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 >20% for Power trains. Rising infrastructure growth, construction, mining, agri-commodities transportation, increasing freight rates etc will all lead to a very strong growth in the CV industry. CAL being predominantly driven by CVs followed by tractors shall lead to a very comfortable investment argument. Exports business (now 10% of topline) and electrification shall drive the Automotive Aluminum business. New orders from the latest undisclosed one along with PSA, Daimler and geographies like Brazil, Japan etc shall diversify the business risks. Both Storage and non-storage businesses shall lead to a strong growth in the Industrial Engg business. We believe margin strength to come back in this business with the commodity prices falling, new businesses and utilisation rates moving up. DR Axion acquisition seems to be a strategic/synergic fit which shall start yielding results from FY24. We have not yet factored in their numbers since they are not yet disclosed. The company has increased its capex guidance of ₹2.75 bn to ₹3-3.25 bn in FY24 on the back of higher investment in the high demand Powertrain business. Robust cash generation stemming from strong operational performance shall lead to comfortable Debt/EBITDA of targeted 1.3x from 1.6x including acquisition debt.
We have rolled over the estimates from FY24E to FY25E. We therefore value CAL at 17x FY 25E earnings as it currently trades at 14.7x. Maintain BUY with an increased roll over target of ₹3,883.
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