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There are some interesting IPOs scheduled to be launched in 2021. One such IPO is the Craftsman Automation Limited IPO that is being launched on March 15, 2021. Here is all you need to know about the issue.

Craftsman Automation Limited IPO Details

IPO Date March 15, 2021 to March 17, 2021
Issue Type Book Built Issue IPO
Issue Size Equity Shares of Rs.5 totaling up to Rs.823.70 Crore
Fresh Issue 1,006,711 Equity Shares of Rs.5 totaling up to Rs.150 Crore
Offer for Sale 4,521,450 Equity Shares of Rs.5 totaling up to Rs.673.70 Crore
Face Value Rs.5 per equity share
IPO Price Rs.1488 to Rs.1490 per equity share
Market Lot 10 shares
Min Order Quantity 10 shares
Listing At BSE, NSE

Craftsman Automation Limited IPO Tentative Timetable

Bid/Offer Launch date March 15, 2021
Bid/Offer Last date March 17, 2021
Basis of Allotment finalization date March 22, 2021
Initiation of Refunds March 23, 2021
Credit of Shares to Demat Acct March 24, 2021
IPO Shares Listing Date March 25, 2021

About the company – Craftsman Automation Limited

Craftsman Automation Limited is an engineering company having vertically-integrated manufacturing capabilities in three broad segments:

  • Powertrain and other products for the automotive segment;
  • Aluminum products for the automotive segment; and
  • Industrial and engineering products segment

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. Further, it is among the top three-four component players with respect to the machining of cylinder blocks for the tractor segment in India. Craftsman Automation is present across the entire value-chain in the Automotive-Aluminum Products segment, providing diverse products and solutions.

Craftsman Automation’s comprehensive solutions include design, process engineering, and manufacturing including foundry, heat treatment, fabrication, machining, and assembly facilities. Its core competence in machining and assembly of industrial and engineering products has helped it to establish itself as a significant player in the Automotive – Powertrain and Others segment. The key products in this segment offered by Craftsman are highly engineered and include engine parts such as cylinder blocks and cylinder heads, camshafts, transmission parts, gearbox housings, turbochargers, and bearing caps. The end-users for its products include OEMs producing commercial vehicles, special-utility vehicles, tractors, and off-highway vehicles.

The company has several long-term relationships with multiple marquee domestic and global Original Equipment Manufacturers (OEMs), and component manufacturers across all business segments. In the Powertrain segment, the key customers include Daimler India, Tata Motors, Tata Cummins, Mahindra & Mahindra, Simpson & Co. Limited, TAFE Motors and Tractors, Escorts, Ashok Leyland, Perkins, Mitsubishi Heavy Industries, John Deere, and JCB India. In the Aluminum Products segment, the key customers include e Daimler India, TVS Motors, Royal Enfield, Perkins, and Mahindra & Mahindra.

Growth Story of Craftsman Automation Limited

Craftsman Automation Limited was incorporated in 1986 in Coimbatore, Tamil Nadu. In 2001, the company started an aluminum foundry unit at Kurichi in Coimbatore. Four years later, in 2005, it also started a satellite unit in Pithampur and obtained ISO 9001: 2000 and ISO/TS 16949:2002 registration certification. It also received the “Star Performer Award” in bearings, gears, gearing, and driving elements & parts (medium enterprise) from EEPC India. By 2007, it had commissioned a satellite unit in Chennai and Jamshedpur and entered into joint ventures with Carl Stahl and Mitsubishi. Further, it obtained a “Star Export House” registration certificate. Within a year, it incorporated its subsidiaries i.e. Craftsman Europe B.V. (formerly known as Craftsman Marine B.V.), and Craftsman Automation Singapore PTE Ltd. By 2014, it had set up satellite units in Pune (2 units), Faridabad, Sriperumpudur near Chennai, and storage solutions in Arasur, Coimbatore. In 2015, it set up a technology division in Bengaluru and an aluminum sand foundry, HPDC, and LPDC in Arasur, Coimbatore. Over the next five years, the company started a railway and camshaft business in Coimbatore, machining services and an HPDC facility at Bengaluru. It also set up the third satellite unit at Pune, the second satellite unit at Bengaluru, and started the process of winding up its subsidiary, Craftsman Automation Singapore PTE Ltd.

Financials of Craftsman Automation Limited

Here is a quick look at the financial performance of Craftsman Automation Limited over the last four years:

Mar 2020 Mar 2019 Mar 2018 Mar 2017
Total Assets 2307.28 2236.00 1944.18 1817.74
Total Income 1501.05 1831.51 1526.59 1220.81
Total Expenses 1439.49 1688.61 1480.81 1184.36
Profit After Tax 40.01 99.52 33.15 79.74
Long-Term Debt 668.28 693.20 430.33 434.11

All amounts in INR Crore

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A quick glance at the financial performance of Craftsman Automation over the last four years offers the following insights:

  • The total assets of the company grew at a CAGR of 8.27% between 2017 and 2020.
  • The long-term debt of the company grew at a CAGR of 15.47%.

Overall, the performance of Craftsman Automation Limited has been inconsistent over the last four years. The total income grew at a CAGR of 22.48% between 2017 and 2019. However, it decreased by around 18.04% between 2019 and 2020. This inconsistency was primarily due to considerable capital expenditure for setting up production units. The long-term debt of the company is also a cause for concern.

SWOT Analysis

The Automobile sector in India is expected to grow at a CAGR of 2.67% between 2020 and 2024. The primary growth is expected in the two-wheeler segment. The low rate of growth is due to the introduction of electric vehicles, increasing concerns about pollution, and rising fuel prices. While the automobile components sector grew at a CAGR of 6% between 2015 and 2020, the domestic demand is expected to grow at a CAGR of 7% and exports at a CAGR of 4% in the near future. The Indian Aluminum casting segment has a 78% demand from OEMs (Original Equipment Manufacturers) and is expected to grow at a CAGR of 8% by 2025. The Indian Powertrain segment is also expected to grow at a CAGR of 14% between 2020 and 2024.

Craftsman Automation is primarily into the manufacture of Powertrains and aluminum products for the automobile industry. This industry is driven by a few major players like Mahindra and Mahindra, Ashok Leylands, Tata, etc., and Craftsman Automation has a tie-up with these companies.

Strengths of Craftsman Automation Limited

  • Craftsman Automation Limited is a diversified engineering company with a focus on providing comprehensive solutions and manufacturing high quality, intricate and critical products, components and parts. It is present across the entire value chain in the Automotive Aluminum Products segment, providing diverse products and solutions. Also, it has a reasonable presence in the Powertrain segment for automobiles.
  • The company is present across various levels of the component value chain, providing products and services that range from product design, prototyping, tool development, manufacturing, assembly, and production of integrated components, reducing or minimizing our use of, or reliance on, externally sourced components.
  • Craftsman Automation Limited has strong and well-established relationships with several marquee domestic and global OEMs as well as component manufacturers, including certain of its key customers, to which it has been supplying its products and solutions.
  • The company owns and operates 12 strategically-located manufacturing facilities across seven cities in India, with a total built-up area of over 1.5 million sq. ft. Its facilities are equipped with advanced machinery and certain of its facilities are located close to its key customers to meet the delivery schedules, allow economies of scale and logistical advantages for its customers, and insulate them from local supply or other disruptions.

Weaknesses of Craftsman Automation Limited

  • The company has an inconsistent financial performance over the last few years. Apart from the impact of the pandemic, there has been a constant decline in the demand for automobiles leading to a drop in its revenues.
  • The company has a large long-term debt and tax liabilities.
  • It is also involved in certain legal proceedings amounting to Rs.21.24 crores.
  • Around 13% of its operating revenue is still trade receivables.

Peer Comparison

Here is a quick look at the performance of Craftsman Automation in comparison to its peers on some key aspects for FY 2020:

Profit After Tax Debt to Equity Ratio Return on Net Worth (RoNW)
Craftsman Automation Limited 40.01 1.45% 6.19%
Bharat Forge Limited 473.52 0.25% 8.8%
Endurance Technologies Limited 427.7 19.5%
Jamna Auto Industries Limited 47.88 0.2% 9.27%
Mahindra CIE Automotive Limited* 172.3 0.3% 7.64%
Minda Industries Limited 107.05 0.4% 8.94%
Sundram Fasteners Limited 326.53 42.31% 15.6%
Ramkrishna Forgings Limited 9.70 1.09% 1.10%

All amounts in INR Crore

* The reports are for the period Jan-Dec 2019

As you can see, compared to its listed peers, Craftsman Automation is smaller in size. While it boasts of having the highest profit margins compared to its peers, if it can keep you with its growth plans, it can emerge as a leading name in its segment.

Opportunity to investors – valuation of the IPO

Let’s look at the valuation factors of Craftsman Automation in comparison with its peers:

Earnings Per Share P/E Ratio
Craftsman Automation Limited 20.08
Bharat Forge Limited 10.17 60.76
Endurance Technologies Limited 40.2 36.54
Jamna Auto Industries Limited 1.20 58.75
Mahindra CIE Automotive Limited* 9.33 17.40
Minda Industries Limited 5.91 93.38
Sundram Fasteners Limited 15.46 39.10
Ramkrishna Forgings Limited 2.94 181.89

As per the peer group selected by Craftsman Automation in the RHP, the average PE Ratio is 72.76. If we look at the price band of Craftsman Automation IPO and calculate the P/E Ratio at the higher price of Rs.1490, then we get a value of P/E Ratio of 74.20. This is close to the industry average. Therefore, the IPO is valued correctly.

Risk Factors

  • The extent to which the coronavirus disease (COVID-19) affects the company’s business, results of operations, and financial condition will depend on future developments, which are uncertain and cannot be predicted.
  • There has been a significant decline in automobile sales even prior to COVID-19 and the company is not certain that the sales will recover even after the impact of COVID-19 is over.
  • Craftsman Automation’s inability to meet its obligations under its debt financing arrangements could adversely affect its business, results of operations, and cash flows.
  • The group companies of Craftsman Automation Limited have booked losses in the last three fiscals.
  • The company operates in a competitive business environment. If it cannot respond adequately to the increased competition and consequent pricing pressures that it expects to face from existing players and new entrants, it will lose market share and its profits will decline, which will adversely affect its business, results of operations, and financial condition.
  • The loss of any of its key customers or significant reduction in production and sales of, or demand for its production from its significant customers may adversely affect its business, results of operations, and financial condition.
  • Craftsman Automation does not have long-term contracts or exclusive arrangements with any of its suppliers, and any major disruption to the timely and adequate supplies of its raw materials for any of its segments could adversely affect its business, results of operations, and financial condition.
  • The company has undertaken joint ventures and strategic investments in the past and may continue to undertake joint ventures, strategic investments, alliances as well as inorganic growth through strategic acquisitions, in the future, which may be difficult to integrate and manage. These may expose it to uncertainties and risks, any of which could adversely affect its business, financial conditions, and results of operations.
  • A substantial portion of its assets is hypothecated or mortgaged in favor of lenders as security for some of its borrowings. Its lenders may enforce the security in the event of its failure to service its debt obligations which may affect its business, financial condition, and results of operations.
  • In the event the company is unable to meet its export obligations in full, it may be liable to pay duty proportionate to unfulfilled obligations along with interest. It currently avails of benefits under the EPCG licenses. To continuously avail of the benefits it is required to export goods of a defined amount. Any failure in meeting the obligations may adversely affect its business operations and financial condition.

Objects of the Offer

Craftsman Automation Limited proposes to utilize the net proceeds from the fresh issue for:

  • The repayment/pre-payment, in full or part, of certain borrowings, availed of by it; and
  • General Corporate Expenses

Promoter/s of Craftsman Automation Limited IPO

  1. Srinivasan Ravi

How can you apply for the Craftsman Automation Limited IPO?

You can apply for the Craftsman Automation Limited IPO by using one of these two methods of payment:

  1. ASBA – available via the net banking interface of your bank account. Almost all banks offer this facility
  2. UPI – available with brokers who do not offer banking services. 

Things to keep in mind before investing in the Craftsman Automation IPO

Here are some things that you need to keep in mind before investing in the Craftsman Automation IPO:

  1. The IPO seems to be fairly priced based on peer comparison. You might want to analyze the intrinsic value of the company before making a decision.
  2. Over the last five years, the financial performance of the company has been inconsistent.
  3. Craftsman Automation has a heavy debt burden and pending civil and tax-related legal proceedings.

FAQs

Q1. What is the Craftsman Automation Limited IPO?

The Craftsman Automation Limited IPO is a Main Board IPO for the issue of equity shares having the face value of Rs.5 totaling up to Rs.823.70 crores. The registrar for the IPO is Link Intime India Private Limited and the shares are proposed to be listed on the BSE and NSE.

Q2. What are the open and close dates of the Craftsman Automation Limited IPO?

The Craftsman Automation Limited IPO opens on March 15, 2021, and closes on March 17, 2021.

Q3. What are the lot size and minimum order quantity of the Craftsman Automation Limited IPO?

The lot size of the Craftsman Automation IPO is 10 shares. Also, the minimum order quantity is 10 shares.

Q4. What are the allotment and listing dates of the Craftsman Automation Limited IPO?

According to the RHP, the basis of allotment will be finalized by March 22, 2021. Further, investors can expect to receive the credits in their demat accounts by March 24, 2021 and may get listed on March 25.

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