LKP Research's research report on Craftsman Automation
We believe the Power train business will be driven by expected pick up in Replacement cycle for HCVs in the coming quarters and also fresh demand risen by movement in the investment capex cycle of the country. Dieselization demand from all over the world and localization of diesel vehicle demand should lead to strong demand of >25% for Power trains. Rising infrastructure growth, construction, mining, agri-commodities transportation, increasing freight rates etc will all lead to a very strong revival in the CV industry. Exports business (now 10% of topline supported by Africa) and electrification shall drive the Automotive Aluminum business. New orders from clients like PSA, Daimler and geographies like Brazil, North America, Europe shall diversify the business risks. Storage business shall lead to a strong growth in the Industrial Engg business. We believe margin strength to come back in this business with the pandemic risk becoming lesser and lesser day by day. The company has also been winning orders in various business lines, which will add to numbers in the following quarters. The company is expanding its business at a low capex of just Rs2.15-2.2 bn as the utilization rates are still low (60-70% for Powertrain business and 57% for Aluminium Products business). With such a low capex also the company expects strong growth across the board. Capex shall expand with new business wins if required.
We also believe the valuation multiples shall expand from current levels on the back of improving ROE and the exciting story going forward. We therefore value CAL at 14x FY24E earnings as it currently trades at 11.1x. Maintain BUY with a target of Rs2,832.
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