Craftsman Automation: India is increasingly becoming a focal point for global manufacturing, drawing attention from boardrooms worldwide. This shift is driven by two key factors: first, escalating geopolitical tensions prompting diversification of sourcing bases among global players, and second, China’s ageing population and rising costs diminishing its competitive edge over the next 5-7 years.
India’s appeal lies in its abundant talent pool, robust domestic economy, resilient supply chains, and government initiatives like Make in India and Atmanirbhar Bharat, propelling its journey towards becoming a premier global manufacturing hub.
Today, our focus is on Craftsman Automation, a frontrunner in precision manufacturing across diverse sectors, and an exploration of its future amidst India’s strategic positioning in the manufacturing landscape. With a PE ratio of 29.1, compared to the industry’s 33.5, the stock requires scrutiny for inclusion in investment watchlists. Let’s delve into deeper analysis to determine its potential.
Table of Contents
Craftsman Automation Ltd
Company Overview
Craftsman Automation Limited is a company based in Coimbatore that does a lot of different engineering work. They can design their own products and make the tools and machines they need all by themselves. It was started in 1986 by S Ravi, who is the Chairman and Managing Director.
They mainly work in India and have 13 plants all over the country. Craftsman Automation makes lots of different parts and pieces for different industries like cars, factories, and engineering. They also make things for sectors like pharmaceuticals and online shopping.
Craftsman Automation – Business Segments
The company has divided its business operations into three segments: Automotive Powertrain, Aluminium Products, and Industrial and Engineering.
Automotive Powertrain
In Automotive Powertrain, Craftsman Automation is a top manufacturer of automotive powertrain parts. With one of the largest machine shops in the country and over three decades of experience in machining precision products, they produce engine crankcases, cylinder heads, camshafts, transmission housing, differential carrier, and axle housing. This segment remains the major contributor to the revenue segment, with around 51 percent coming from this segment in FY2023.
Aluminium products
Craftsman, with expertise in various casting methods, is highly regarded for its reliable aluminium die-casting services. They serve as a trusted partner to major automotive OEMs and industrial manufacturers across different fields.
The company’s key offerings encompass crankcase and cylinder blocks for motorcycles, as well as engine and structural components for cars. Additionally, they provide gearbox housings for both two-wheelers and MHCVs. In FY2023, this segment contributed around 25 percent to the total revenue.
Industrial and Engineering
The Industrial and Engineering category primarily focuses on non-automotive business and serves a variety of user sectors. This division can be further categorized into two subsegments: (i) Storage Solutions, and (ii) High-End Sub-Assembly and Contract Manufacturing & Others. In FY2023, this segment contributed around 24 percent to the total revenue.
Craftsman’s main products in this sector consist of fixed storage racks designed for industries and warehouses. They also specialize in Automated Storage and Retrieval Systems (“ASRS”), tailored to meet the needs of both warehousing and industrial sectors.
Craftsman Automation – Financials
| FY2023 | FY2022 | FY2021 | FY2020 | |
|---|---|---|---|---|
| Revenue (₹ Crore) | 3,183 | 2,217 | 1,560 | 1,492 |
| Net Profit (₹ Crore) | 251 | 163 | 97 | 40 |
| ROE | 17.33% | 14.04% | 9.88% | 5.00% |
| ROCE | 19.41% | 19.52% | 16.15% | 13.42% |
In the fiscal year 2023, ACE saw a notable increase in revenue, surging by 43.5% to reach ₹3,183 crore as opposed to ₹2,217 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a robust Compound Annual Growth Rate (CAGR) of 28.7% in revenue.
Simultaneously, there was a substantial upturn in net profit, experiencing a 54% increase from ₹163 crore in FY2022 to ₹251 crore in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased an impressive 84.4% CAGR.
In FY23, ACE maintained positive financial indicators, boasting a strong Return on Equity (ROE) of 17.33 percent and a Return on Capital Employed (ROCE) of 19.41 percent. The company’s debt to equity ratio for the same financial year stood at 0.99.
Future Outlook
Diversification
The company is planning on diversifying across all its business verticals. In the powertrain vertical, while the company continues to get a larger number of business engagements from the M&HCV segment, it is also working on expanding its footprint into other automotive sectors.
In the aluminium vertical, Craftsman has taken significant steps to establish a presence in the sunrise Electric Vehicle trend transpiring in the automotive segment. Also, the company has taken defining initiatives in growing the industrial aluminium vertical.
Acquisition
Craftsman Automation Ltd acquired a controlling stake in DR Axion India Private Limited for Rs 3.75 billion in February 2023. It is a state-of-the-art automotive manufacturing facility. This acquisition will strengthen the company’s presence in the passenger vehicle segment.
Not only that, this acquisition will also open up the possibility of entering the E-mobility solutions to the passenger vehicle segment, which is only beginning to take off in India.
The company is currently focusing on leveraging the synergies from the recent acquisition, which will strengthen the presence in the passenger vehicle segment for the aluminium business which is primarily dovetailed to the 2-wheeler segment.
A Healthy Operating Efficiency
CAL has maintained its operating efficiency by focusing on niche products and enhancing technical capabilities while implementing cost optimization measures. The company achieved a remarkable operating margin of over 20% consistently in recent years, largely driven by higher margins from machining operations.
However, in fiscal 2023, there was a reduction in the proportion of higher-margin machining business, coupled with an increase in material costs, leading to a moderation in the operating margin to 21.6% from 24.2% in the previous fiscal year.
To mitigate these challenges, CAL is actively pursuing cost-control initiatives such as automation, optimizing the employee base, and reducing wastage. Additionally, the improved capacity utilization following the acquisition of DR Axion, which typically operates with lower margins, is expected to contribute to sustaining the operating margin at a minimum of 20% in the medium term.
Conclusion
In conclusion, Craftsman Automation Limited (CAL) stands as a promising player in India’s evolving manufacturing landscape. With its diverse product range and strategic acquisitions, CAL is well-positioned to thrive in the dynamic market environment. Despite challenges, the company’s focus on diversification and innovation bodes well for its continued success. As we witness India’s growth as a global manufacturing hub, CAL’s future growth trajectory remains optimistic.
So, share your thoughts and comments on CAL’s strategies and the broader implications for India’s manufacturing sector. What do you think about CAL’s prospects in the evolving market dynamics? Let us know in the comments below!
Written by Nalin Suriya
By utilising the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.
