The time looks favorable for Craftsman Automation (CAL). The company manufactures cylinder blocks and cylinder heads for the medium and heavy commercial vehicles and construction equipment (CE) segment. The demand for CVs is increasing in India. CAL will benefit from the good growth of the commercial vehicle (CV) industry. CAL's stock hit a 52-week high in September 2024. After falling 30 per cent since then, its valuation looks attractive.
Focus on diversification in passenger vehicles and alloy vehicles
Craftsman Automation Ltd ( CAL ) is constantly trying to strengthen its aluminium business. The company has increased its focus on diversification in passenger vehicles and alloy vehicles. Its flexible casting processes include ICE (internal combustion engine) and EV (electric vehicle) applications. Some big orders received recently can strengthen the aluminium die-casting business. The automation industry is shifting to advanced emission standards. Meanwhile, the government has focused on increasing the use of EVs. This will increase the use of aluminium in vehicles.
Operating margin expected to reach 16-18 percent
CAL has acquired DR Axion (DRA) India. This company has expertise in aluminum cylinders. This will bring diversification in CAL's aluminum segment. Currently, two-wheelers contribute 80 percent to the company's revenue. The company's management has projected 20 percent growth in FY26. This will increase the operating margin to 16-18 percent. The government has increased focus on infrastructure and mining activities. This will increase the demand for CV and CV segment.
The performance of non-storage business is also expected to be better
CAL expects better performance in the coming quarters. This is due to positive sentiments in the FMCG, automotive and pharmaceuticals sectors. Apart from this, the company also expects better performance of the non-storage business. This will be supported by good growth in the CE and farm equiments segments. The company's order book in these segments is fully booked for next year.
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Should you invest?
The company's management has projected a revenue of Rs 7000 crore in the financial year 2025-26. This is much higher than the company's current revenue. The company has projected consolidated EBITDA to grow 29 per cent year-on-year to Rs 1000. EBIT is expected to grow 40 per cent to Rs 700 crore. Currently, CAL's stock is trading at 22.2 times its FY27 estimated earnings. Considering the company's growth outlook, this valuation seems reasonable. Investors can use the opportunity of decline in shares to increase investment in it.
