Craftsman Automation surges 13%, hits record high on healthy outlook

The stock of the auto components and equipment company is trading higher for the fifth straight day, surging 23 per cent during the period.

Shares of Craftsman Automation (CAL) hit a record high of Rs 6,671.25, as they rallied 13 per cent on the BSE in Monday’s intra-day trade on a healthy business outlook. 

The stock of the auto components and equipment manufacturing company is trading higher for the fifth straight day, surging 23 per cent during the period. It has bounced back 63 per cent from its June month low of Rs 4,095 on the BSE.

CAL manufactures several components and sub-assemblies on supply and job-work basis according to client specifications in the auto, industrial and engineering segments.

Key products in the auto segment include power train products, cylinder blocks, cylinder heads, cam shafts and crank cases for commercial vehicles, sports utility vehicles, two-wheelers, farm equipment and earthmoving and construction equipment, among other things.

Broader trends across the industry segment indicate that all leading industrial engines manufacturers for multi-varied applications, including power generation, as well as internal combustion (IC) engines used in off-highway applications, such as mining and construction, are striving towards sustainable Net-Zero Emissions, with new technologies and flex fuels such as H2, LNG, Bio LNG, HVO, Synthetic Diesel, etc.

The possibility of flex fuels will extend the useful life of current IC engines. This has sparked another wave of development of new engines that are more efficient, with higher power densities. CAL is engaged with major engine manufacturers and will stand to gain from this transformation, the company said in its FY24 annual report.

CAL’s business performance continued to see sustained improvement in fiscal 2024, with revenues increasing by 40 per cent, on-year. The company also benefitted from the full year contribution of DR Axion, steady demand for components, mainly from original equipment manufacturers (OEMs), and increase in share of business with customers.

DR Axion is a major supplier of cylinder blocks and heads for leading passenger vehicle (PV) OEMs such as Hyundai Motor India Ltd, Kia Motors India Private Ltd, and Mahindra & Mahindra.

CRISIL Ratings pegs CAL's revenues to increase by 20-25 per cent upon completion of the acquisition of Sunbeam Light weighting Solutions (SLSPL), besides the steady double digit revenue growth from its existing businesses, supported by an increase in the share of business from existing and new customers, besides new component addition.

The company's operating profitability is expected to fall temporarily in FY25 on account of partial consolidation of SLSPL, along with a moderate fall in margins on standalone basis due to product mix and lower offtake from the commercial vehicle (CV) segment.

Nevertheless, the company's margins are expected to remain at healthy double-digit margins at the end of this fiscal and improve over the medium term, backed by its cost cutting measures and turnaround plans of SLSPL, which will remain a monitorable, the rating agency stated in its research note.

CRISIL Ratings believes CAL will benefit from its established market position, strong customer relationship, diversified revenue base from DR Axion and healthy operating efficiency, while turnaround of operations of SLSPL and the ramp-up of business from upcoming new facilities will remain monitorables for the company.

Moreover, the financial risk profile of the company is expected to improve further, with higher accruals from its existing businesses due to improved capacity utilization and well managed capex plans.

This is expected to result in continued improvement in the company's debt metrics.