Craftsman Automation rallies 6%, hits 8-month high on improved outlook

The company expects sustained improvement in business performance over the medium term driven by the recovery in offtake from automobile sector.

Shares of Craftsman Automation (CAL) hit an eight-month high of Rs 2,524, as the stock rallied 6 per cent on the BSE in Friday’s intra-day trade on improved business outlook.

The stock of auto ancillary company traded at its highest level since November 2021. It had hit a record high of Rs 2,772.80 on November 1. The company had made a stock market debut on March 25, 2021.

CAL manufactures several components and sub-assemblies on supply and job-work basis according to client specifications in the automotive, industrial and engineering segments. The key products in the automotive segment include power train products, cylinder blocks, cylinder heads, cam shafts and crank cases for commercial vehicles (CVs), sports utility vehicles, two-wheelers, farm equipment and earthmoving and construction equipment.

The company counts all major auto OEMs and key players in the industrial segment as its key clients. In the automotive segment, its key clients include Daimler India, Tata Motors, Ashok Leyland, M&M, TVS Motors, Royal Enfield, among others. Meanwhile, the clientele in industrial and engineering segment include Siemens and Mitsubishi Heavy Industries.

After an unprecedented slowdown across the auto industry that saw domestic volumes down 20-60 per cent across segments (except tractors) over FY19-21, the automobile industry is expecting a strong cyclical recovery to play out over FY21-25.

CAL is confident that it can utilise future opportunities and face future challenges with agility in order to meet the shareholders’ expectation of sustainable growth and profitability.

"The company's key focus areas are debt reduction and thereby savings in interest cost, increasing the value addition per product, to sustain the EBITDA levels, enhance profitability in aluminium and storage Business and enhance the share of non-automotive business," the company said in FY22 annual report.

Analysts at CRISIL Ratings believe that CAL will benefit from its established market position, strong customer relationships and healthy operating efficiency. The financial risk profile will continue to benefit from higher cash accrual driven by steady business performance, moderate capex plans and progressive debt repayment.

On July 5, the rating agency upgraded its rating on the long-term bank facilities of CAL to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’ and reaffirmed  rating on the short-term bank facilities ‘CRISIL A1’.

Highlighting the rationale behind the upgrade, analysts believe that it reflects sustained improvement in business performance over the medium term driven by the recovery in offtake from automobile sector.

"The company is well positioned to capitalise on the uptick in demand scenario given its established clientele, diversified segment exposure and healthy operating capabilities including enhanced production capacities," CRISIL Ratings added.