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Buy Craftsman Automation; target of Rs 2832: LKP Research

LKP Research is bullish on Craftsman Automation has recommended buy rating on the stock with a target price of Rs 2832 in its research report dated May 11, 2022.

May 12, 2022 / 08:58 PM IST

"India’s specialty chemicals industry is a decadal growth opportunity and it is still not too late to participate in the value creation process. We prefer CRAMS/CSM players Navin Fluorine (Navin) and PI Industries (PI) as they provide long-term earnings visibility. We also like UPL due to robust growth outlook and reducing debt concerns and SRF due to rising contribution from the chemicals business," JM Financial research report.

 
 
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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.



Outlook


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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first published: May 12, 2022 08:58 pm
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