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Strong topline performance, margins to rebound Strong underlying demand and RM pass through to support growth

* Craftsman Automation’s (Craftsman) 2QFY27 consol. adj. PAT of INR1.5b came in line with our estimate, growing ~68% YoY on account of strong performance across segments. Despite strong top line growth, commodity inflation and higher opening inventory impacted margins, as EBITDA margin contracted 180bp YoY to 13.3%.

* The aluminum business is likely to emerge as a key growth driver going forward, driven by the ramp-up of its alloy wheel facilities at Bhiwadi and Hosur, steady order visibility from both domestic and export customers, and benefits of the restructuring of Sunbeam to be visible from FY27E. Management remains committed to a 15% real revenue CAGR, over the medium term. Fueled by a strong earnings growth in 2Q, we raise our EPS estimates by 14%/8% for FY27/ FY28. However, after the recent run-up in the stock, most of the positives appear factored in at 39x FY27E and at 29x FY28E. Hence, we reiterate our Neutral rating with a TP of INR11,000 (valued at 30x FY28E EPS).

Key highlights from the management commentary

* Management expects growth momentum to sustain over the next 2-3 quarters, supported by order wins, capacity additions and product developments, with growth expected across powertrain (excluding tractors in the near term) and aluminium.

* The company remains committed to a 15% real revenue CAGR, supported by new product launches, increasing exports, premiumisation, hybrid powertrains and the gradual shift towards outsourced manufacturing by OEMs.

* Sunbeam's profitability is expected to improve as loss-making, low-margin business is phased out over the next few months, despite a potential reduction in revenue. Q3 and Q4FY27 are expected to show improvement, with new customer orders anticipated in FY28.

* Consolidated net debt/EBITDA is expected at 1.7-1.8x for FY27, with working capital elevated due to growth, inventory build-up and capacity ramp-ups

Valuation and view

The aluminum business is likely to emerge as a key growth driver going forward, driven by the ramp-up of its alloy wheel facilities at Bhiwadi and Hosur, steady order visibility from both domestic and export customers, and benefits of the restructuring of Sunbeam to be visible from FY27E. Management remains committed to a 15% real revenue CAGR, over the medium term. However, after the recent run-up in the stock, most of the positives appear factored in at 39x FY27E and at 29x FY28E. Hence, we reiterate our Neutral rating with a TP of INR11,000 (valued at 30x FY28E EPS).

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