Fundamental Analysis of Craftsman Automation: The industrial automation and automobile industry is booming in India because of demand revival and heavy private & public CAPEX.
In such an instance, die-casting and industrial goods-making companies are coming out with stellar quarterly numbers. Are there any good opportunities in this space?
In this article, we’ll conduct a fundamental analysis of Craftsman Automation, a small cap automotive components maker and attempt to determine if it can be an attractive opportunity.
Fundamental Analysis Of Craftsman Automation
We’ll begin our fundamental analysis of Craftsman Automation by reading about the business and segments of the company. After that, we’ll read about the industry landscape and financials of the stock. A highlight of the future plans and a summary conclude the article at the end.
Craftsman Automation was started close to 4 decades ago in 1986 as an SME. Since then, it has grown into a prominent precision manufacturer of various industrial goods. It presently has a market capitalisation of Rs 10,270 crore.
Craftsman makes a variety of auto-ancillary, aluminium die-casting, and industrial & engineering products for automobile companies and industrial companies across multiple industries.
The company has a nationwide presence with 12 manufacturing facilities totalling 1.6 million square of built-up area.
The company employs over 2,150 people across its multiple integrated, satellite & flagship facilities and market office. It earned a majority 92% of its revenues from customers located in India while the balance 8% came from the export of its products in FY23.
Segments of Craftsman Automation
The company organises its business into three segments broadly:
- Automotive – Powertrain (51% revenue share): This division manufactures auto ancillary products for major OEMs or automobile companies, such as engine crack cases, cylinder heads, camshafts, transmission housing, differential carriers, and axle housing.
- Aluminium Products (25% revenue share): The segment caters to 2-wheelers and medium & heavy commercial vehicle manufacturers primarily among other automobile OEMs through its aluminium die-casting products like structural parts, gearbox housings
- Industrial & Engineering (24% revenue share): Craftsman produces stationary racking and automated storage & retrieval systems for warehouses & industrial companies. Furthermore, it also provides high-end sub-assembly, contract manufacturing, and storage solutions services as part of this non-automobile division.
Craftsman derived 76% of its FY23 revenue from automotive verticals. Therefore, we’ll primarily read about the auto-ancillary industry in this section.
The auto components industry closely follows the growth of the automobile industry as except for after-market sales, the latter consumes all its output. As for India’s automobile industry, FY23 was a blockbuster year as it recovered from the pandemic effects and posted record production and sales figures.
The sector manufactured a cumulative 2,59,31,867 vehicles (2-wheelers, 3-wheelers, passenger & commercial vehicles, and quadricycles) in FY23 against 2,30,40,066 units in FY22. The growth was highest in certain sub-segments like sports utility vehicles, electric vehicles and commercial vehicles recorded higher growth.
Going forward a variety of factors such as revival in the public and private CAPEX, the government’s push towards EVs, growth in disposable income, etc. are likely to keep the drive sales for the automobile and auto-components industries.
As for the automated storage and retrieval system (ASRS), the other segment through which Craftsman caters to industrial & engineering companies, it is projected to grow at an annualised rate of 6.80% from 2022 to 2028 led by higher e-commerce sales, automation of warehousing, higher consumer spending, and other factors.
Craftsman Automation – Financials
Revenue & Net Profit Growth
The operating revenue and net profit of Craftsman Automation grew at a CAGR of 15.0% and 26.7% in the previous five years from Rs 1,818 crore and Rs 97 crore in FY19 to Rs 3,183 crore and Rs 251 crore in FY23.
The table below showcases the operating revenue and net profit growth of Craftsman Automation for the past five financial years.
|Fiscal Year||Operating Revenue||Net Profit|
(figures in Rs Cr except for CAGR)
But how is it that the net profit grew faster than sales? We’ll read more on this in the next section on margins of our fundamental analysis of Craftsman Automation.
The operating margins largely remained stable for Craftsman during our study period highlighting the strong pricing power of the company. However, the net profit margin fluctuated because of lower volume.
The operating profit margin and net profit margin of Craftsman Automation stood at 21.5% and 7.9% in FY23.
The table below presents the operating profit margin and net profit margin of Craftsman Automation for the past five financial years.
|Fiscal Year||Operating Profit Margin||Net Profit Margin|
(figures in %)
Following consistency in profit margins, the profitability ratios of Craftsman demonstrated stability except during the FY20 and FY21 periods. The RoCE and RoE were at their peak of 21.7% and 20% in FY23 respectively.
The figures below represent the return on capital employed (RoCE) and net profit margin of Craftsman Automation for the past five financial years.
(figures in %)
The debt situation of the auto-components maker has improved considerably in the past few years because of profit growth. Its debt-to-equity ratio came down to 0.8 in FY23 from 1.4 in FY19. Consequently, its interest coverage improved to 4 times from 2 times previously.
The figures below highlight the debt-to-equity ratio and interest coverage ratio of Craftsman Automation for the past five financial years.
|Fiscal Year||Debt/Equity||Interest Coverage|
Future Plans Of Craftsman Automation
So far we looked at the previous fiscals data for our fundamental analysis of Craftsman Automation. In this section, we’ll try to get some sense of what lies ahead for the company and its investors.
- Craftsman Automation recently acquired a 76% stake for rs 375 crore in DR Axiom India, an EV-focused auto-ancillary company to take advantage of the growing EV market in India.
- The management is eying strategic expansion in current markets and planning to add newer markets to drive sales growth in the future.
- Furthermore, the company spent Rs 309 crore in FY23 towards improving its manufacturing capabilities in addition to the usual maintenance expenditure.
We are almost at the end of our fundamental analysis of Craftsman Automation. Let us take a quick look at the key metrics of the stock.
|CMP||₹4,812.95||Market Cap (Cr.)||₹10,242|
|Promoter Holding||55%||Dividend Yield||0%|
|Debt to Equity||0.8||Price to Book Value||7.06|
|Net Profit Margin||7.9%||Operating Profit Margin||21.5%|
As we conclude our fundamental analysis of Craftsman Automation, we can say that the automotive and industrial goods maker seems to be in a sweet spot as the economy comes out of the recovery and a corresponding rise in infrastructure spending by the government and private sector.
Going forward, investors must closely track the quarterly sales and net profit growth to know in which direction the company is heading. In your opinion, has the performance of Craftsman peaked? Will it be able to be consistent in its earnings growth? How about we continue this conversation in the comments below?
Written By Vikalp Mishra
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