Craftsman Automation - Crafting Growth, RoCE Together: ICICI Securities Initiates Coverage With A 'Buy'

ICICI Securities Report

Craftsman Automation Ltd. is undergoing diversification to reduce commercial vehicle exposure and improve return on capital employed by doing casting/machining of engine cylinder blocks/heads for sports utility vehicle makers like Hyundai, Kia and Mahindra and Mahindra Ltd.

By generating ~8% free cash flow/sales with ~22% return on capital employed, Craftsman Automation would be in a position to deliver steady fundamentals and sail through the commercial vehicle downcycle in a smooth manner, in our view.

Thus, beyond organic FCF compound annual growth rate of 12% in FY26-36E, we believe Craftsman Automation has the financial bandwidth to do acquisitions to the tune of Rs 15-18 billion in the next couple of years and add to growth proposition.

This, in our view, would be purely via internal accruals and debt. Quality acquisition like DR Axion would only give conviction on capital allocation capability of Craftsman Automation.

We initiate coverage on the stock with a 'Buy' rating and a DCF-based target price of Rs 5,557, implying 25 times FY25E EPS.

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