The initial public offering (IPO) of Craftsman Automation opened for subscription today at a price band of Rs 1,488-1,490 per share. The issue, which closes on March 17, consists of a fresh issue of Rs 150 crore and an offer for sale of 45,21,450 equity shares by existing shareholders.

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At the higher price band, the company plans to raise Rs 824 crore from the issue.

Craftsman Automation is a diversified engineering company with vertically integrated manufacturing capabilities, engaged in 3 business segments namely, Automotive - Powertrain and Others, Automotive – Aluminium Products, and Industrial and Engineering.

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Craftsman Automation to launch Rs 824 crore-IPO on March 15; price band fixed at Rs 1,488-1,490

On the back of the company’s strong financial performance, growth potential in automotive aluminum and storage divisions and M&HCV segment rebound, certain brokerages have recommended subscribing to the issue.

“Craftsman Automation is a play on revival in the automotive industry, especially M&HCV space. With a lumpy capex cycle behind it & a focus on debt reduction, it is well poised to clock healthy returns ratios in FY22-23E. At IPO price, it is offered at reasonable forward valuations. We recommend Subscribe,” ICICI Direct said.

Also Read: Craftsman Automation IPO opens today; Here are key things to know

The company counts all major auto OEMs and key players in the industrial segment as its key clients. In the automotive segment, its key clients include Daimler India, Tata Motors, Ashok Leyland, M&M, TAFE, Escorts, John Deere, JCB India, TVS Motors, Royal Enfield, among others. Its clientele in industrial & engineering segments includes Siemens and Mitsubishi Heavy Industries.

Its top 10 customers constituted 53 percent, 59 percent of its sales in FY20, 9MFY21, respectively. It also has high client stickiness with more than 50 percent of sales coming from clients that were associated with the company for more than or equal to 10 years, ICICI Direct said.

Brokerage Prabhudas Lilladher recommends 'subscribe' for the long term. The rating was due to a positive demand outlook on MHCV/tractor industry, healthy financial performance in tough times, robust growth potential in auto aluminum as well as storage divisions and expansion in ROCE led by lean capex and debt reduction plans.

“While listing gains in our view looks obscure, we recommend subscribe for the long term,” the brokerage said.

However, Angel Broking raised concerns over the company’s dependence on the automobile segment. The company’s more than 70 percent revenue comes from the automotive segment and slowdown in automobile industries could impact the overall sales volume of the company, the brokerage said. It also said that the concerns over growth remain as the company reported poor consolidated top-line (CAGR of ~0.5% over FY2018-20).

“In terms of valuations, the pre-issue P/E works out to 73x FY2020 earnings (at the upper end of the issue price band), which is high considering Craftsman Automation’s historical two-year CAGR top-line and bottom-line growth. Further, the company’s return ratios are also low compared to its other peers. Thus, we recommend a Neutral rating on the issue,” said Amarjeet Maurya - AVP - Mid Caps, Angel Broking.

LKP Securities recommended subscribing to the issue despite rich FY21 valuations (based on 9M FY21 annualised earnings), citing the company's visibility of topline growth, competitive edge, superior profitability compared to peers, prudent cost management, return ratios, a sound R&D base and its technological progress.

Canara Bank Securities said that the company looks expensive in comparison to its peers in terms of P/E of 48.44x (annualized) and P/B of 4.19x for 9MFY21. But considering the company’s financial performance and de-risked business model, the brokerage recommended 'subscribe' for the long term.

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First Published:Mar 15, 2021 10:20 AM IST