CRISIL revises Craftsman Automation's rating outlook to 'positive'; reaffirms ratings

Craftsman Automation said that CRISIL Ratings has revised its outlook on the long-term bank facilities of the company to 'positive' from 'stable', while reaffirming the rating at 'CRISIL A+'.

Further, the agency has also reaffirmed the company's short-term rating at 'CRISIL A1'.

CRISIL Ratings said that the revision in outlook reflects the sustained strong improvement in CAL's business performance in fiscal 2023, which is expected to continue in the next fiscal as well, due to healthy demand for components from the CV and passenger vehicle OEMs, and also supported by the proposed acquisition of DRAIPL. Besides, demand from export customers has also remained steady.

On 29 December 2022, CAL announced that it has signed definitive agreements to acquire 76% stake in DR Axiom India Pvt Ltd (DRAIPL) for a consideration of Rs 375 crore. The acquisition is expected to be completed by the fourth quarter of fiscal 2023 subject to fulfilment of conditions precedent agreed in the definitive agreement. DRAIPL is the major supplier of cylinder blocks and heads for leading passenger vehicle (PV) original equipment manufacturers (OEMs) such as Hyundai Motor India and Kia Motors India, as well as Mahindra Heavy Engines.

The acquisition is in line with CAL's strategy to increase the share of revenue from the PV segment, and gradually lower revenue dependence on commercial vehicle (CV) segment, thereby diversifying the overall revenue stream.

CRISIL Ratings said that it will continue to monitor the progress on the transaction, which is subject to customary closing conditions, and synergy benefits arising out of the same.

The ratings continue to reflect the strong position of CAL in the engineering contract-manufacturing sector, established customer relationships, healthy operating margin and improving financial risk profile. These strengths are partially offset by sizeable capex, large working capital requirement, and vulnerability to slowdown in the automotive sector, the credit rating agency stated.

Craftsman Automation (CAL) manufactures several components and sub-assemblies on supply and job-work basis according to client specifications in the auto, industrial and engineering segments.

For the first six months of fiscal 2023, CAL reported profit after tax (PAT) of Rs 116 crore on operating income of Rs 1,447 crore compared with PAT of Rs 73 crore on operating income of Rs 1,000 crore, respectively, during the corresponding period of the previous fiscal.

The scrip fell 1.44% to currently trade at Rs 3,542 on the BSE.

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