Craftsman: IIFL Investor Conference

15 Feb 2024 , 02:38 PM

Analysts of IIFL Capital Services hosted Mr. S. Ravi, Craftsman’s Chairman & MD, at IIFL’s Enterprising Bharat – 15th Global Investors’ Conference. Mgmt. highlighted that the slowdown in Standalone is a reflection of deceleration in Auto production in India, as well as lower off-take in exports and non-auto segments. Mgmt. guidance going forward implies continuation of slowdown in the end markets in FY25 (CV, tractors, PV, Exports, Storage solutions, etc.). However, the company is expected to do better than end-markets due to new order-flow. Recently announced capacity expansion, high growth in Aluminium, strong performance in DR Axion, and multi-faceted growth in the Industrial segment would be key drivers to revenue/earnings growth in the near to medium term. 

Slowdown in end-markets of Powertrain and Storage solutions segments: 

Powertrain segment revenue saw deceleration in FY24 with growth tapering down to mid-single digit in FY24ii. Growth is likely to stay at single-digit even in Fy25. Most of the end-markets of the Powertrain segment (CV, tractors, etc.) are likely to remain muted in FY25. The overseas market in the CV segment has also seen a temporary pause in growth, but mgmt. is hopeful of revival very soon. Within Industrial, the main sub-segment, namely Storage Solutions, is weak with the industry clocking decline in revenue. This had also put pressure on pricing and margins. However, mgmt. is positive on its medium-term prospects. 

Mgmt. very positive on Aluminium segment: 

Mgmt. continues to be very positive on the Aluminium segment and expects the new demand flow to be absorbed by the recently announced capex plans. Craftsman is setting up a new plant in North India; this plant will focus on Aluminium segment to start with, backed by new orders. Even after growing the Aluminium revenue to ~Rs40bn, Craftsman believes there is scope for further scale-up. 

DR Axion drove EPS accretion in FY24, but margins may have peaked: 

At the time of acquisition, DR Axion was clocking margins of around ~14%. In the most recent quarter, the sub posted 19% Ebitda margin. Mgmt. guided to mid-to-high teen margins sustaining at DR Axion. The transaction has turned out to be more profitable than expected. Moreover, new model launches by key customers (namely M&M, Hyundai, Kia) would trigger top-line growth in this vertical.