The Craftsman Automation IPO is subscribed 0.55x times on Mar 15, 2021 5 pm. The public issue subscribed 1.06x in the retail category, 0.00x in the QIB category, and 0.09x in the NII category. Today is the 2nd day of the IPO. The offer will close on March 17, 2021 and the company has fixed the price band at Rs 1488-1490 per equity share.

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Avinash Gorakshakar, Director Research at ProfitMart Securities says that Craftsman Automation business can be categorized in three segments:

1) Powertrain and other products for the automotive segment
2) Aluminum products for the automotive segment
3) Industrial and engineering products segment.

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Power Train & Industrial segment contributes over 80% of Revenue and EBITDA margins are over 20% in these segments while Aluminium product segment contributes 20% and it is loss making venture. He believes that the fundamentals of Craftsman Automation are weak. Over last 3 years company financial performance was not impressive, 20% degrowth in FY20 over FY19, Total Debt to EBITDA stands at 3x, average cost of debt 14% which is very high, ROE 6.5%, Credit rating BBB+ (CRISIL)

The Valuations of Craftsman Automation are expensive. The Issue is coming at PE of 68x and EV/EBITDA of 11x which is expensive compare to most of its peers. Given the fact that, company delivered Muted Performance, low solvency and expensive valuation, Avainash says Avoid subscribing to this issue.

Craftsman Automation Overview:

Craftsman Automation is the largest player involved in the machining of cylinder blocks and cylinder heads in the intermediate, medium and heavy commercial vehicles segment as well as in the construction equipment industry in India. They are among the top three-four component players with respect to machining of cylinder block for the tractor segment in India.

Craftsman Automation operates in three business segments, namely Automotive – Powertrain & Others, Automotive–Aluminium Products, and Industrial & Engineering division. It owns and operate 12 strategically located manufacturing facilities across seven cities in India, with a total built up area of over 1.5 million sq. ft., close to some of key customers to enable meeting the customer’s just-in-time delivery schedules, allow economies of scale and logistical advantages. Craftsman Automation customer base includes Tata Motors, Daimler India, Tata Cummins, Mahindra & Mahindra, Royal Enfield, Siemens, Escorts, Ashok Leyland, etc.

Valuation of Craftsman Automation:

Considering FY20 adjusted EPS of Rs19.44 on a post issue basis, the company is going to list at a P/E of 76.65X while its peers such as Bharat Forge Ltd is trading at a P/E of 82.28X and Minda Industries at 93.38X. Marwadi Financial Services recommend to “Subscribe” this IPO based on favorable valuation and also the industry has good future prospects due to the transformation from BS-IV to BS-VI, scrappage policy and electric vehicles introduction.