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Earnings beat driven by healthy improvement in key segments

Maintains growth guidance for FY26

* Craftsman Automation’s 1QFY26 performance was ahead of our estimates, led by improved performance across all its segments, particularly in the aluminum and powertrain segments.

* Management has maintained its FY26 revenue/EBITDA guidance of INR70b/INR11b. Given the better-than-expected performance in 1Q and an improved outlook, we have raised our earnings estimates by ~4%/8% for FY26/FY27. However, after the recent run-up, the stock at 43.9x FY26E and at 28.8x FY27E appears fairly valued. We maintain Neutral with a TP of INR6,212 (based on 24x Jun’27E EPS).

Earnings beat driven by better-than-expected revenue growth

Consolidated financials:

* Craftsman’s 1QFY26 results included the full impact of the recently acquired subsidiaries. Hence, YoY growth rates are not comparable. Consolidated revenue grew 55% YoY to INR17.8b (above our est. of INR17b). Revenue grew 2% QoQ and was supported by the aluminum segment ramp-up.

* Segment-wise consolidated revenue mix stood at 28%/60%/12% for powertrain/aluminum products/industrial & engineering.

* Gross margin inched up 30bp QoQ to 46.1%.

* EBITDA rose 34.3% YoY (8.8% QoQ) to INR2.6b (vs. est. INR 2.5b). EBITDA margin improved 100bp QoQ to 14.9% (ahead of our estimate of 14.5%).

* Craftsman reported an exceptional loss of INR82m due to relocationrelated costs for the Gurugram facility of Sunbeam.

* Overall, PAT was stable QoQ at INR757m and was ahead of our estimate of INR659m.

Segmental performance:

* Standalone revenue stood at INR10.44b, up 21% YoY (in line).

* Reported gross profit margin stood at a five-quarter high of 48.7%. However, given higher employee costs and other expenses, EBITDA margin remained largely stable YoY at 17% (+300bp QoQ) and was ahead of our estimate of 15%. On a segmental basis, sequential margin improvement was driven by: 1) 130bp gain to 17.3% in the powertrain segment, and 2) 340bp gain in the aluminum segment to 12.9%.

* At a consolidated level, the revenue beat was primarily driven by a 7% QoQ increase in revenue in the aluminum segment due to a ramp-up in both its standalone business and subsidiaries. Consolidated margin improvement QoQ was driven by a 200bp improvement in the powertrain segment and a 130bp improvement in the aluminum segment.

Highlights from the management interaction

* Management has reiterated its earlier guidance for FY26 — revenue target of INR70b, EBITDA of INR11b, and EBIT of INR6.5-7b — despite industry headwinds and geopolitical uncertainties.

* Powertrain segment is expected to showcase high single-digit growth in FY26; 4Q may see double-digit growth.

* Sunbeam reported revenue of INR2.91b in 1QFY26. It is expected to turn EBIT positive by the end of FY26, with improved profitability from 4QFY26 onward.

* Standalone aluminium revenue grew 56% YoY. Even after adjusting for alloy wheel contribution, core business grew 34% YoY. The company continues to expect a 20-25% CAGR over the next 3-4 years, with increased global customer engagement.

* Storage automation segment is expected to grow 15% YoY, albeit at modest ~4% EBITDA margins.

* German operations posted INR670m in revenue. While growth is expected to be modest, cross-collaboration with Craftsman is yielding long-term strategic benefits.

Valuation and view

* Given the better-than-expected performance in 1Q and an improved outlook, we have raised our earnings estimates by ~4%/8% for FY26/FY27.

* After the recent run-up, the stock at 43.9x FY26E and at 28.8x FY27E appears fairly valued. We maintain Neutral with a TP of INR6,212 (based on 24x Jun’27E EPS).

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