit EBITDA margin by FY27 (Q2: 6%). 6) DR Axion (AP) is fully utilized; is adding capacity for cylinder blocks, with a larger land parcel acquired in Chennai, positioning it as a global automotive hub. 7) CAL not pursuing large-scale M&A; prefers focusing on organic growth.

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