The ₹824-crore Craftsman Automation IPO opens today – should you subscribe?
- Craftsman Automation has launched its ₹824 crore initial public offer (IPO) today, and it will be open for subscription till March 17.
- The price band is fixed at ₹1,488-1,490, and each lot consists of 10 equity shares.
- While some investment experts are bullish on the stock and suggest subscribing, others have pointed out certain risk factors.
- This includes the risk posed by electric vehicles and supply chain shocks, among others.
The Coimbatore-based company has kicked off its IPO today, March 15, with a price band of ₹1,488-1,490, netting you 10 shares per lot. The total IPO size is worth ₹824 crore, but Craftsman Automation has already secured ₹247 crore from anchor investors.
50% of the issue is reserved for qualified institutional buyers (QIB), 15% for non-institutional bidders and the remaining 35% for retail investors.
Understanding the business of Craftsman Automation
Craftsman Automation was founded in 1986 in Coimbatore. It has vertically integrated manufacturing capabilities and primarily caters to three business verticals – automotive-powertrain, automotive-aluminum, and industrial & engineering.
Craftsman is the leading player when it comes to machining of cylinder blocks and cylinder heads which are used in the commercial vehicles and construction equipment industries. It is also one of the top companies when it comes to supplying these parts in the tractor segment.
Coming to the automotive-aluminum vertical, Craftsman has an array of processes in the high pressure, low pressure and gravity die casting for manufacturing auto components for passenger vehicles.
In the industrial and engineering vertical, Craftsman builds aluminum products for power transmission, high-end precision products like gear boxes, marine engines and more.
Here are some of the clients of Craftsman Automation
AdvertisementCraftsman Automation has an impressive list of clients that includes companies like Daimler India, Tata Motors, Ashok Leyland, Mahindra & Mahindra, Escorts, John Deere, JCB India, TVS Motors, Royal Enfield among others.
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Craftsman Automation – strengths and risk factors
Diversified engineering company
Craftsman is the largest player in the machining of cylinder blocks and cylinder heads used in commercial vehicles and construction industry. Apart from this, it also offers products in the passenger vehicle, power transmission, marine engine segments, among others.
“Its diversification of revenue across multiple customers allows it to prevent any possible customer concentration in any of its business segments,” stated a report by SMC Global Securities dated March 10.
Strong in-house processes and designing capabilities
The SMC report further adds that Craftsman has a ‘strong focus’ on research and development. Its manufacturing automation teams integrate robots and gantry systems, which helps in ensuring consistent quality. The report notes that Craftsman’s design capability is unique amongst its competitors.
Impressive domestic and global clientele
Craftsman has a range of marquee clientele, both domestic as well as global. Some of the big domestic names include Tata Motors, Mahindra & Mahindra, Ashok Leyland, TVS Motors, Royal Enfield and others. Global names in the list include the likes of John Deere, India subsidiaries of Daimler, JCB among others.
Improving margins despite challenging business environment
Despite a challenging business environment and falling revenues, Craftsman has been able to improve its earnings. While its revenues fell by nearly 18% from March 2019 to March 2020, its earnings before interest, tax, depreciation and amortisation (EBITDA) improved from 25.12% to 27.24%.
EBITDA is a measure of the company’s financial performance.
Powertrain and allied components prone to electric vehicles risk
While Craftsman’s prowess in the powertrain segment adds heft to the company’s profile, powertrain components would be obsolete when the present internal combustion engine (ICE) based vehicles are replaced by electric vehicles (EVs).
Low aftermarket presence ties company’s fortunes to OEMs
Craftsman caters to original equipment manufacturers (OEMs) across its three business verticals. Some of these OEMs operate in industries like automotive, steel, cement among others, which are cyclical in nature.
As such, the demand tapers off in some seasons, and since Craftsman directly serves OEMs, its fortunes are tied to those of the OEMs.
Limited long-term contracts, prone to supply chain risk
According to the ICICI Direct report dated March 12, Craftsman does not have any exclusive supply arrangements and purchases material on a spot order basis. This exposes the company to supply chain risks.
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