Craftsman Automation

About the Company

Craftsman Automation started the journey in the year 1986 as a small scale industry in the southern Indian city of Coimbatore, has grown to become a leader in precision manufacturing in diverse fields.

The co. manufactures several components and sub-assemblies on a supply and job-work basis according to client specifications in the automotive, industrial, and engineering segments. Headquartered in Coimbatore with 12 plants including 10 satellite units across India. The majority of its revenues come from auto ancillary parts.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a decent quarter with sales increasing by 22% YoY while PAT increasing by 8%.
2. The company saw a rise in EBIDTA of 20% YoY to Rs.539 Cr.
3. The Automative powertrain segment saw a growth of 42% YoY in FY22 while EBIT stands at Rs.304 Cr Vs Rs.221 Cr YoY.
4. The Auto aluminium segment clocked revenue of Rs.440 Cr Vs Rs.330 Cr YoY but this was mostly due to aluminium commodity price increase while EBIT increased from Rs.3 Cr to Rs.10 Cr.
5. The Industrial engineering segment saw revenue increase from Rs.405 Cr to Rs.612 Cr YoY while its EBIT decreased from Rs.75 Cr to Rs.64 Cr.
6. ROE increased from 11% to 15% YoY.
7. Debt/ Equity improved from 0.72 to 0.63 meanwhile working capital increased due to higher inventory levels lead by availability issues and high commodity prices.

Conference Call Highlights

1. The management is confident about delivering 20% growth in all the segments in the coming quarters even after factoring for commodity price hikes.
2. The management is bullish about strong recovery in the 2-wheeler segment as volumes in Q1 will almost be 90% of Q4 which is better than the generally expected volumes in Q1.
3. The company states that in the auto power train segment, it is immune from any commodity price hike as it does 100% pass through to its customers.
4. The company expects to get the benefit from price hikes in its industrial engineering segment in the current quarter due to new arrangements with its long-term clients.
5. The management expects to increase the turnover of the storage solutions business by 50% in the coming year with margins also improving from the current levels.
6. The management is guiding for a double-digit ROCE & EBIT margins in its auto aluminium biz in the coming years.
7. The capacity utilization levels for the auto powertrain & auto aluminium segment for FY22 stood at 60-70% & 57% respectively.
8. The management is seeing strong order wins in its aluminium segment & expects to increase the revenues from Rs.446 Cr to Rs.1000 Cr within 3 years timeframe.
9. The management expects some part of its revenue from Daimler will get affected due to its decision to stop production of medium duty vehicles coupled with a new deal with Cummins, However it doesn’t see this as a major threat since the majority of the Daimler biz comes from Brazil where the production will continue. Further, its reducing dependence on Daimler on the revenue front will reduce the impact on the company.
10. The company can generate annual revenue of Rs.3600 Cr at peak capacity utilization.
11. The company is expecting to repay the debt of Rs.100 Cr in FY23.
12. The management expects the ROCE of the storage solutions business to reach the level of 20% since although EBIT margins are low, so is the capital intensity of the business.
13. The Management believes it will once again reach EBIDTA margins of 17-18% in an industrial segment from current levels of 16% due to better pricing in the storage solutions business coupled with price correction in high-end assemblies.
14. The company is targeting to reduce the contribution of two-wheelers to its auto aluminium biz from high 80s to 50% by FY25.
15. The product-wise contribution to the powertrain segment’s FY22 revenue stood at commercial vehicle – ₹620 Cr, off-highway – ₹232 Cr, passenger vehicles – ₹97 Cr & farm equipment- ₹206 Cr.
16. The management believes that one of the major threats for the biz is manpower cost inflation of 20-30% which constitutes around 18-20% of total value added for the company.
17. The management expects the margins of auto powertrain & aluminium biz to be similar once the aluminium biz scales up.

Analyst’s View:

Craftsman Automation is a leading maker of engine parts in India. The company saw a decent Q4 with 23% YoY revenue growth but PAT growth was only at 8.5% YoY due to commodity price rises. It has however seen a phenomenal FY22 with 42% YoY revenues growth and 68% PAT growth.  The company expects this margin blip to get mitigated in the near future as it passes on the cost rises to customers. The management expects the ROCE and EBIT margins for the aluminium business to rise above 10% in the near future. It remains to be seen how the company’s near term performance will pan out given the steady rise in inflation and how long will it take for the non-core businesses to grow. Given the company’s strong positioning and its rising segments, Craftsman Automation is a good auto ancillary stock to watch out for.