AxisCap - Craftsman Automation - IC - 23 Feb 2022

Craftsman Automation
True to its name; initiate coverage with BUY

February 23, 2022 Auto | Initiating coverage
BUY  Craftsman is a diversified engineering company and a process expert with

strong machining and casting capabilities catering to auto and industrial OEMs.
CMP: Rs 1,981  Play on auto cycle recovery and manufacturing resurgence in India; strong track
Target Price: Rs 3,250 record of outperforming auto industry growth to sustain over the medium term.
Potential Upside: 64%  Expect 24%/43% revenue/PAT CAGR over FY21-25E; strong FCF generation
and improving RoCEs (19-20% by FY24E). Initiate with BUY and TP of Rs 3,250.
Market Data
No. of shares : 21 mn
Process expert with strong machining and casting capabilities
Free Float : 40%
Craftsman Automation (CAL) is a diversified engineering company – a process
Market Cap : USD 559 mn
expert with strong machining and casting capabilities – catering to both automotive
52-week High / Low : Rs 2,773 / Rs 1,115
Avg. Daily vol. (6mnth) : 0.03 mn shares
(73% of overall revenue with presence across segments) and industrial OEMs. The
Bloomberg Code : CRAFTSMA IB Equity
company has a highly skilled and experienced in-house R&D team led by the
Promoters Holding : 60% promoter Mr. Srinivasan Ravi. Craftsman adds significant value to its customers led
FII / DII : 4% / 9% by its key strengths of (1) flexible design of manufacturing lines, (2) vertical
integration and (3) cost-efficient execution of complex and critical machining jobs.
Key drivers (%) FY22E FY23E FY24E Strong play on auto cycle recovery and manufacturing resurgence in India
Revenue growth 37.7 23.4 18.9 We see CAL as a play on (1) cyclical recovery in auto industry especially in MHCVs
EBITDA margin 24.6 24.0 24.1 (28% industry volume CAGR over FY21-25E) and (2) potential manufacturing
Post-tax RoCE 12.0 17.1 19.3
resurgence in India – in particular, it will be a direct beneficiary of greater focus of
OEMs to make India an export hub (especially powertrain/transmission
components) and import substitution/localization by companies looking to reduce
supply chain risks and over-dependence on China. This has already started to reflect
Relative performance in new order wins and the trend will likely accelerate over the next 3 years. CAL has
Sensex CRAFTSMA IB Equity a strong track record of outperforming auto industry growth over the last five years;
200
175 we expect this to continue over the next 4 years as well (1,000 bps annual
150 outperformance) led by (1) addition of new customers, (2) scale up of presence in
125 auto aluminium segment and (2) market share gains with existing customers.
100
75 Initiate coverage with BUY rating and TP of Rs 3,250
Mar-21 Jun-21 Sep-21 Dec-21 We expect the company to deliver 24%/43% revenue/PAT CAGR over FY21-25E.
Source: Bloomberg, Axis Capital With material headroom for utilization levels to improve, capex intensity will be low
leading to de-leveraging of the balance sheet (net debt free by FY25E) and
improvement in return ratios (post-tax RoCE) to 19-20% by FY24E. We initiate
coverage with a BUY rating and target price of Rs 3,250, which is based on 10x Dec-
22 EV/EBITDA – stock can be a potential doubler from current levels over the next
3 years. Key risks are (1) slower-than-expected recovery in auto industry, (2) delay
in revival of capex cycle and (3) elevated cost pressures.
Financial Summary (Consolidated)

Y/E March FY20 FY21 FY22E FY23E FY24E
Sales (Rs mn) 14,925 15,600 21,480 26,511 31,526
EBITDA (Rs mn) 3,980 4,383 5,282 6,357 7,607
Adj. PAT (Rs mn) 458 974 1,608 2,630 3,462
Con. EPS* (Rs) - - 76.5 130.5 173.2
EPS (Rs) 22.8 46.1 76.1 124.5 163.9
Change YoY (%) (53) 103 65 64 32
Nishit Jalan (ED – Auto & Consumer Durables)
[email protected] ; +91 22 4325 1148 RoE (%) 6.5 11.5 15.4 21.0 22.3
Nikhil Kale, CFA (VP – Auto & Consumer Durables)
RoCE (%) 11.3 13.5 17.2 20.9 24.0
[email protected] ; +91 22 4325 1137 P/E (x) 87.1 43.0 26.0 15.9 12.1
Rakesh Jain (AVP – Auto) EV/E (x) 13.0 11.1 9.1 7.3 5.8
[email protected] ; +91 22 4325 1140 Source: *Consensus broker estimates, Company, Axis Capital
Download Axis Capital is also available on Bloomberg (AXCP<GO>), Reuters.com, Firstcall.com and Factset.com. 1
FOR IMPORTANT DISCLOSURES AND DISCLAIMERS, REFER TO THE END OF THIS MATERIAL
Initiating coverage
Table of contents
Story in charts.............................................................................................................................. 3
Investment thesis ....................................................................................................................... 7
Auto – Powertrain: Cyclical recovery and robust order wins.................................. 18
Auto Aluminium: Expect strong ramp-up over next 3 years .................................... 26
Industrial: Storage solutions and capex cycle growth drivers ................................. 33
Financials: Expect Revenue/ PAT CAGR of 24%/ 43% over FY21-25 .................. 42
Key risks ..................................................................................................................................... 48
Appendix .................................................................................................................................... 49
February 23, 2022 2

Initiating coverage
Story in charts
Exhibit 1: Highly diversified engg. company exposed to auto and industrial segments
FY20 FY21 FY22E FY23E FY24E FY25E
Revenue (Rs mn)
CVs 4,074 4,941 7,396 9,077 10,451 11,167
2W - ICE 2,590 2,882 3,374 3,999 4,305 4,632
2W - EV - - - 200 400 700
PVs 1,024 1,332 1,994 2,753 3,973 5,311
Off-highway 926 1,025 1,441 1,628 1,900 2,062
Tractor 1,082 1,230 1,394 1,395 1,547 1,666
Total auto 9,696 11,411 15,599 19,052 22,577 25,537
Storage Solutions 660 929 2,450 3,430 4,459 5,797
Other industrial segments 4,478 3,260 3,431 4,029 4,491 5,172
Total industrial 5,138 4,189 5,881 7,459 8,950 10,969
Total revenue 14,834 15,600 21,480 26,511 31,526 36,506
Revenue mix (%)
CVs 27.5 31.7 34.4 34.2 33.2 30.6
2W - ICE 17.5 18.5 15.7 15.1 13.7 12.7
2W - EV - - - 0.8 1.3 1.9
PVs 6.9 8.5 9.3 10.4 12.6 14.5
Off-highway 6.2 6.6 6.7 6.1 6.0 5.6
Tractor 7.3 7.9 6.5 5.3 4.9 4.6
Total auto 65.4 73.1 72.6 71.9 71.6 70.0
Storage Solutions 4.4 6.0 11.4 12.9 14.1 15.9
Other industrial segments 30.2 20.9 16.0 15.2 14.2 14.2
Total industrial 34.6 26.9 27.4 28.1 28.4 30.0
Total revenue 100.0 100.0 100.0 100.0 100.0 100.0
Source: Company, Axis Capital
Exhibit 2: Auto revenues to benefit from strong cyclical recovery across segments
2W PV MHCV LCV Tractors CAL Auto revenues

28
22
19
15
13 12
6
1 2
(2) (1)
(12)
FY16-21 FY21-25E
Source: SIAM, Axis Capital, TMA; Note: Domestic sales considered for tractors, while production considered for others
February 23, 2022 3

Initiating coverage
Exhibit 3: CAL’s auto revenue to post 22% CAGR over FY21-25E; 1,000 bps outperformance vs. industry growth
6% CAGR
4% CAGR
12% CAGR
- Daimler (deemed
- PSA exports +
- 2W EV Aluminium) Rs 25.5 bn
OEMs - M&M
- Nelcast
Rs 11.4 bn - Off-highway OEM
22% CAGR
FY21 Auto revenues Blended Industry growth New customers New order wins with FY25 Auto revenues
existing customers
Exhibit 4: Outperformance to be driven by strong order win trajectory across the auto business…
Segment/Customer Key Order details
Auto - Powertrain
Machining of engine components (both heavy duty and medium duty engines) to be exported by
Daimler Daimler to Brazil, Japan and Germany - peak revenue potential of Rs 3 bn (order supplies started
in FY20)
- Supply of fully machined cylinder block and heads (high share of business) for new SUV models,
M&M SUVs
XUV7oo, Thar and next-generation Scorpio
- Machining of engine and transmission components for tractors (earlier done in-house by M&M
- company to set up new plant at Nagpur to cater to M&M (currently supplied from Pune)
M&M tractors/other customers
- Pune capacity vacated to be utilised for other customers
- This could lead to incremental revenues of Rs 600 mn over next 2 years
European PV OEM Machining of cylinder block (import substitution)
Global off-highway equipment manufacturer Machining of engine block (import substitution/localization)
Auto Aluminium
- Manufacturing of gearbox and flywheel housings (Daimler moving from cast iron to aluminium)
for Daimler
Daimler, M&M and Tata Motors - Also received orders from OEMs such as Tata and M&M (both PVs and tractors) for certain die-
casting parts
- We build in combined revenues of roughly Rs 1.5 bn from these 3 in FY24E
Domestic PV OEM - Manufacturing of aluminium castings for cylinder blocks for SUVs
Gearbox housings, oil pans and cam carriers for exports (and eventually domestic requirements)
PSA
- revenue potential of Rs 2 bn with peak in FY24E and business visibility till 2027
2W EV OEMs Fully machined, die-casting parts for electric 2Ws
Industrial
Machining of large size iron castings (import substitution) - CAL initially will be doing machining
for these castings and is also contemplating manufacturing of these castings as well. If it decides
Machine tool and wind-energy companies
to do so, it will set up an iron foundry which can open up potential for further such order wins
from other customers
- CAL has positioned itself as a dominant player with existing customers especially for higher
Storage ticket size orders. Company has grown well with the leading e-commerce and retail players and
is looking to add other e-commerce players as well
February 23, 2022 4

Initiating coverage
Exhibit 5: …and strong ramp-up of Storage Solutions business (6x revenues)
Revenue EBITDA margin % (RHS) (%)

(Rs bn)
7.0 14.0
6.0 12.0 12.0
13.0 11.0 12.0
5.0
4.0 10.0
3.0 7.0 8.0

2.0 8.0
6.0
1.0
0.7 0.9 2.5 3.4 4.5 5.8
0.0 4.0
Exhibit 6: Segmental financials: 20-28% topline growth across segments; margin to normalize to 25%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Revenue (Rs mn)
Automotive - Powertrain & others 8,709 10,085 7,093 8,113 11,312 13,310 15,340 16,551
Automotive - Aluminium Products 2,353 3,082 2,577 3,298 4,287 5,742 7,236 8,986
Industrial & Engineering 4,053 5,014 5,255 4,189 5,881 7,459 8,950 10,969
Total 15,115 18,180 14,925 15,600 21,480 26,511 31,526 36,506
YoY growth %
Automotive - Powertrain & others 21.0 15.8 (29.7) 14.4 39.4 17.7 15.3 7.9
Automotive - Aluminium Products 79.9 31.0 (16.4) 28.0 30.0 34.0 26.0 24.2
Industrial & Engineering 12.7 23.7 4.8 (20.3) 40.4 26.8 20.0 22.6
Revenue Mix (%)
Automotive - Powertrain & others 57.6 55.5 47.5 52.0 52.7 50.2 48.7 45.3
Automotive - Aluminium Products 15.6 16.9 17.3 21.1 20.0 21.7 23.0 24.6
Industrial & Engineering 26.8 27.6 35.2 26.9 27.4 28.1 28.4 30.0
EBITDA (Rs mn)
Automotive - Aluminium Products 209 431 358 385 579 919 1,303 1,618
Industrial & Engineering 429 718 1,230 1,068 858 1,223 1,478 1,782
Total segmental EBITDA 2,955 4,138 3,950 4,633 5,582 6,687 7,967 9,062
EBITDA margin %
Total segmental EBITDA margin 19.5 22.8 26.5 29.7 26.0 25.2 25.3 24.8
February 23, 2022 5

Initiating coverage
Exhibit 7: Higher asset turns and WC normalization to drive RoCE improvement

25
RoE (%) RoCE (%)
20 21
20 19
14 19 19
15 14 17
10
9 12
10 7 11
10
5
5 6
0
Exhibit 8: Overall capex intensity to reduce Exhibit 9: CAL to become net debt free by FY25E…
(Rs bn) Capex as a % of sales (RHS) (%) (Rs bn) Net debt Net debt to EBITDA (RHS) (x)
8 25 12 2.7 3.0
2.5
19.6
20 10 2.2 2.5
6
13.8 8 1.5
2.0
11.1
15
10.2 10.6
4 9.3 9.6 6 1.2 1.5
6.3
10
4 0.7 1.0
2 0.3
5 2 0.5
0.0
0 0 0 0.0
FY20
FY18
FY19
FY21
FY25E
FY22E
FY23E
FY24E
FY25E
FY22E
FY23E
FY24E
FY18
FY19
FY20
FY21
Source: Company, Axis Capital Source: Company, Axis Capital
Exhibit 10: …led by strong FCF generation (profit growth and lower capex drivers)
CFO FCF
8 (Rs bn) 6.6
5.6 5.7
6
3.6 3.6 3.4

4 3.1
2.8 2.5
2.1
1.6 1.6
2
0.3 0.4
0
(0.3)
(2) (1.2)
February 23, 2022 6

Initiating coverage
Investment thesis
Craftsman Automation (CAL) is a diversified engineering company – a process expert
with strong machining and casting capabilities – catering to both automotive (presence
across segments) and industrial OEMs. The company has a highly skilled and
experienced in-house R&D team led by the promoter Mr. Srinivasan Ravi. Flexible
design of manufacturing lines, vertical integration, ability to handle complex and
critical machining jobs in a cost-efficient manner are its key strengths, which provide
significant value-add to customers.
We see CAL as a play on (1) cyclical recovery in auto industry especially in MHCVs and
(2) potential manufacturing resurgence in India – in particular, it will be a direct
beneficiary of greater focus of OEMs to make India an export hub and import
substitution/localization by companies to reduce supply chain risks and over-
dependence on China. This has already started to reflect in significant new order wins
and the trend will likely accelerate over the next 3 years.
Overall, we expect the company to deliver 24%/43% revenue/PAT CAGR over FY21-
25E. Lower capex intensity due to scope to improve capacity utilization will lead to de-
leveraging of the balance sheet (debt free by FY25E) and return ratios (post-tax RoCE)
will likely improve to 19-20% by FY24E. We initiate coverage with a BUY rating and
target price of Rs 3,250, which is based on 10x Dec-22 EV/EBITDA – we expect the
stock to double from current levels over the next 3 years.
We discuss below key macro trends that will be main growth drivers for Craftsman – (1) Cyclical
recovery in auto industry especially in MHCVs, (2) Pick-up in exports from MNCs and other
domestic companies and (3) Import substitution and higher outsourcing by OEMs in India.
1. Cyclical recovery in auto industry, especially in MHCVs

 CAL is a diversified engineering company with strong manufacturing capabilities and
presence within the auto industry. Around 73% of FY21 consolidated revenue came from
auto related business segments (viz. Automotive – Powertrain and Automotive – Aluminium
products) with CVs, 2Ws, PVs, tractors & off-highway segments accounting for
32%/18%/9%/8%/7% of overall revenue respectively (refer exhibit 11 for details).
 CAL to benefit from an imminent cyclical recovery across automotive segments: After an
unprecedented slowdown across the auto industry with domestic volumes down 20-60%
across segments (except tractors) over FY19-21, we expect strong cyclical recovery to play
out over FY21-25.
 Growth will be particularly strong in MHCV industry (key segment for CAL): MHCV
industry volumes are down 62% from the peak – much higher than 35-45% decline seen
during the previous down cycles. As a result, we expect recovery to also be sharper aided
by uptick in economic growth, pick-up in private capex cycle and higher freight demand –
we build in 28% volume CAGR over FY21-25E, which implies that industry will surpass
FY19 peak volumes in FY25E. We note that CAL will see a much higher benefit due to CV
cycle recovery as (1) in an upcycle, tonnage growth usually outpaces volume growth and
company has higher content in larger-sized trucks, (2) BS6 and changes in axle load norms
have also led to higher content for it (yet to reflect fully due to muted volumes) and (3)
large OEMs such as Tata Motors have some in-house machining capacity of critical engine
and powertrain components – during downturns, OEMs look to utilize their capacity fully
and thus, extent of outsourcing comes down (higher revenue decline for suppliers such as
CAL) and this will work the other way in an upcycle benefitting CAL.
 Expect gradual recovery in 2W industry; order wins from EV OEMs to aid growth: CAL
supplies machined aluminium castings such as crankcase, cylinder blocks and heads and
transmission components to 2W OEMs such as TVS and Royal Enfield currently. 2W
industry demand has been impacted by affordability issues (35-40% increase in cost of
February 23, 2022 7

Initiating coverage
ownership over the last 3 years) and slowdown in rural areas – post muted volumes in
FY22E (down 10% YoY and almost 35% from FY19 levels), we expect industry volumes to
recover and grow by 17%/10% in FY23E/24E, which will benefit CAL. Additionally, we
note that it has received orders from new age EV OEMs as well, which will ramp-up over
FY23-25E aiding overall revenue growth for the company from this segment.
 Expect strong recovery in PV industry in FY23-24E: PV demand has been robust aided
by preference for personal mobility post Covid and healthy product launch pipeline
across many OEMs such as M&M (particularly relevant for CAL as it has got high share of
business for machining of cylinder blocks and heads for new SUV models), Tata Motors,
KIA and Hyundai. We expect chip shortages, which have weighed on production and
growth to improve gradually and build in 27%/11% YoY growth in FY23/24E (volumes to
cross previous peak in FY23E itself).
 Track record of outperforming industry growth to sustain over medium term: CAL has
consistently outperformed auto industry production – 1,500-2,500 bps over last 5 years led
by (1) expansion into new product segments (Aluminium die-casting and Storage Solutions)
by leveraging its technical capabilities and cost competitive manufacturing and (2) market
share gains with existing customers. We expect the trend to sustain over the medium term
and expect CAL’s auto revenue to post 22% CAGR over FY21-25E (1,000 bps above industry)
led by (1) addition of new customers – particularly PV OEMs/Tier 1 suppliers in both auto
aluminium and powertrain segments (OEMs such as PSA Group are looking to scale up
exports of transmission components from India and several OEMs and suppliers are looking
to increase localization of castings/machining of components, which are imported currently)
and (2) increase in share of business (some OEMs and Tier 1 suppliers are consistently looking
to outsource machining of engine and transmission components) and supply of additional
components to existing customers (aluminium castings to OEMs such as Daimler, M&M, etc.).
Exhibit 11: FY21 revenue breakdown – CV, 2W and tractors account for 57% of
consolidated revenue
Off-highway
7%
Tractor
CV 8%
Auto 32%
Industrial
27% 73%
PVs
8%
2Ws
18%
February 23, 2022 8

Initiating coverage
Exhibit 12: Expect strong cyclical recovery across segments over FY21-25E
2W PV MHCV LCV Tractors CAL Auto revenues

28
22
19
15
13 12
6
1 2
(2) (1)
(12)
FY16-21 FY21-25E
Source: SIAM, Axis Capital, TMA; Note: Domestic sales considered for tractors, while production considered for all other
segments
Exhibit 13: CAL’s auto revenue to post 22% CAGR over FY21-25E; 1,000 bps outperformance vs. industry growth
6% CAGR
4% CAGR
12% CAGR
- Daimler (deemed
- PSA exports +
- 2W EV Aluminium) Rs 25.5 bn
OEMs - M&M
- Nelcast
Rs 11.4 bn - Off-highway OEM
22% CAGR
FY21 Auto revenues Blended Industry growth New customers New order wins with FY25 Auto revenues
existing customers
2. Beneficiary of pick-up in exports from MNCs and other domestic companies…

 Auto component exports from India stood at USD 13.3 bn in FY21 and have registered 4%
CAGR over FY16-21 (7% in rupee terms). Of the various components exported, drive
transmission, steering and engine components (target segments for CAL in general) are the
major items accounting for 50-55% of overall exports. USA, Germany, Turkey, Thailand, UK
etc. are the top export destinations for auto components from India. However, India remains
a small player within global auto with a share of 1.5-1.7% of global exports in CY20 (was ~1%
in CY19).
 Interesting trends are emerging here whereby several OEMs are looking to (1) export critical
engine and transmission components from India to their global markets (Daimler India and
PSA are examples of this) and (2) source components from suppliers in India (Brakes India,
Nelcast are key examples). This is being driven by (1) availability of skilled labor and
engineering talent at extremely competitive costs in multiple automobile clusters spread
across the country and (2) China + 1 sourcing strategy that is being increasingly adopted by
companies after the turbulence caused for supply chains worldwide by Covid-19.
Additionally, with adoption of BS6 emission norms and increasing premiumization in India,
the gap between vehicles sold in India and those sold globally continues to narrow, which also
makes it more lucrative for global auto companies to consider setting up a base or increase
sourcing from India.
February 23, 2022 9

Initiating coverage
 While there are multiple examples of global automakers who have increased their
investment spends and presence in India over the last few years, we highlight 3 instances
where CAL is benefitting from this trend:
 Daimler in commercial vehicle segment (for CAL’s powertrain segment): Daimler India
Commercial Vehicles (DICV) is a key customer for CAL in the powertrain segment
accounting for 17% of overall revenue in FY21 (7-9% of overall EBITDA). DICV is the only
Daimler Truck location worldwide that produces engines, transmissions, trucks and
buses at the same site under four brands – Bharat Benz, FUSO, Mercedes-Benz, and
Freightliner. It exports to more than 60 destinations globally including markets such as
Africa, Asia, Latin America and the Middle East. CAL was earlier involved in machining of
cylinder block and heads for engines for domestic requirement of Daimler (single source
supplier). Given its capabilities and track record, in FY20 CAL won orders for machining
of engine components to be exported primarily to Brazil (also to Japan and Germany);
initially, CAL received order for machining of components for Daimler’s heavy-duty
engines and recently also got orders for medium-duty engine. Revenue from these
‘deemed export’ orders was around Rs 1.9 bn in FY21 (includes casting plus machining
revenue), which will likely increase to Rs 3 bn by FY24E (based on current orders at hand).
 PSA group in passenger vehicle segment (for CAL’s auto aluminium segment): PSA -
AVTECH Powertrain Pvt Ltd, a 50:50 JV between Groupe PSA and AVTEC Ltd (part of
CK Birla Group), has set up a greenfield plant in Hosur to manufacture gearboxes and
engines for PSA’s export requirements (and eventually for domestic use as well). The
plant has an initial manufacturing capacity of about 300k gearboxes and 200k engines per
year. CAL has won new orders to supply gearbox housings, oil pan and cam carriers for
this operation with SoP in FY23 – annual revenue potential from the order (including
supplies for domestic market) is around Rs 2 bn.
 Tier 1/2 suppliers such as Nelcast and Brakes India are increasingly exporting several
engine and transmission components to global companies such as Dana, Meritor,
American Axle, Volvo, Garret (erstwhile Honeywell), etc. CAL is closely working with
these suppliers for machining of these components – revenue from Nelcast in particular
has seen strong growth (base is still low though) over the last 2-3 years (despite industry
downturn) with potential for further scale-up over the medium term.
Exhibit 14: Exports from India have seen 4% CAGR over Exhibit 15: 50%+ exports focused on drive transmission,
FY16-21 steering and engine components
(USD bn) Exports YoY growth % (RHS) (%) Others

Drive
15.2 13%
16 14.5 40 transmission
13.5 13.3 and steering
30 Electricals & 33%
11.2 10.8 10.9
12
9.7
10.2
20 Electronics
8.8
12%
8 10
0 Suspension
4 & Braking
(10) 10%
Engine
0 (20) components
Body/Chassis
19%
FY12
FY14
FY16
FY18
FY20
FY13
FY15
FY17
FY19
FY21
/BiW
13%
Source: ACMA, Axis Capital Source: ACMA, Axis Capital
February 23, 2022 10

Initiating coverage
3. …and of import substitution and higher outsourcing by OEMs in India

 Auto component imports into India stood at USD 13.8 bn in FY21 and have been flat over
FY16-21 (2.5% CAGR in rupee terms). Similar to exports, drive transmission, steering
and engine components account for 45-50% of imports while electrical and electronic
components account for a further 10-15%. However, reliance on China is quite high with
roughly 1/3rd of imports from China; other important countries are South Korea,
Germany and Japan.
 Import substitution by OEMs and suppliers’ augurs well for CAL: The drivers
mentioned in the section above, which are leading to higher exports are also responsible
for driving increasing substitution of imports in India. As per our checks, CAL is also
benefitting from these and is working on several projects such as (1) machining of engine
components for a European PV OEM in India (earlier was being manufactured and
machined in Europe), (2) machining of engine block for a global OEM engaged in
manufacturing of off-highway equipment, and (3) machining of large size castings for
machine tool and wind-energy companies (earlier being imported from China, Europe),
 Increasing trend of outsourcing by OEMs: With respect to machining of powertrain

components, OEMs derive several advantages by outsourcing to CAL vs. in-house
operations such as better productivity, lower lead times, limited capex requirements,
flexibility to scale up and scale down production within a short span, etc. (see below for
more details). Until now, many OEMs chose to do machining in-house given dearth of
quality suppliers with sufficient scale, capabilities and cost competitiveness. However,
with significant changes happening in vehicles (necessitated by regulations such as BS6
emission norms, CAFÉ norms, and light-weighting), and emergence of suppliers like CAL,
OEMs are likely to step up outsourcing of components especially as the cyclical recovery
and new model launches gather pace. We note that CAL has recently won orders from
M&M for machining of engine and transmission components for tractors segment
(earlier done in-house by M&M).
Exhibit 16: Auto component imports flat over FY16-21 Exhibit 17: 60%+ imports related to drive transmission,
engine components and electronics
(USD bn) Imports YoY growth % (RHS) (%) Drive

Others
transmission
20 30 21%
17.6 and steering
15.9 15.4 30%
16 13.8 13.7 13.5 13.8 13.5 13.8 20
12.8
Interiors
12 10 (Non-
electronic)
8 0 8%
4 (10)
Body/Chassis Engine
/BIW components
0 (20)
9% Electricals &
17%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Electronics
15%
Source: ACMA, Axis Capital Source: ACMA, Axis Capital

Initiating coverage
Exhibit 18: Key order wins – strong order win trajectory across business segments
Segment/Customer Key Order details
Auto - Powertrain
Machining of engine components (both heavy duty and medium duty engines) to be exported by
Daimler Daimler to Brazil, Japan and Germany - peak revenue potential of Rs 3 bn (order supplies started
in FY20)
- Supply of fully machined cylinder block and heads (high share of business) for new SUV models,
M&M SUVs
XUV7oo, Thar and next-generation Scorpio
- Machining of engine and transmission components for tractors (earlier done in-house by M&M
- company to set up new plant at Nagpur to cater to M&M (currently supplied from Pune)
M&M tractors/other customers
- Pune capacity vacated to be utilised for other customers
- This could lead to incremental revenues of Rs 600 mn over next 2 years
European PV OEM Machining of cylinder block (import substitution)
Global off-highway equipment manufacturer Machining of engine block (import substitution/localization)
Auto Aluminium
- Manufacturing of gearbox and flywheel housings (Daimler moving from cast iron to aluminium)
for Daimler
Daimler, M&M and Tata Motors - Also received orders from OEMs such as Tata and M&M (both PVs and tractors) for certain die-
casting parts
- We build in combined revenues of roughly Rs 1.5 bn from these 3 in FY24E
Domestic PV OEM - Manufacturing and machining of aluminium castings for cylinder blocks for SUVs
Gearbox housings, oil pans and cam carriers for exports (and eventually domestic requirements)
PSA
- revenue potential of Rs 2 bn with peak in FY24E and business visibility till 2027
2W EV OEMs Fully machined, die-casting parts for electric 2Ws
Industrial
Machining of large size iron castings (import substitution) - CAL initially will be doing machining
for these castings and is also contemplating manufacturing of these castings as well. If it decides
Machine tool and wind-energy companies
to do so, it will set up an iron foundry which can open up potential for further such order wins
from other customers
- CAL has positioned itself as a dominant player with existing customers especially for higher
Storage ticket size orders. Company has grown well with the leading e-commerce and retail players and
is looking to add other e-commerce players as well
Process expert offering significant value-add for customers

 Strong customer relationships with high share of business (SoB): CAL is the market leader
for machining of cylinder blocks and heads in MHCV and construction equipment segments
and among top 3-4 outsourced machining suppliers for tractors. It has long standing
relationships extending more than 10 years with key customers such as Daimler, M&M, Tata
Motors and Tata Cummins, several tractor OEMs, etc. and enjoys a very high SoB with them.
This along with a consistent track record of market share gains, ability to meet global
standards and cross-sell new products are a testimony of its innovation, technical and
execution capabilities. CAL’s customers in the powertrain segment also incur meaningful
capex (Rs 3-4 bn overall investment by customers till now as against CAL’s gross block of
around Rs 14-15 bn in the Powertrain segment) for certain special purpose machines (SPMs),
which have been installed at its facilities – this also ensures customer stickiness.
 CAL’s core skillset is its process expertise… CAL’s core skillset and competitive advantage
lies in identifying and designing the optimum process for machining of critical components
and then executing the same at scale. This is driven by:
 Highly skilled and experienced in-house R&D and engineering team: CAL’s team with
the MD Mr. Srinivasan Ravi (who himself is a technocrat) at the helm, focuses extensively
on understanding the specific requirements for a new order, working out the optimum
process and then identifying the machines needed (both general purpose machines and
special purpose machines) for the same. Further, all line managers and shop floor
managers have been groomed in-house over many years and play an important role in
driving process innovations. CAL has thus progressed from providing mere machining
services to becoming more of a solution provider and working in collaboration with the
OEMs to develop manufacturing processes.

Initiating coverage
 In-house engineering and manufacturing capabilities: Ability to manufacture special

purpose machines in-house and also ensure design flexibility so that these can be
modified as per requirements. For e.g. Craftsman has designed an SPM in-house, which
has 13 spindles and does the work of 4 individual SPMs. It has also designed and
manufactured leak testing and product washing machines in-house.
 It also designs and manufactures the fixtures in-house required for these machines.
 Flexible design of the manufacturing lines – Craftsman’s general-purpose machines are
fungible and can be used to machine components ranging from MHCVs to tractors.
 …which provides significant value-add to customers: As a result of these skills, CAL is able
to offer several advantages to its customers like (1) shorter lead times – CAL can get
machining line for a new fully finished cylinder block up and running within 12-15 months, (2)
rapid scale up and scale down of capacity – can ramp up production from 1x to 2-3x within 3
months, which is not possible at an OEM level; similarly, if demand were to reduce, it can scale
down production rapidly and use the machinery for orders from other segments where
demand is holding up relatively better (especially important given presence in highly cyclical
MHCV industry), (3) ability to handle multiple models and variants – as the number of
models/variants increases ,complexity in machining and getting requisite efficiency
increases. CAL has a significant edge here (given flexible design of manufacturing lines) vs
OEMs doing it in-house and (4) limited capex requirements – as noted above, OEMs may need
to invest only for last few steps of the machining process and a large part of the capex will be
taken care of by CAL (can also spread it over multiple customers, thus ensuring better
returns).
Ramping up casting capabilities as well

 Transitioning from 2Ws to PVs/CVs in aluminium die-casting business… Within its
aluminium die-casting business, currently 2W OEMs account for a majority of revenue for
CAL (>90% of segment revenue) wherein it is involved in casting and machining of smaller
parts (max weight of 4-5 kg) such as crankcase, cylinder blocks, clutch covers, etc. However,
CAL is now transitioning to manufacturing larger castings for PV and CV OEMs led by order
wins from (1) Daimler – won orders to manufacture gearbox and flywheel housings for CVs
(weight of 11-20 kg per part). DICV is transitioning from steel to aluminium for these
components leading to reduction in weight of components by 50-60%; CAL is also working
on a similar project for a domestic CV OEM as well, (2) PSA – CAL has won orders to
manufacture gearbox and engine parts for PSA (details highlighted above) and (3) won orders
from a domestic PV OEM for manufacturing and machining of castings for aluminium cylinder
block. Overall, share of non-2W customers (for ICEs) is expected to increase to around 43%
of segment revenue in FY25E from less than 10% currently.
 …as well as large-size castings in the industrial and engineering business: Further leveraging
its casting and machining capabilities, CAL will now start machining of large size iron castings
for machine tool manufacturers (casting and machining of gearbox housings) and renewable
energy companies (castings for wind mill parts such as adapter flanges, bearing flanges and
torque reaction arms. These parts weigh from 1-6 tons and are currently being imported from
countries like China, Taiwan and Europe. CAL is also exploring the possibility of
manufacturing the castings here and may set up an iron foundry if it decides to do so (will
open up further new revenue opportunities).
Expect 24%/43% revenue/PAT CAGR over FY21-25E; strong FCF and improved RoCE
We expect Craftsman to deliver 24% revenue CAGR over FY21-25E, led by strong growth across
segments (refer exhibit 19 below for details) driven by (1) recovery in auto industry production,
(2) new order wins across both powertrain and auto aluminium segments (customer additions,
increase in share of business and new product supplies to existing customers), (3) scale up of
presence in high-growth storage business (almost 6x revenue over FY21-25E) and (4) benefit of
pick-up in capex cycle and machining of large iron castings in industrial segments. Profitability to

Initiating coverage
remain strong across segments due to increase in utilization levels and increase in mix of higher
value-add products. Overall, we expect net profit to post 43% CAGR over FY21-25.
Strong earnings growth and limited capex requirements (Rs 12 bn over FY22-25E) will drive strong
FCF generation (Rs 7 bn over FY22-25E – FCF/PAT: 55% over the period) and help the company
become almost debt free by FY25E. We expect RoE/post-tax RoCE to improve to 19-20% by
FY24E from 12-14% in FY22E.
Exhibit 19: Segmental financials: 20-28% topline growth across segments; margin to normalize to 25%
Revenue (Rs mn)
Total 15,115 18,180 14,925 15,600 21,480 26,511 31,526 36,506
YoY growth %
Revenue Mix (%)
EBITDA (Rs mn)
Total segmental EBITDA 2,955 4,138 3,950 4,633 5,582 6,687 7,967 9,062
EBITDA margin %
Total segmental EBITDA margin 19.5 22.8 26.5 29.7 26.0 25.2 25.3 24.8
Exhibit 20: Revenue-breakdown by end-segment: PV/CV contribution to increase

Revenue (Rs mn)
CVs 4,074 4,941 7,396 9,077 10,451 11,167
2W - ICE 2,590 2,882 3,374 3,999 4,305 4,632
2W - EV - - - 200 400 700
PVs 1,024 1,332 1,994 2,753 3,973 5,311
Off-highway 926 1,025 1,441 1,628 1,900 2,062
Tractor 1,082 1,230 1,394 1,395 1,547 1,666
Total auto 9,696 11,411 15,599 19,052 22,577 25,537
Storage Solutions 660 929 2,450 3,430 4,459 5,797
Other industrial segments 4,478 3,260 3,431 4,029 4,491 5,172
Total industrial 5,138 4,189 5,881 7,459 8,950 10,969
Total revenue 14,834 15,600 21,480 26,511 31,526 36,506
Revenue mix (%)
CVs 27.5 31.7 34.4 34.2 33.2 30.6
2W - ICE 17.5 18.5 15.7 15.1 13.7 12.7
2W - EV - - - 0.8 1.3 1.9
PVs 6.9 8.5 9.3 10.4 12.6 14.5
Off-highway 6.2 6.6 6.7 6.1 6.0 5.6
Tractor 7.3 7.9 6.5 5.3 4.9 4.6
Total auto 65.4 73.1 72.6 71.9 71.6 70.0
Storage Solutions 4.4 6.0 11.4 12.9 14.1 15.9
Other industrial segments 30.2 20.9 16.0 15.2 14.2 14.2
Total industrial 34.6 26.9 27.4 28.1 28.4 30.0
Total revenue 100.0 100.0 100.0 100.0 100.0 100.0

Initiating coverage
Exhibit 21: Consolidated summary financials – build in 24%/43% revenue/PAT CAGR over FY21-25
Consolidated (Rs mn) FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Income statement
Net revenues 18,180 14,925 15,600 21,480 26,511 31,526 36,506
EBITDA 4,426 3,980 4,383 5,282 6,357 7,607 8,662
Depreciation 2,168 1,553 1,446 1,909 2,386 2,744 3,128
EBIT 2,665 2,016 2,458 3,210 4,136 5,106 5,880
Interest 1,761 1,964 1,925 2,072 2,221 2,501 2,781
PBT 1,396 616 1,486 2,437 3,515 4,629 5,426
Taxes 426 158 514 828 886 1,166 1,367
PAT 974 357 974 1,608 2,630 3,462 4,059
EPS (Rs) 48.4 17.8 46.1 76.1 124.5 163.9 192.1
Balance Sheet
Shareholder's equity 6,821 7,216 9,694 11,247 13,822 17,229 21,233
Total Debt 9,853 10,584 7,230 6,830 5,330 3,830 3,830
Other non-current liabilities 3,257 2,455 3,074 3,074 3,074 3,074 3,074
Current Liabilities 3,312 2,818 3,522 4,119 5,084 6,046 7,001
Total liabilities & equity 23,254 23,073 23,519 25,270 27,309 30,178 35,137
Gross Block 19,794 22,077 23,365 25,365 27,765 31,265 34,765
Net Fixed asset 14,908 15,458 15,105 15,033 15,212 16,211 16,929
Total Investments 18 18 20 20 20 20 20
Other non-current assets 1,335 443 342 342 342 342 342
Cash and bank balances 266 716 467 473 1,062 1,242 3,804
Other Current Assets 6,728 6,437 7,586 9,403 10,674 12,364 14,042
Total assets 23,254 23,073 23,519 25,270 27,309 30,178 35,137
Cashflow Statement
Cash flow from operations 3,600 3,063 3,624 3,435 5,564 5,712 6,571
Capex (3,558) (1,387) (986) (2,200) (2,800) (3,500) (3,500)
Free cash flow (1,249) 313 1,577 392 2,059 1,635 2,497
YoY Growth (%)
Net sales 22.9 (17.9) 4.5 37.7 23.4 18.9 15.8
EBITDA 50.8 (10.1) 10.1 20.5 20.3 19.7 13.9
PAT 208.8 (63.3) 172.6 65.1 63.5 31.7 17.2
EPS (Rs) 208.8 (63.3) 159.6 65.1 63.5 31.7 17.2
Key Ratios (%)
Raw material costs (% sales) 38.7 39.3 42.7 45.3 45.9 46.3 47.0
Employee cost (% sales) 11.9 10.4 9.3 8.9 9.0 8.7 8.6
Other Expenses (% sales) 25.0 23.6 19.9 21.2 21.1 20.8 20.7
EBITDA Margin (%) 24.3 26.7 28.1 24.6 24.0 24.1 23.7
EBIT Margin (%) 14.7 13.5 15.8 14.9 15.6 16.2 16.1
PAT Margin (%) 5.4 2.7 6.2 7.5 9.9 11.0 11.1
RoE (%) 14.3 5.5 10.0 14.3 19.0 20.1 19.1
Post tax RoCE (%) 11.3 8.8 9.8 12.0 17.1 19.3 20.7
Net debt/equity (x) 1.4 1.4 0.7 0.6 0.3 0.2 0.0
FCF / PAT (x) (1.3) 0.9 1.6 0.2 0.8 0.5 0.6
FCF / EBITDA (x) (0.3) 0.1 0.4 0.1 0.3 0.2 0.3

Initiating coverage
Exhibit 22: Incremental post-tax RoCE can range from 12-20% across different businesses for CAL
Particulars Powertrain - Machining Auto aluminium Storage solutions Other industrial
Capex (Rs mn) 100 100 100 100
Working capital (Rs mn) 12 23 41 21
Capital employed (Rs mn) 112 123 141 121
Working capital days 55.0 55.0 50.0 60.0
Fixed asset turns (x) @ 90% utilization 0.8 1.5 3.0 1.3
EBITDA margin (%) 45.0 18.0 12.0 22.0
Overall financials (Rs mn)
Potential revenues (Rs mn) 80.0 150.0 300.0 130.0
EBITDA 36.0 27.0 36.0 28.6
Depreciation (15 years life) 6.7 6.7 6.7 6.7
EBIT 29.3 20.3 29.3 21.9
Taxes (25% tax rate) 7.3 5.1 7.3 5.5
PAT 22.0 15.3 22.0 16.5
Post-tax RoCE (%) 19.6 12.4 15.6 13.6
Initiate coverage with BUY rating and TP of Rs 3,250; potential doubler over 3 years
We initiate coverage on Craftsman Automation with BUY rating and target price of Rs 3,250, which
is based on 10x Dec-23 EV/EBITDA (implies 20x P/E) – 30% discount to target multiples of
companies such as Bharat Forge. Currently, valuations are attractive at 8x/6x FY23/24E
EV/EBITDA – we expect the stock to re-rate as the company leverages its strengths to consistently
deliver industry-leading revenue growth, maintain strong profitability and improve balance sheet
and return ratios. We see the stock as a potential doubler over the next 3 years – on FY26E EBITDA
of Rs 9.7 bn (12% growth over FY25E), an exit EV/EBITDA multiple of 9x/10x will imply 3-yr TP of
Rs 4,200/4,600.

Initiating coverage
Exhibit 23: Valuation comparison - stock trades at attractive 7x/6x FY23E/FY24E EV/EBIDTA
CMP Mcap TP Upside FDEPS (Rs) P/E (X) EV/E (x) ROCE (%)
(USD Rating
Companies (Rs) (Rs) (%) FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E
mn)
OEMs
Maruti Suzuki 8,626 34,970 6,900 -20 SELL 118.8 243.2 292.8 72.6 35.5 29.5 39.0 20.2 16.6 6.8 13.0 14.2
Tata Motors 478 22,878 620 30 BUY -21.8 30.3 41.0 NM 15.8 11.7 9.2 4.0 3.2 2.6 14.4 15.5
M&M* 852 14,220 1,200 41 BUY 30.2 41.3 48.0 15.1 11.0 9.5 8.7 6.3 5.2 19.4 25.0 28.1
Bajaj Auto 3,600 13,979 4,100 14 BUY 166.0 206.0 229.8 20.0 15.0 14.0 14.0 12.3 9.0 24.0 29.0 32.0
Eicher Motors 2,725 9,998 2,200 -19 SELL 60.6 98.3 116.1 45.0 27.7 23.5 30.8 20.1 17.1 18.5 29.2 33.3
Hero MotoCorp 2,733 7,327 2,950 8 ADD 129.1 163.6 184.7 21.2 16.7 14.8 12.8 9.6 8.3 45.5 33.6 44.0
Ashok Leyland 124 4,893 160 29 BUY -0.6 4.9 7.9 NM 22.0 13.5 47.4 13.3 9.2 0.6 17.2 27.5
TVS Motor 662 4,222 565 -15 SELL 20.1 28.0 32.5 31.3 22.4 19.3 16.9 12.8 11.2 19.0 20.9 22.4
OEM Avg. 34.2 20.8 17.0 22.3 12.3 10.0 17.1 22.8 27.1
Suppliers
Motherson Sumi 156 6,621 195 25 ADD 3.8 8.3 10.4 41.6 18.9 15.1 12.1 7.3 6.2 4.3 11.6 13.9
Balkrishna Inds. 1,897 4,923 1,650 -13 SELL 75.7 79.5 85.5 25.1 23.9 22.2 16.7 14.9 13.4 24.6 21.7 20.8
Minda Industries 973 3,728 1,060 9 REDUCE 24.8 33.2 40.3 39.2 29.3 24.1 32.2 20.2 15.6 16.5 19.7 22.0
Tube Investment 1,625 4,049 1,550 -5 REDUCE 25.9 34.5 41.3 62.7 47.1 39.3 39.5 30.4 25.7 24.2 28.0 30.0
Bharat Forge 692 4,325 800 16 ADD 20.8 26.4 33.5 33.3 26.2 20.7 17.6 14.3 11.7 9.9 11.5 13.3
MRF 65,779 3,744 69,000 5 REDUCE 1,850 3,249 4,021 35.5 20.2 16.4 11.9 8.3 6.9 6.7 10.9 12.6
Endurance Tech. 1,366 2,579 1,750 28 BUY 32.1 53.7 68.5 42.5 25.4 19.9 19.8 13.1 10.5 12.3 19.1 22.8
Exide Industries 151 1,722 195 29 ADD 8.9 10.4 11.7 10.8 9.2 8.2 8.7 7.5 6.6 13.9 15.2 15.8
Apollo Tyres 198 1,685 250 26 ADD 10.3 16.0 20.6 19.2 12.4 9.6 6.9 5.3 4.5 5.4 7.3 8.7
Amara Raja 581 1,332 600 3 REDUCE 33.5 40.8 43.6 17.3 14.2 13.3 8.9 7.2 6.5 12.2 13.5 13.1
Mahindra CIE 199 1,015 320 60 BUY 15.7 17.7 20.5 12.7 11.3 9.7 7.7 5.9 4.8 10.9 12.7 13.5
Suprajit Engg. 304 565 440 45 BUY 12.6 16.5 20.9 24.1 18.4 14.5 15.7 11.9 9.2 14.4 17.8 21.6
Craftsman
1,981 557 3,250 64 BUY 76.1 124.5 163.9 26.0 15.9 12.1 9.1 7.2 5.8 12.0 17.1 19.3
Automation
Suppliers Avg. 30.0 21.0 17.3 15.9 11.8 9.8 12.9 15.9 17.5
Source: Bloomberg, Axis Capital; Note: (1) CMP as of 22 nd Feb 2022 closing, (2) *M&M EPS is core EPS excluding dividend from subsidiaries. P/E multiple is core business multiple
calculated after excluding value of subsidiaries, (3) Bajaj PE multiples calculated by excluding value of stake in KTM, (4) TVS PE multiples calculated by excluding value of stake in TVS
Credit Services, (5) Exide PE multiples calculated by excluding value of stake held in HDFC Life

Initiating coverage
Auto – Powertrain: Cyclical recovery and robust order wins

Craftsman is a leading player for machining of critical engine and transmission
components, primarily for MHCVs (#1 position), tractors (among top 3-4 outsourced
players) and off-highway segments. Given its strong technical and execution
capabilities, company has garnered high share of business with its key customers and
added new customers as well. This segment is poised for strong growth (20% revenue
CAGR over FY21-25E) aided by (1) cyclical recovery in domestic MHCV industry –
build in 28% volume CAGR over FY21-25E, and (2) ramp-up of existing as well as new
orders – some of the main ones are (a) machining of engines to be exported by Daimler
(revenue of Rs 3 bn in FY24E), (b) machining of cylinder blocks and heads for M&M’s
new SUV models (XUV700, Thar and next-gen Scorpio) as well as transmission
components for tractors, and (c) orders won from multiple customers such as European
PV OEMs, global off-highway equipment manufacturer etc. Profitability to remain
strong with EBITDA margin of around 34-35%.
Market leader in machining of critical engine/powertrain components

 In this segment, CAL in engaged in machining of critical engine and transmission components
(iron castings are sourced from customer-directed suppliers such as Kirloskar, Neosym, etc.)
primarily for MHCVs, tractors and off-highway segments. It also has a small presence in
passenger vehicle segment (largely SUVs of M&M and also supplies to Tier 1 ancillaries such
as Nemak). This segment accounted for around 52% of company’s overall revenue and
around 70% of EBITDA in FY21. MHCVs account for almost 60% of segment revenue, while
tractors and off-highway accounted for 13-15% of revenue each in FY21.
 Craftsman is the largest player in India for machining of cylinder head and block for MHCV
and construction equipment segments and is among top 3-4 outsourced machining players
for tractors in India. Machining of cylinder blocks and cylinder head accounts for almost 60-
70% of segment revenue – this involves complex machining process (strengths and
capabilities of Craftsman highlighted in earlier section) and value addition by Craftsman
ranges from 15-30%. Machining of components such as camshafts, transmission parts (axle
housing, clutch housing, etc.), gear box housings, turbo charger housings, bearing caps, etc.
account for remaining 30-40% of revenue.
 In terms of key customers and share of business, in MHCV industry, Craftsman has (1) 100%
share of business in machining of cylinder heads and blocks with Daimler India. Over the last
2 years, it has won orders for machining of engine components to be exported primarily to
Brazil in FY20 (also to Japan and Germany), (2) high share of business (>50%) for cylinder
heads and blocks with Tata Motors (including Tata Cummins) – rest is done in-house by Tata
(almost 100% of machining these parts is done in-house by AL) and (3) strong relationship
with suppliers such as Nelcast, Brakes India, etc., which primarily supplies components to CV
OEMs and Tier 1 suppliers such as Dana, Meritor, etc. globally. In off-highway, the company
supplies to OEMs such as JCB, Caterpillar (some exported as well), etc. while in tractors, CAL
supplies to all major players in India (in this segment, several other unlisted players such as
Sound Castings, Menon and Menon, Shriram Foundry, Ashok Iron Works etc. also have
presence).

Initiating coverage
Exhibit 24: FY21 revenue breakdown for Auto – Powertrain segment

PVs
11%
Off Highway
13%
Tractors CVs
15% 61%
Strong growth drivers in place; expect 20% revenue CAGR over FY21-25E
Despite weakness in auto industry (especially in MHCVs – volumes down more than 60% over
FY19-21) over the last 2 years, CAL has delivered reasonably resilient performance with revenue
down by around 20% over FY19-21, which reflects increased share of business with several
existing customers and stronger volume traction in tractor industry (refer exhibit 31 for segmental
revenue details). Going ahead, we expect the company to deliver 20% revenue CAGR over FY21-
25E, which would be driven by the following factors:
 Benefit of cyclical recovery in domestic MHCV industry: We expect strong recovery in
domestic MHCV industry (28% volume CAGR over FY21-25E) aided by uptick in economic
growth, pick-up in private capex cycle and higher freight demand, which implies that industry
will surpass FY19 peak volumes in FY25E. As per our estimates, Craftsman derives almost
30-35% of segment revenues from domestic MHCV OEMs (remaining CV revenues in the
segment are linked to exports). We note that CAL will likely see higher benefit due to CV cycle
recovery as (1) in an upcycle, tonnage growth usually outpaces volume growth (refer exhibits
28-30 for details on average tonnage volumes of trucks) and CAL has higher content in larger-
sized trucks, (2) BS6 and changes in axle load norms have also led to increase in content for
CAL, which is yet to reflect fully due to muted volumes and (3) large OEMs such as Tata
Motors have some in-house machining capacity of critical engine and powertrain
components – during downturns, OEMs look to utilize their capacity fully and thus extent of
outsourcing comes down (higher revenue decline for suppliers such as CAL) and this will work
the other way in an upcycle benefitting CAL.

Initiating coverage
Exhibit 25: Long term CV cycles – steeper decline in this cycle vs. previous cycles
Source: SIAM, Axis Capital
Exhibit 26: Average size of trucks sold has inched up gradually – usually increases materially during an upcycle.
(tons) Average size of trucks sold YoY % (RHS) (%)
25 20
21.1 20.2 20.5
19.3 20.0 19.6 20.0
19.0 15
20 17.3 17.5 16.8 17.5 17.6 17.9 17.2 17.4
16.2 15.8 16.5
10
15
5
10
0
5 (5)
0 (10)
9MFY22
FY06
FY07
FY08
FY09
FY10
FY15
FY16
FY17
FY18
FY19
FY04
FY05
FY11
FY12
FY13
FY14
FY20
FY21

Initiating coverage
Exhibit 27: MHCV volume vs tonnage growth – tonnage growth outstrips volume growth during upcycle (and vice versa)
Domestic truck volumes YoY % Domestic truck tonnage YoY %

46
42 45 43 43
38 37 37 34 37
32 28
26 28
21 19
15
9 11 9
3
(1) (1) (3)

(6) (7)
(12) (11) (9)
(17)
(26) (27)
(37) (39) (26)
(29)
(47) (50)
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
9MFY22
Exhibit 28: Share of CV revenue in Powertrain to increase led by industry recovery

Rs mn FY20 FY21 FY22E FY23E FY24E FY25E
Revenue
CVs 4,074 4,923 7,046 8,527 9,851 10,567
Tractors 1,082 1,230 1,394 1,395 1,547 1,666
Off Highway 926 1,025 1,441 1,628 1,900 2,062
PVs 1,011 934 1,431 1,759 2,042 2,256
Total 7,092 8,113 11,312 13,310 15,340 16,551
Mix (%)
CVs 57.4 60.7 62.3 64.1 64.2 63.8
Tractors 15.2 15.2 12.3 10.5 10.1 10.1
Off Highway 13.1 12.6 12.7 12.2 12.4 12.5
PVs 14.3 11.5 12.7 13.2 13.3 13.6
Total 100.0 100.0 100.0 100.0 100.0 100.0
YoY Growth (%)
CVs (26.0) 20.8 43.1 21.0 15.5 7.3
Tractors 9.0 13.8 13.3 0.1 10.9 7.6
Off Highway 42.1 10.7 40.6 13.0 16.7 8.5
PVs (11.8) (7.6) 53.2 22.9 16.1 10.5
Total (29.7) 14.4 39.4 17.7 15.3 7.9
 Strong order wins for deemed exports: Given Craftsman’s strong relationship with Daimler
India, the company has won orders for machining of components for engines to be exported
by Daimler primarily to Brazil in FY20 (also to Japan and Germany). Initially, CAL received an
order for machining of components for Daimler’s heavy-duty engines and recently got orders
for medium-duty engine as well. We note that revenue for components of engines to be
exported were around Rs 1.9 bn in FY21 (includes casting plus machining revenue), which will
likely increase to Rs 3 bn by FY24E (based on current orders at hand). Additionally, CAL has
been working with suppliers such as Nelcast, which supplies casting components to global CV
OEMs and Tier 1 suppliers – this can scale up further given focus of global companies to
increase sourcing from India. Exhibit 33 below indicates growing content of CAL as compared
to overall COGS of Daimler India, Nelcast, Brakes India, which reflects increased share of
business with the companies over the last 3 years – a trend, which we expect to sustain over
the medium term as well.

Initiating coverage
Exhibit 29: Daimler India exports business registered 19% CAGR between FY16-21
Daimler India exports YoY Growth % (RHS)

30 100
(Rs bn) (%)
83.1
25 80
26 25
48.2 60
20 35.7
19 40
15 17
20
10 13 (3.6)
0
5 7 (30.9) (20)
0 (40)
FY16 FY17 FY18 FY19 FY20 FY21
Source: RoC, Axis Capital
Exhibit 30: Wallet share growing with Daimler, Nelcast and Brakes (revenues as a %
of COGS for these companies)
Daimler India CV Nelcast India Brakes India

20 18.7
(%)
16 13.7
12
9.2
7.0
8 5.9
3.7 4.2
4 3.0 1.7 2.0
1.2
1.4
0
FY18 FY19 FY20 FY21
Source: Company, RoC, Axis Capital
 New order wins from M&M in both auto and tractor segments: CAL has won orders to
supply fully machined cylinder blocks and heads (castings sourced from outside - very high
share of business) for M&M’s new SUV models – XUV700, Thar and next-generation Scorpio.
We expect volumes of these new models of M&M to scale up significantly over FY22-24,
which augurs well for CAL. Additionally, we note that it has recently won orders from M&M
for machining of engine and transmission components for tractors segment (earlier done in-
house by M&M) as well. CAL will set-up a plant in Nagpur for this order over the next 2 years.
 CAL has won multiple orders from several OEMs, such as (1) supply of machining of engine
components (cylinder block) for a European PV OEM in India (earlier was being
manufactured and machined in Europe) and (2) machining of engine block for a global OEM
engaged in manufacturing of off-highway equipment in India.

Initiating coverage
Exhibit 31: M&M volume estimates – PV volumes to see strong growth led by new models – XUV700, Thar and Scorpio
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Volumes
Passenger vehicles 2,34,640 2,36,754 1,80,263 1,55,539 2,10,300 2,72,300 2,97,460
Bolero 85,368 84,144 59,044 61,072 57,000 78,000 85,800
Jeeps, Hard Tops 6,981 6,095 2,151 12,771 35,000 40,000 40,000
Scorpio 53,934 47,837 38,826 34,325 40,000 48,000 55,200
XUV300 - 9,532 37,576 35,965 52,000 52,000 56,160
XUV700 - - - - 24,000 48,000 54,000
CV (both LCV and MHCVs) 2,31,667 2,66,548 2,05,850 1,57,836 1,71,434 2,32,397 2,68,698
Exports 28,221 38,595 27,743 18,381 31,248 35,935 41,325
Total automotive segment 5,49,153 6,08,596 4,76,043 3,52,281 4,43,769 5,89,892 6,69,058
Tractors 3,19,623 3,30,436 3,01,915 3,54,498 3,65,133 3,79,738 3,94,928
Overall volumes 8,68,776 9,39,032 7,77,958 7,06,779 8,08,902 9,69,630 10,63,986
Yoy growth (%)
Passenger vehicles 3.9 0.9 -23.9 -13.7 35.2 29.5 9.2
CV (both LCV and MHCVs) 21.1 15.1 -22.8 -23.3 8.6 35.6 15.6
Exports -24.2 36.8 -28.1 -33.7 70.0 15.0 15.0
Total automotive segment 8.4 10.8 -21.8 -26.0 26.0 32.9 13.4
Tractors 21.5 3.4 -8.6 17.4 3.0 4.0 4.0
Overall volumes 12.9 8.1 -17.2 -9.1 14.4 19.9 9.7
Exhibit 32: Auto – Powertrain revenue breakdown by customer; Daimler, M&M to drive growth
FY21-25E
Revenues (Rs mn) FY20 FY21 FY22E FY23E FY24E FY25E Comments
CAGR
CVs 4,074 4,923 7,046 8,527 9,851 10,567 21
Daimler India 1,731 2,658 3,598 4,383 5,118 5,330 19
Domestic 1,128 788 1,261 1,765 2,118 2,330 31
- Machining of cylinder blocks and cylinder heads
Deemed exports 603 1,870 2,337 2,617 3,000 3,000 13 which will be exported by Daimler to Brazil, Japan
and Germany
Tata Motors+Tata - High share of business (>50%) for cylinder
933 740 1,223 1,626 1,955 2,230 32
Cummins heads and blocks
Nelcast 416 371 12 - Strong relationships with Nelcast, Brakes India
482 530 557 584
which are supplying components to CV OEMs
Brakes india 273 302
362 391 411 431
and Tier 1 suppliers such as Dana, Meritor etc
Others 721 853 1,381 1,597 1,810 1,991 24
PVs 1,011 934 1,431 1,759 2,042 2,256 25
- Won order for machining of PSA engine Block and
Nemak 15
91 97 121 139 156 168 Ford Block through Nemak.
- Very high SoB for machining of cylinder blocks and
M&M 413 393 1,065 28
648 842 969 heads for M&M's SUVs (including new launches)
- Won order for supply machining of cylinder block
Others 507 444 1,022 23
662 778 918 for a European PV OEM in India
- Won orders for machining of engine and
Tractors 1,082 1,230 1,394 1,395 1,547 1,666 8 transmission components from M&M (earlier done
in-house)
- Machining of cylinder block for a global off-
Off-highway 926 1,025 1,441 1,628 1,900 2,062 19
highway equipment manufacturer
Total 7,092 8,113 11,312 13,310 15,340 16,551 20

Initiating coverage
EBITDA margin to remain strong at 34% levels

 Strong EBITDA margin profile for the business: Given that CAL only does machining of
various engine and transmission components, it recognizes job work income or machining
charges as revenue. As a result, EBITDA margin profile for this segment is high with CAL
reporting 50-55% EBITDA margin on pure machining revenue. However, for a couple of
customers (e.g. Daimler), it is also responsible for sourcing the raw castings from supplier,
production planning and logistics. As a result, according to Ind-AS regulations, it has to
recognize value of casting as revenue (and also as RM cost) along with machining charges.
Thus, EBITDA margin appears optically low for this ‘with material’ business at 10-15%
(absolute EBITDA for both the models is the same however– refer exhibit 36 for details).
Overall for the segment, EBITDA margin has been strong and has improved from 27% in FY18
to 39% in FY21. In FY22, there has been some normalization of margin to 37% due to
(1) commodity cost impact on ‘with material business’ (see details below) and (2) product mix.
We expect margin to remain stable at 34% levels over the next 3 years – contraction largely
driven by product mix.
 Margin varies according to the products: Cylinder block and cylinder heads are relatively
high margin products for CAL vis-à-vis transmission products. This is because the complexity
involved with these products is higher leading to higher value addition for CAL.
 Low impact of commodity prices: This segment is relatively immune from the impact of raw
material prices as CAL is only providing job work or machining services. Commodity pricing
impact at the casting level is taken care of by the customer and the casting suppliers.
However, for the ‘with material’ business, we do see an optical margin impact for CAL.
Exhibit 33: Dynamics of pure machining and ‘with material’ business and EBITDA generation
RM+
Machining Total Comments
Machining
For couple of customers, CAL is responsible for sourcing raw casting from
approved vendor, doing final machining and supplying to the customer. For the
Iron casting - 35,000 35,000
remaining customers, CAL gets the raw casting and only does the machining
work
Machining charges 12,000 12,000 24,000
In RM+machining, cost of casting is recognized as revenue, while for machining
Total revenue (Rs) 12,000 47,000 59,000
only machining charges get recognized as revenue
RM cost (Rs) - 35,000 35,000
Gross profit (Value Value addition is the same across both methods, however margin is optically
12,000 12,000 24,000
add)(Rs) higher when CAL does only the machining
Gross margin % 100 26 41
Other overheads (Rs) 5,400 5,400 10,800
Absolute EBITDA and EBITDA to value add same across both methods;
EBITDA (Rs) 6,600 6,600 13,200
however margin is optically higher for machining
EBITDA margin % 55 14 22
EBITDA to value add 55 55 55
Source: Axis Capital

Initiating coverage
Exhibit 34: Mix of machining and non-machining business with Automotive Powertrain
Rs mn FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Revenues 8,709 10,085 7,092 8,113 11,312 13,310 15,340 16,551
Machining 5,885 6,241 4,212 4,213 5,793 6,776 7,783 8,575
With material 1,968 2,711 2,168 3,030 4,110 4,984 5,884 6,168
Others 855 1,132 712 870 1,409 1,550 1,674 1,808
EBITDA 2,318 2,990 2,361 3,180 4,146 4,545 5,186 5,662
Machining + others 2,170 2,754 2,144 2,796 3,673 3,997 4,539 4,984
With material 148 236 217 385 473 548 647 678
EBITDA margin (%) 26.6 29.6 33.3 39.2 36.6 34.1 33.8 34.2
Machining 32.2 37.4 43.6 55.0 51.0 48.0 48.0 48.0
With material 7.5 8.7 10.0 12.7 11.5 11.0 11.0 11.0
YoY Growth (%)
Revenues 15.8 (29.7) 14.4 39.4 17.7 15.3 7.9
Machining 6.0 (32.5) 0.0 37.5 17.0 14.8 10.2
With material 37.7 (20.0) 39.7 35.7 21.2 18.1 4.8
Others 32.4 (37.2) 22.2 62.0 10.0 8.0 8.0
EBITDA 29.0 (21.0) 34.7 30.3 9.6 14.1 9.2
Machining +others 26.9 (22.1) 30.4 31.4 8.8 13.6 9.8
With material 59.8 (8.1) 77.5 22.8 16.0 18.1 4.8
Source: Axis Capital

Initiating coverage
Auto Aluminium: Expect strong ramp-up over next 3 years

CAL is a relatively new entrant in the aluminium die-casting business (entered in 2016)
but has ramped-up well, especially with 2W OEMs like TVS and RE (90%+ of revenue
today) primarily involved in casting and machining of parts like crank cases and
cylinder blocks. Given its technical capabilities and strong execution track record, CAL
has won new orders from (1) existing customers in powertrain segment such as
Daimler, M&M and Tata Motors (axle/gearbox housings), (2) new OEMs such as PSA
(engine and transmission parts) and (3) orders from a domestic PV OEM for
manufacturing and machining of aluminium cylinder block for SUVs – thus it is
transitioning to a PV/CV casting supplier (non-2W revenue to be 43% by FY25E). On
the 2W side, while scope exists for further increase in its SoB (40% currently) with TVS,
its order wins secured from EV 2W OEMs will be key driver.
Overall, we expect segment revenues to grow at 26% CAGR over FY21-25E in this
business due to these new orders wins. We expect EBITDA margin to improve to 18%
by FY24E aided by better mix (higher share of non-2W revenues) and improving
utilization levels driving a 40% EBITDA CAGR over this period.
Over the long term, this business is well-placed to benefit from rising aluminium
content due to light-weighting of vehicles and increasing penetration of EV. Aluminium
content in India PV/CV remains well below global levels and as such significant
industry tailwinds exist for this business.
Relatively new entrant in die-casting business but strong ramp-up with 2W customers
 CAL entered the automotive aluminium die-casting business in 2016 by leveraging its die-
casting capabilities (foundry + machining) in the industrial business. Here, it is involved in the
end-to-end manufacturing (casting + machining) of products such as crank case and cylinder
blocks for 2Ws, engine and structural parts for passenger vehicles and gear box housings for
HCVs. It is one of the few players in the country who have capabilities across die-casting
technologies viz. high pressure, low pressure, gravity, and sand and an in-house tool room.
 Currently, majority of the revenue (90%+) comes from 2W OEMs viz. TVS (75% of segment
revenue) and RE. CAL supplies fully finished crank cases and cylinder blocks across TVS’ key
models and has a 40-45% SoB (ex. alloy wheels) with TVS. CAL’s revenue has grown at 33%
CAGR over FY16-21, primarily driven by ramp-up of business with TVS.
New order wins to drive 26% revenue CAGR over FY21-25E

 New order wins from PV and CV OEMs: 2W OEMs account for a majority of die-casting
revenue for CAL currently, however growth going ahead will be driven by new order wins
from OEMs such as PSA and Daimler (details below). We expect share of revenue from non-
2W customers (ICE) to increase to more than 43% of segment revenue in FY25 from 15%
currently (exhibit 39).
 Gearbox housings for Daimler and wins from M&M and Tata: As part of its light-weighting
initiatives, Daimler has transitioned its CV gearbox and flywheel housings from cast iron to
aluminium – this will lead to a reduction of weight by 50-60%%. CAL has won the order to
supply these gearbox housings and supplies have started in FY21 end (revenue of ~Rs 350
mn in FY22E). This order is expected to ramp up going ahead and we build in peak revenue of
Rs 600 mn in FY24E. We note CAL is also working with a domestic CV OEM on a similar
project to transition cast iron housings to aluminium. It has also won orders from M&M and
Tata Motors (small orders to start with) in this segment.
 Gearbox and engine parts for PSA: PSA AVTECH Powertrain Pvt Ltd, which is a 50:50 JV
between Groupe PSA and AVTEC Ltd (part of CK Birla Group), has set up a greenfield plant
in Hosur to manufacture PV gearboxes and engines for PSA’s domestic as well as export
requirements. The plant has an initial manufacturing capacity of about 300k gearboxes and

Initiating coverage
200k engines per year. CAL has won new orders from to supply gearbox housings, oil pan and
cam carriers for this operation. Start of production will be in FY23 and management expects
to achieve peak revenue potential of Rs 2 bn in FY25 (we build in Rs 0.8/1.4 bn in FY24/25).
 Aluminium castings for cylinder block from a domestic PV OEM: CAL will be manufacturing
aluminium castings for cylinder blocks for a domestic PV OEMs for its SUV models.
Exhibit 35: Products manufactured for PSA
Exhibit 36: Revenue share of ICE 2Ws to come down to 50% from 85% currently
RE TVS 2W EV OEMs PV+CVs
15
-
43
64 8
38
21
12
FY21 FY25E
 Orders from 2W EV OEMs to also aid growth: CAL has also won orders from two south-
based 2W EV OEMs to supply die-casting parts for electric 2Ws. These include parts such as
battery housings and other structural parts. Peak revenue potential could be Rs 800 mn over
the next 2 years (we build in Rs 400 /Rs 700 mn in FY24/25).
 Scope for increasing SoB with TVS, but muted 2W demand to weigh on volumes: Company
has also won further orders for supplying crankcases and cylinder blocks to more of TVS’
models. Management expects this to drive further increase in its share of business with TVS
to ~60% in FY24E vs. 40% currently. However, weak 2W demand has led to delays in start of
these orders. As a result, we have not built this into our estimates and expect 11% CAGR for
TVS’ revenue, broadly in line with volume growth at TVS.

Initiating coverage
Exhibit 37: New orders won from Daimler, PSA and 2W EV OEMs
FY21-25E
Revenues (Rs mn) FY20 FY21 FY22E FY23E FY24E FY25E Comments
CAGR
2Ws 2,516 2,804 3,267 4,066 4,547 5,149 15
- Ramp up of orders won to supply crankcases and cylinder
TVS 1,998 2,114 2,537 2,917 3,151 3,403 11 blocks across models such as Wego, Jupiter, Ntorq, Apache
and XL100 (SoB to increase for CAL)
- Ramp up of orders won to supply headlamp casings and
RE 517 690 730 949 996 1,046 15
crankcase for new platforms
2W EV OEMs - - - 200 400 700
PVs+CVs 82 493 1,020 1,676 2,689 3,837 116
- Ramp up of orders won to supply gearbox housing, cam
PSA - 1 - 200 800 1,400 carriers, oil pans in the domestic market. Exports to start in
FY24
M&M 55 101 150 250 275 316 42 - Ramp up of orders won with M&M
- Scale up with a domestic OEM , orders won from domestic PV
Others 27 374 520 676 1,014 1,521 124
OEM
Daimler India - 18 350 550 600 600 - Start of supplies of front, middle and rear housings
Total 2,603 3,298 4,287 5,742 7,236 8,986 28
EBITDA margin to improve to 18%; improving asset turns to drive RoCE improvement
EBITDA margin in FY21 stood at 11.7% and has been impacted by (1) low utilization levels: 40-50%
in FY21 and (2) impact of rising RM costs in the recent quarters – compensation from OEMs happen
with a lag of 1-3 months (CAL is putting in efforts to move to a monthly pricing formula vs quarterly
earlier with key customers, which will help reduce volatility in margin). We expect EBIDTA margin
to improve to 18% levels by FY24 (there could be upside risks if new orders actually scale up to
expected peak revenues and aluminium prices normalize from high levels currently) led by
(1) higher share of revenue from PV and CV OEMs and exports where margin is relatively higher
(more complexity of products also) than 2W products, and (2) operating leverage benefits with
improving utilization levels. This will drive 40% EBITDA CAGR in this segment.
Exhibit 38: EBITDA margin to improve to 18%... Exhibit 39: ...aided by improving utilization levels
EBITDA Margin % (RHS) Asset Turnover (x) 0.9

(Rs bn) (%)
0.8
2.0 20 0.8 0.7
18 18
18 0.6
1.6 16 0.6 0.5
16 0.5
1.2 14 14 14
14
0.8 12
12
0.4 9 10
0.0 8
FY22E
FY23E
FY24E
FY25E
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY18
FY19
FY20
FY21

Initiating coverage
Light-weighting of vehicles to drive higher aluminium content in the long-term

 Over the medium to long-term, aluminium content in vehicles is expected to increase due to
light-weighting trend driven by (1) more stringent emission and fuel economy regulations,
(2) premiumization and addition of new features which add to vehicle weight and necessitate
reduction in other areas and (3) rising penetration of electric vehicles where OEMs need to
compensate for higher battery size and weights in order to extract maximum range.
 Aluminium content in PVs in India well below global levels: We note average aluminium
content in a passenger vehicle in India is currently only 50-60 kg vs. 140-210 kg in other
regions such as China, Europe and North America. India’s average content is also lower than
the aluminium content in A/B segment cars in these regions - 80-110 kg in Europe and 120-
140 kg in North America. Thus, there is significant scope for aluminium content to increase in
Indian PVs going ahead especially in products such as transmissions, chassis and suspension,
steering parts, closures and trim & interiors (refer exhibit 43 for details).
 Significant scope for higher content even in CVs: Scope for increased aluminium usage is
even higher in CVs. Average aluminium content in trucks in China in 2020 is estimated to be
120-130 kg per vehicle with major usage in transmission housings, fuel tanks, gas tanks and
heat exchangers. Going forward, usage will increase materially in body parts, structural parts
and trailers. OEMs such as Daimler are ahead in terms of aluminium usage and have
transitioned gearbox housings to aluminium (CAL is the supplier for these as highlighted
above), while domestic OEMs such as Tata Motors are currently evaluating this shift.
 Aluminium content to increase significantly in EVs: Rising EV penetration will provide a

further fillip to aluminium as content in EVs is significantly higher than ICE vehicles – 300-
320 kg vs.140-210 kg in regions like Europe and North America (refer exhibit 44). Transition
from ICE to BEV leads to loss in aluminium content of engine related components (blocks,
cylinder heads, cam cover, oil pans, pistons etc.) and some transmission and driveline
components (such as valve body, clutch housing, transfer case, drive shaft, differential
carriers, etc.). However, the loss is more than compensated by BEV powertrain related
components (such as motor housings, reduction gearboxes, housings for some other
components such as inverters/converters/BMS) and platform components (closures, body
platforms, etc.). – refer exhibit 45 for details.
 Aluminium content to remain broadly similar in 2W EVs: For India, 2W market is likely to
see quicker transition towards to EV. Aluminium content in ICE 2Ws currently ranges 15-20
kg/vehicle. Our industry checks suggest that aluminium content in electric scooters is 15-20
kg on average (this is higher in models of some OEMs like Ather which have also used
aluminium chassis vs. steel by other OEMs), broadly in line with content in ICE scooters (refer
exhibits 46-48 for details). However, given lower complexity of parts supplied in an EV,
overall value addition for die-casting companies could be at par to marginally lower in EVs as
compared to ICE vehicles.

Initiating coverage
Exhibit 40: Usage of aluminium in cars: India vs. Europe – significant scope to see higher aluminium usage in India
Source: Industry reports, Axis Capital
Exhibit 41: Average aluminium content (in kg/vehicle) in PVs in key regions
ICE BEV
321
292
206
172 160
140
North America Europe China

Source: Ducker Frontier, Axis Capital

Initiating coverage
Exhibit 42: Aluminium content change – ICE to BEV (North America PV industry)
weight in kg
142 7 292
206
30
-49
-39 -5
2020 ICE ICE ICE Others BEV BEV BEV Others 2020 BEV
Non BEV Powertrain Transmission & Powertrain Platfrorm
Driveline
Source: Ducker Frontier, Axis Capital
Exhibit 43: Aluminium content in ICE 2W across key segments in India

Entry Level Executive More than
Part description Mopeds Scooters
Motorcycle Motorcycle 350cc
Total Aluminium per vehicle(kgs) 9-11 12-16 12-14 14-16 25-28
Weight distribution by parts (%)
Crankcase 28-30 40-42 30-35 40-42 40-42
Clutch Cover 8-10 8-10 8-10 7-9 8-10
Cover Magneto/ On way Cover 3 5-6 5-6 5-6
Block 7-8 12-14 5-6 10-12 7-9
Head 15-17 20-22 18-20 14-16 10-12
Hubs 13-14 NA NA NA 8-10
Others 25-27 18-20 25-30 22-24 18-20
CAL content (kg/vehicle) 4.4-4.6 7.5-8.0 4.0-5.0 7.5-8.0 13-14
CAL content (% of total content) 40-45% 50-55% 40-45% 50-55% 45-50%
Source: Industry reports, Axis Capital
Exhibit 44: Aluminium content in ICE scooter models Exhibit 45: Aluminium content in EV scooter models
19
(%) (%)
16 17
14 14 14 15
12 14 14
12
TVS TVS Zest Honda Honda TVS TVS Bajaj Ampere Ola S1 Pro Ather TVS iQube
Jupiter 110 Activa Grazia Jupiter Ntorq Chetak Magnus 450X
125 125 Pro
Source: Industry reports, Axis Capital Source: Industry reports, Axis Capital
Highly competitive space, but Craftsman does have an edge

We note that aluminium die-casting is a highly competitive space with multiple players operating
in the domestic market and catering to various segments and customers. With the growth drivers
highlighted above, many players are increasingly looking to expand their presence across segments
(for e.g. Endurance a leading 2W player is gradually expanding presence in PVs and non-auto etc.).
CAL’s scale-up in this business is highly commendable given (1) business has scaled up quite rapidly

Initiating coverage
in a short period of time and with orders from multiple PV and CV OEMs, we expect strong growth
ahead, (2) company has made big in-roads with TVS despite the presence of TVS’ group company
Sundaram Clayton – one of the largest die-casting players in the country (this suggests CAL does
have an edge when it comes to engineering capabilities) and (3) despite operating at low utilization
levels (50-60%), CAL is able to earn EBITDA margin similar to much larger players (avg. margin in
10-12% range).
Exhibit 46: Key domestic aluminium die casting players

FY21 Revenue
Players Major Segments Comments
(Rs mn)
Key vendor for Aluminium die casting and alloy wheels to Hero MotoCorp. Further,
Rockman* 21,504 2Ws
diversifying alloy wheels supply to other domestic 2W and PV players
Endurance 16,385 2Ws Large supplier to Bajaj Auto. Has also won orders from Hyundai and Kia in PVs
Derives 25-30% of casting sales from 2W customers and has expanded significantly
Rico auto 12,764 2Ws and PVs
into PV customers over the last few years
CV business is highly export driven (US and Europe). Also, derives sizeable business
Sundaram clayton 11,769 CVs and 2Ws
from TVS and Hyundai in India
Supplies to multiple domestic 2W and PV customers. Exclusive supplier for Ather and
Alicon Castalloys 8,486 2Ws and PVs Tork. Won orders for EV castings from JLR, Garrett, MAHLE, Eaton, Samsung for
Passenger Vehicle
AEL 7,265 2Ws Key supplier to Bajaj and is increasing share in exports from non 2W customers
Derives significant share of business from PV and CV players. Has very limited
Jaya Hind* 4,252 PVs and CVs
exposure to 2W segment
Majority of the revenue (90%+) comes from 2W OEMs viz. TVS (75% of segment
Craftsman 3,298 2Ws
revenue) and RE. Has won significant orders from PV and CV OEMs
Source: RoC, Company, Axis Capital
*Revenue as on FY20, FY21 revenue not available
Exhibit 47: Auto aluminium – peer analysis

Sundaram Clayton Rockman* Rico auto Alicon Castalloys Aurangabad Electricals Ltd Jaya Hind Industries*
Financials(Rs bn) FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 FY19 CY20# CY21 FY19 FY20 FY21
Revenue 18.3 13.2 11.8 23.7 21.5 NA 12.0 11.9 12.8 11.8 9.6 8.5 8.6 6.4 7.3 6.0 4.3 NA
Gross Profit 9.2 7.1 6.3 7.2 6.9 NA 4.0 4.3 4.6 5.8 4.7 4.4 2.8 2.5 2.8 3.2 2.5 NA
EBITDA 1.8 1.2 1.5 2.3 1.7 NA 1.1 1.1 1.1 1.4 1.1 0.8 0.8 0.8 0.8 0.7 0.4 NA
EBIT 0.9 0.2 0.7 1.5 0.9 NA 0.7 0.1 0.0 1.0 0.6 0.3 0.4 0.4 0.5 0.2 -0.1 NA
PAT 1.2 0.9 0.9 1.2 0.5 NA 1.2 0.9 0.9 0.5 0.2 -0.0 0.4 0.8 0.8 1.6 2.5 NA
YoY Growth (%)
Revenue 11.6 -27.8 -11.1 2.1 -9.3 NA 11.2 -0.3 7.0 16.6 -19.0 -11.3 34.1 -25.8 13.8 11.6 -27.8 NA
Gross Profit 10.6 -23.0 -11.3 -62.4 6.2 NA -62.4 6.2 7.7 -42.6 -19.3 -7.2 8.7 -11.6 15.5 10.6 -23.0 NA
EBITDA NA -34.0 28.2 -12.1 -25.4 NA 10.7 -36.4 -10.3 28.6 -23.9 -21.5 3.2 -2.0 6.6 NA -34.0 NA
EBIT NA -71.1 193 -18.3 -39.7 NA 13.0 -82.2 -83.8 33.0 -38.8 -44.5 -17.3 6.2 6.0 NA -71.1 NA
PAT 119 -23.2 -7.5 -6 -6.4 NA 1.0 -62.2 -126 35.6 -67.5 -111 17.9 90.7 7 119 -23.2 NA
Margins (%)
Gross Profit 50.0 53.3 53.2 30.4 32.0 NA 33.8 36.0 36.3 49.3 49.1 51.4 32.3 38.5 39.1 53.3 58.5 NA
EBITDA 9.7 8.9 12.8 9.8 8.1 NA 9.5 9.6 8.9 11.8 11.1 9.8 9.1 12.0 11.3 11.6 10.2 NA
EBIT 4.7 1.9 6.2 6.3 4.2 NA 5.9 1.0 0.2 8.6 6.5 4.0 4.7 6.8 6.3 3.7 -1.6 NA
PAT 6.6 7.0 7.3 5.3 2.1 NA 10.1 7.8 6.7 4.4 1.8 -0.2 4.7 12.0 11.3 26.7 59.2 NA
Source: RoC, Axis Capital
* FY21 financials for Rockman and Jaya Hind not available; #CY20 Financials for AEL are for 9M

Initiating coverage
Industrial: Storage solutions and capex cycle growth drivers

We expect segment revenue to post 27% CAGR over FY21-25 led by (1) strong growth
in storage solutions business (6x revenue over FY21-25E) led by secular growth drivers
such as emergence of hub and spoke model post GST and rising e-commerce
penetration driving robust growth in warehousing along with market share gains for
CAL, (2) entry into newer segments –machining of large-size castings (2-6 tons) for
machine tool manufacturers and wind energy companies (build in Rs 800 mn revenue
by FY25E) and (3) revival in capex cycle in India driving recovery in other sub-segments
– revenue in these segments declined by 30% over FY19-21. Profitability in this
segment has been impacted (14% EBITDA margin in FY22E vs. 23-25% in FY20-21) due
to (1) rising commodity costs – no pass-through formula unlike auto business (done
through negotiations) and (2) rising share of storage business – relatively low margin
but high asset turns in this business. With normalization of commodity costs/price
hikes and increase in utilization levels and better mix (especially in storage business),
we expect EBITDA margin to improve to 16-17% by FY24-25.
Understanding CAL’s industrial and engineering business

 CAL started off as an Industrial and Engineering company and has focused on leveraging its
in-house engineering and design capabilities along with process capabilities such as
aluminium die-casting, machining, fabrication etc. to grow this segment. Over the years, it has
developed a diverse product portfolio across two sub-segments viz. (1) storage solutions
(40% of FY22E segment revenues), and (2) high-end sub-assembly and contract
manufacturing products sub segment (60% of FY22E segment revenues).
 Storage solutions is a more recent sub-segment that CAL entered in 2012-13, but this has
ramped up rapidly over the last 2-3 years (Rs 140 mn in FY18 to Rs 2.5 bn in FY22E). Here
company provides complete solutions for conventional/automated storage and
manufactures products like pallets, racking, shelving, vertical storage solutions, automated
storage solutions etc. for several sectors such as FMCG, e-commerce, logistics, auto,
pharmaceutical and electronics (refer exhibit 52 and 53 for examples of solutions provided).
Key customers in this segment include the likes of Flipkart, First Cry, Delhivery, Reliance
Retail and few FMCG/Auto companies.
 High-end sub-assemblies and contract manufacturing products sub-segment includes

multiples categories such as (1) aluminium products for power transmission, (2) gears and
gear boxes, (3) material handling equipment, (4) tool room, mould base, and sheet metal, and
(5) special purpose machines. (refer exhibit 54 for key products and applications). Key
customers here are Siemens, Mitsubishi Heavy Industries, Flowserve, GE T&D, Ryobi, Rhein
Gatriebe, etc.

Initiating coverage
Exhibit 48: FY21 revenue breakdown (%) by sub-segments

Others
Aluminium castings 10
Storage
for power 25
transmission
9
Gear and gear

boxes
9
High end sub-

assembly & Tool room and
precision mould base
component mfg. 27
21
Exhibit 49: Multi-tier shelving solution by CAL Exhibit 50: Multi Deep Shuttle ASRS solution by CAL

Initiating coverage
Exhibit 51: Craftsman’s product and engineering capabilities in core industrial engineering and storage solution
Key growth drivers

Revenue in this segment has seen 12% CAGR over FY18-22E, driven entirely by ramp-up of
storage solutions business while high-end precision product revenue has been flattish over this
period. Over FY21-25E, we expect revenue growth to pick up and build in 27% CAGR led by (1) 6x
increase in revenue in storage solutions business (Rs 5.8 bn in FY25E) aided by industry growth,
bigger break-through with existing clients (execution of bigger ticket-size orders) and addition of
new customers driving market share gains, (2) entry into machining of higher castings in wind
energy and machine tools segments and (3) recovery in other segments with revival in capex cycle
– our FY25E revenue in other sub-segments (excluding entry into new segment) stands at
Rs 4.5 bn, largely similar to FY19 levels (thus our estimates are conservative in this segment).

Initiating coverage
1. Secular tailwinds driving growth in storage solutions business

CAL’s storage solutions business has ramped up at a rapid pace from Rs 140 mn in FY18 to Rs 2.5
bn in FY22E. Company is now among the top 3 storage solutions company in the country (other big
players are Godrej Storage Solutions and Neelkamal Storage) and continues to grow at a strong
pace. Growth has been driven by a strong team built by Mr. Srinivasan Ravi including professionals
with extensive experience of working in the industry for leading companies such as Godrej Storage.
Craftsman started off by catering to small orders (size of Rs 20-50 mn) but has gradually scaled up
to higher order sizes of Rs 150-180 mn from leading retail and e-commerce players. Now it is
looking to position itself as a dominant player for even larger order sizes – huge room exists as
industry leaders have executed single projects with order size of Rs 1 bn. CAL is looking to
eventually reach this level and is specifically focusing on leveraging its design and engineering
capabilities to develop automated storage and retrieval solutions – management expects this to be
the next big focus area for many customers. Overall, we expect this business to see 40% CAGR over
FY22-25E led by
 Emergence of hub and spoke models and rising e-commerce penetration driving
warehousing growth: Our industry checks suggest organized storage solutions industry in
India is roughly Rs 35-40 bn in FY21 with 3PL, e-commerce, FMCG and retail sectors making
up 75-80% of this. Industry has registered 16-18% CAGR over the last 3-4 years and is
expected to see 18-20% CAGR over the next 4 years led by (1) GST implementation driving
emergence of hub and scope model and growth in the warehousing industry as end-users re-
align their supply chains, (2) rising penetration of e-commerce and resultant increase in
warehousing space required by e-commerce players (refer exhibits 56-58) and
(3) growth across end-user industries such as organized retailing, consumer durables, auto
components, pharmaceuticals and cold storage industries.
Exhibit 52: Domestic Storage solution market share for organized industry
Godrej Storage,
18-20%
Neelkamal Storage,
6-8%
Craftsman Auto,
3-5%
Others, Armes Maini,

58-60% 2-4%
Godrej
Koerbor*, 2-
Daifuku, 3%
2-3%
Wipro Pari,
5-7%
Source: Industry, Axis Capital

Initiating coverage
Exhibit 53: Total warehousing transactions size across Exhibit 54: Sector split of warehouse demand
8 primary markets in India
3PL E-Commerce Retail
7.1
(mn sq. mt) FMCG FMCD Other sectors
Miscellaenous
(%)
23 20
21 3
6 5 3
5 6
3.0 12 7 4
31 37
14
1.3
35 31 30
FY17 FY21 FY26E FY18 FY21 FY26E

Source: Knight Frank Research, Axis Capital; Note: Primary markets include NCR, Source: Knight Frank Research, Axis Capital
Mumbai, Pune, Bengaluru, Chennai, Hyderabad, Kolkata, Ahmedabad
Exhibit 55: Warehouse additions by sector over FY22-26E

Transactions
Sector
FY17-21 (mn sq. mt.) FY22-26 (mn sq. mt.)
E-Commerce 3.4 9.1
3PL 4.9 7.7
Other sectors 3.4 4.9
FMCD 0.7 0.9
FMCG 0.8 0.9
Retail 1.4 1.5
Miscellaneous 0.4 0.4
Source: Knight Frank Research, Axis Capital
 Shift towards organized players: Share of unorganized players in the industry is roughly 30-
40% given dominant presence in basic racking products and systems. However, given
increasingly large project sizes (in terms of warehousing space requirements especially by e-
commerce players) and requirement of customized storage solutions along with automation
capabilities, market is shifting more towards organized players who are growing at a much
faster pace than unorganized players.
 Increasing trend of automation: Another trend playing out here is increasing automation or
adoption of automatic storage/retrieval systems (AS/RS) solutions. These can be used across
consolidated and modernized warehouse and are based on computer-controlled methods for
automatically placing and retrieving loads from specific storage loads. Currently, penetration
of these systems is just 10-15% in India (much higher in developed counties) and is expected
to double over the next 3 years. Currently, only a few players in India have the capabilities to
provide automated storage systems and CAL is well placed here given its design and
engineering as well as SPM manufacturing capabilities.
2. Order wins for machining of large-size castings

 New orders won for machining of large-size castings: CAL has won orders for machining of
large size iron castings from (1) a machine tool manufacturer in India – this is for machining
of gearboxes (weight of castings of 1-6 tons which are imported from Taiwan) and
(2) renewable energy companies – machining of castings for wind mill parts such as adapter
flanges, bearing flanges and torque reaction arms (weight ranging from 1.6-3.2 ton, currently
castings imported from China/Europe). We build in revenue of Rs 400/800 mn in FY24/25
from these orders.

Initiating coverage
 Exploring possibility of backward integration for manufacturing iron castings: As an

extension of the machining order wins highlighted above, CAL is also exploring the possibility
to backward integrate and manufacture these castings. If it decides to do this, company will
need to set up an iron foundry for these castings; likely to adopt sand casting for
manufacturing these parts. Capex for the same could be roughly Rs 650-700 mn and potential
revenue of Rs 1.5-2 bn (potential for further order wins on export side also exists). We
estimate EBITDA margin for this business to be around 20% (50-55% gross margin).
However, RoCE can be high given higher asset turns (2-2.5x).
3. Likely revival of capex in India over FY22-25E benefitting other product segments
 India likely to gain major share of global manufacturing output: As highlighted in our
strategy report in Nov-2021 (click here), we believe India’s manufacturing is likely set for
long-term growth and to gain a major share of global manufacturing output aided by
(1) infrastructure improvements which are helping drive down macro cost and improve
reliability, and (2) supportive global environment – Western world looking to broad base
supply sources away from China and India’s increasing focus on import substitution. The
positive sentiment combined with low cost of capital is likely to lead to increasing prospects
of private sector capex over the next few years.
 Trend visible across multiple end-user industries: Our extensive channel checks
corroborate this trend through multiple examples like (1) American and European owned
global suppliers of capital equipment (such as textile machinery, escalators, elevators,
material handling equipment, blast furnaces, etc.) to India companies are now localizing ,
(2) Western companies (and even Chinese companies in some cases) are increasingly
sourcing components for global operations from India – this is visible in auto components,
castings, forgings, gear boxes, apparels etc. (3) Indian capital goods manufacturers are
benefitting from the resulting expansion in capacity by foreign and Indian manufacturers of
goods in India and (4) Indian capital goods makers are being invited to the table for
negotiations for the first time ever as both American and European companies which are
expanding capacities in home markets want to rely less on Chinese suppliers.
 Early signs of a pick-up in capex: Capacity utilization levels in India are improving but still
remain below 75-80% levels that would trigger broad-based capex. Nevertheless,
investment rate as a % of GDP has recovered led by public sector capex spending – we expect
it to recover back to pre-Covid levels by FY23 end. We note that capex by Center + 26 states
is more than 20% above pre-Covid levels and will likely remain robust in FY23 and FY24
heading towards state and parliamentary elections. Buoyancy in public sector capex can be
seen in domestic production and imports of capital goods while engineering exports have also
held up well during the pandemic recovery period – order inflows for large industrial
companies have picked up materially and crossed pre-Covid levels. Finally, over the medium
to long term, benefits from China + 1 are likely to sustain as India is amongst the lowest cost
alternatives with large, high-quality human capital which will help attract manufacturing
investments (Refer exhibits 59-64 for details on some of these macro parameters).
 Given these triggers, we expect CAL’s other industrial and engineering sub-segments to also
benefit and recover – we conservatively build in 9% CAGR in revenue (ex- new order wins for
manufacturing large size castings highlighted above) over FY22-25E vs. broadly flattish
revenues over FY18-22E.

Initiating coverage
Exhibit 56: Investment rate has recovered led by public sector capex
Investment rate (% of GDP)

40%
35%
31%
30% 28%
25%
20%
Mar-12
Mar-13
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-23
Mar-14
Mar-15
Mar-21
Mar-22
Source: CEIC, Axis Capital
Exhibit 57: Public sector capex is more than 20% above pre-Covid level
Center + 26 states capex spending vs. pre-Covid

2019=100
150 (index)
139
125
100
75
Nov 20
Apr 20
Apr 21
Nov 21
Mar 20
Jul 20
Mar 21
Jul 21
Oct 21
Oct 20
Jun 21
Jun 20
Dec 21
May 20
Dec 20
May 21
Aug 21
Aug 20
Feb 20
Feb 21
Jan 20
Jan 21
Sep 20
Sep 21
Source: CEIC, Axis Capital
Exhibit 58: Domestic production has recovered… Exhibit 59: …while capital goods imports are also buoyant
IIP: Capital Goods (2019=100) (Index) Capital goods imports

120 160
(Index) 101.6
100 140
98.8 120
80 92.1 100
60 80
40 60
40
20
20
0 0
Apr-20
Apr-21
Oct-20
Oct-21
Feb-20
Jun-20
Feb-21
Jun-21
Dec-20
Dec-21
Aug-20
Aug-21
Apr 20
Apr 21
Oct 20
Oct 21
Jan 20
Jul 20
Jan 21
Jul 21
Jan 22
Source: CEIC, Axis Capital Source: CEIC, Axis Capital

Initiating coverage
Exhibit 60: India low cost alternative to China now Exhibit 61: India has human capital to attract mfg.
investments
Mfg. labor costs comparison 2020 ($/hr) # of R&D personnel in thousands, 2018
Spain 226
India 2
Italy 312
China 7 France 451
UK 470
Japan 27
Korea 501
Singapore 28 India 553
Germany 707
Germany 44
Russia 758
Japan 897
USA 49
China 4,381
Source: EIU, Invest India Kearney, Axis Capital Source: UNESCO Institute of Statistics, Axis Capital
Exhibit 62: Order inflows have picked up materially for industrial companies
(Rs bn)
250 235
193
200 173 177 177 168
164
151
135 125 142 140 147
150
109 104
100
50
0
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q1FY19
Q4FY20
Q1FY21
Q3FY22
Source: Companies, Axis Capital; Note: Cumulative order inflow data for ABB, Siemens, GET&D, KEC, Kalpataru, Thermax, and
Cummins
EBITDA margin to improve gradually as commodity prices normalize

 Multiple headwinds have led to margin contraction: EBITDA margin in the industrial and
engineering segment has contracted from 24-25% levels in FY20-21 to 15% level in FY22E
led by (1) rising mix of storage solutions business – margin here is typically in low teens vs.
20-22% in other segments (RoCE however is better given higher asset turns), (2) aggression
in the storage solutions business to gain market share – CAL has been more aggressive in
pricing in order to gain market share and build scale, which has led to further contraction in
margin, and (3) impact of higher commodity prices – unlike auto segments, revenue here is
more project-based with short delivery timelines of 2-3 months (especially in storage
business) and hence scope for pass-through of commodity prices is negligible and is driven
more by negotiations. In the current environment of consistent MoM increase in commodity
costs, margin has been impacted significantly.
 Margin to improve gradually over FY22-25E: We expect EBITDA margin in this segment to
gradually improve to 16-17% by FY24-25 led by (1) normalization of commodity prices: we
expect commodity prices to start normalizing in FY23 and new orders coming in at higher
prices. Given short gestation periods, flow-through of benefits of commodity price
normalization/correction will be quicker for CAL, (2) increasing penetration of automation
within storage solution - margins here are higher (mid-to-high teens) vs. static solution

Initiating coverage
projects (low teens). However, competitive intensity and pricing power for CAL will be critical
to improve margin in storage solutions and (3) improving capacity utilization led by recovery
in other industrial segments as well. We expect EBITDA margin for storage/high-end sub-
assembly and contract manufacturing products segments to improve to 12%/21% in FY24E
from 7%/20% in FY20E.
Exhibit 63: Storage solutions to continue to grow at a rapid pace

Revenues (Rs mn)
Storage 140 340 660 929 2,450 3,430 4,459 5,797
High-end sub-assembly, contract mfg. and others 3,831 4,590 4,478 3,260 3,431 4,029 4,491 5,172
Total 3,971 4,930 5,138 4,189 5,881 7,459 8,950 10,969
YoY growth %
Storage 142.9 94.1 40.8 163.8 40.0 30.0 30.0
High-end sub-assembly, contract mfg. and others 19.8 -2.4 -27.2 5.2 17.4 11.5 15.2
Total 24.1 4.2 -18.5 40.4 26.8 20.0 22.6
Revenue mix (%)
Storage 4 7 13 22 42 46 50 53
High-end sub-assembly, contract mfg. and others 96 93 87 78 58 54 50 47
Total 100 100 100 100 100 100 100 100
EBITDA (Rs mn)
Storage -10 - 53 121 172 377 535 696
High-end sub-assembly, contract mfg. and others 439 718 1,177 947 686 846 943 1,086
Total 429 718 1,230 1,068 858 1,223 1,478 1,782
EBITDA margin %
Storage -7.0 - 8.0 13.0 7.0 11.0 12.0 12.0
High-end sub-assembly, contract mfg. and others 11.5 15.7 26.3 29.1 20.0 21.0 21.0 21.0
Total 10.8 14.6 23.9 25.5 14.6 16.4 16.5 16.2

Initiating coverage
Financials: Expect Revenue/ PAT CAGR of 24%/ 43% over

FY21-25
 We expect Craftsman to deliver 24% revenue CAGR over FY21-25 led by strong growth
across segments (refer exhibit 77 for details): (1) recovery in auto industry production,
(2) new order wins across powertrain and auto aluminium segments (customer additions,
increase in share of business and new product supplies to existing customers), (3) scale up of
presence in high-growth storage business (~6x revenue over FY21-25E) and (4) benefit of
pick-up in capex cycle and manufacturing of large iron castings in industrial segments.
 Expect EBITDA to post 19% CAGR over FY21-25E to reach Rs 9 bn. EBITDA margin to
remain robust at 24% levels. We build in some normalization from 28% level in FY21 due to
(1) increase in mix of auto aluminium and storage solutions business where margin is lower
than automotive powertrain and (2) some normalization of margin in automotive powertrain
business as well due to higher commodity costs (while CAL does only machining and is not
impacted by increase in RM costs, optically margin does decline especially in the ‘with
material’ business) and some change in product mix (higher 'with material' mix). Two points
to note: (1) we build in improvement in auto aluminium EBITDA margin from 12% in FY21 to
18% in FY25E aided by improving utilization levels, and (2) industrial segment margin will
contract to 16% levels given higher share of storage solutions business where margin is low
but post-tax RoCE is higher given higher asset turns.
 Profit after Tax (PAT) is expected to see 43% CAGR to Rs 4 bn in FY25. This will be aided by
(a) relatively lower growth in depreciation given decreasing capex intensity, (b) de-leveraging
of balance sheet driving reduction in interest costs and (c) benefits of shift to lower corporate
tax rate; company has some MAT tax credit which will get extinguished in FY22E post which
its effective tax rate will be 25%.
 RoCE to improve to 20% in FY25E from 10% in FY21: This will be driven by (1) improving
utilization levels driving higher asset turns (from 0.7x in FY21 to 1.1x in FY25E), and
(2) normalization of working capital; core working capital days have been relatively elevated
over FY21-22 at 60+ days given loss of sales in Covid impacted quarters and strong demand
pick-up post these quarters leading to higher working capital requirements.
 Capex intensity to reduce slightly: We build an average capex spend of Rs 3 bn annually over
FY22-25E; capex as a % of sales at 10-11% over FY22-25E vs. 14-15% over FY17-21. We
expect bulk of growth capex to be concentrated in new order wins primarily in Auto
Aluminium and Storage Solutions business.
 Strong FCF generation: We expect cumulative CFO of Rs 20 bn over FY22-25, aided by

strong profitability (CFO/EBITDA of 75-80%; in line with historical average). This coupled
with slightly lower capex intensity to lead to FCF generation of Rs 7 bn over FY22-25 (vs. Rs
300 mn in FY18-21). Strong FCF generation to drive de-leveraging for Craftsman – expect
company to become net debt free in FY25.

Initiating coverage
Financial charts
Exhibit 64: 24% revenue CAGR over FY21-25E Exhibit 65: Aluminium and storage mix to increase
(Rs bn) Net Sales YoY Growth % (RHS) (%) Auto Powertrain Auto Aluminium
40 38
50 Industrial & Engg
34 40 (%)
23 23 26.8 27.6 35.2 26.9 27.4 28.1 28.4 30.0
30 19 30
16
20 15.6 16.9 21.1 20.0 21.7
5 17.3 23.0 24.6
20 10
0
57.6 55.5 52.0 52.7 50.2 48.7
10 (18) (10) 47.5 45.3
(20)
0 (30)
FY22E
FY23E
FY24E
FY25E
FY18
FY19
FY20
FY21
FY23E
FY18
FY19
FY20
FY21
FY22E
FY24E
FY25E
Machining
mix % 31 29 26 25 24 23 22 20
Exhibit 66: Segmental financials: Build in 20-28% revenue CAGR in all three segments
Revenue (Rs mn)
Total 15,115 18,180 14,925 15,600 21,480 26,511 31,526 36,506
YoY growth %
Revenue Mix (%)
EBITDA (Rs mn)
Total 2,955 4,138 3,950 4,633 5,582 6,687 7,967 9,062
EBITDA margin %
Total 19.5 22.8 26.5 29.7 26.0 25.2 25.3 24.8

Initiating coverage
Exhibit 67: Margin to remain strong at 24% levels Exhibit 68: Asset turns to improve with increasing
utilization
(Rs bn) EBITDA EBITDA margin % (RHS) (%)
Gross block Asset turnover (RHS)
8 28 30 (Rs bn)
7 27 40 1.2
25 27 35 1.1
6 24 24 24 24 1.0 1.1
30 0.9 1.0
5 24 0.9 1.0
25 0.8
4 20 0.9
21 20
3 0.8
15 0.7 0.7
2 0.7
18 10
1 5 0.6
0 15 0 0.5
FY22E
FY23E
FY24E
FY25E
FY21
FY18
FY19
FY20
FY22E
FY23E
FY24E
FY25E
FY18
FY19
FY20
FY21
Exhibit 69: Cash conversion cycle to normalize over next 2 years

(Rs mn) FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Inventories 3,233 3,256 4,056 5,002 5,447 6,478 7,501
Trade Receivables 2,100 1,943 2,390 3,060 3,486 4,146 4,801
Trade Payables 3,312 2,818 3,522 4,119 5,084 6,046 7,001
Core Working Capital 2,021 2,382 2,924 3,943 3,850 4,578 5,301
Cash Conversion Cycle (No of days)
Inventories 65 80 95 85 75 75 75
Trade Receivables 42 48 56 52 48 48 48
Trade Payables 66 69 82 70 70 70 70
Net 41 58 68 67 53 53 53
Exhibit 70: Return ratios to improve to 20% levels by FY24E
25 RoE (%) RoCE (%)

20 21
20 19
14 19 19
15 14 17
10
9 12
10 7 11
10
5
5 6
0

Initiating coverage
Exhibit 71: Capex intensity to reduce from prior levels Exhibit 72: CAL to become net debt free by FY25E
(Rs bn) Capex as a % of sales (RHS) (%) (Rs bn) Net debt Net debt to EBITDA (RHS) (x)
8 25 12 2.7 3.0
2.5
19.6
20 10 2.2 2.5
6
13.8 8 1.5
2.0
11.1
15
10.2 10.6 6 1.5
4 9.3 9.6 1.2
6.3
10
4 0.7 1.0
2 0.3
5 2 0.5
0.0
0 0 0 0.0
FY22E
FY23E
FY24E
FY25E
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY18
FY19
FY20
FY21
Exhibit 73: FCF generation to improve – build in Rs 7 bn FCF over FY22-25
CFO FCF
8 (Rs bn) 6.6
5.6 5.7
6
3.6 3.6 3.4

4 3.1
2.8 2.5
2.1
1.6 1.6
2
0.3 0.4
0
(0.3)
(2) (1.2)

Initiating coverage
Exhibit 74: Derailed P&L summary: Revenue / PAT expected to see CAGR of 24%/43% over FY21-25
Consolidated (Rs mn) FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Net revenues 18,180 14,925 15,600 21,480 26,511 31,526 36,506
Raw Material costs 7,035 5,868 6,665 9,731 12,173 14,609 17,152
Employee cost 2,168 1,553 1,446 1,909 2,386 2,744 3,128
Other Expenses 4,551 3,524 3,106 4,558 5,595 6,566 7,564
EBITDA 4,426 3,980 4,383 5,282 6,357 7,607 8,662
Depreciation 1,761 1,964 1,925 2,072 2,221 2,501 2,781
EBIT 2,665 2,016 2,458 3,210 4,136 5,106 5,880
Other Income 136 86 101 70 85 100 120
Interest Expenses 1,405 1,486 1,073 844 705 577 574
PBT 1,396 616 1,486 2,437 3,515 4,629 5,426
Tax expenses 426 158 514 828 886 1,166 1,367
Adjusted PAT 974 357 974 1,608 2,630 3,462 4,059
FEPS (Rs) 48.4 17.8 46.1 76.1 124.5 163.9 192.1
Growth YoY %
Net revenues 22.9 (17.9) 4.5 37.7 23.4 18.9 15.8
EBITDA 50.8 (10.1) 10.1 20.5 20.3 19.7 13.9
EBIT 84.5 (24.4) 21.9 30.6 28.8 23.5 15.2
PBT 222.4 (55.9) 141.4 63.9 44.3 31.7 17.2
Adjusted PAT 208.8 (63.3) 172.6 65.1 63.5 31.7 17.2
FEPS (Rs) 208.8 (63.3) 159.6 65.1 63.5 31.7 17.2
Margins %
Gross Profit 61.3 60.7 57.3 54.7 54.1 53.7 53.0
EBITDA 24.3 26.7 28.1 24.6 24.0 24.1 23.7
EBIT 14.7 13.5 15.8 14.9 15.6 16.2 16.1
PBT 7.7 4.1 9.5 11.3 13.3 14.7 14.9
PAT 5.4 2.7 6.2 7.5 9.9 11.0 11.1
Key Ratios
Raw material costs (% sales) 38.7 39.3 42.7 45.3 45.9 46.3 47.0
Employee cost (% sales) 11.9 10.4 9.3 8.9 9.0 8.7 8.6
Other Expenses (% sales) 25.0 23.6 19.9 21.2 21.1 20.8 20.7
Interest Expenses (% sales) 14.3 14.0 14.8 12.0 11.6 12.6 15.0
Effective tax rate (%) 30.5 25.6 34.6 34.0 25.2 25.2 25.2

Initiating coverage
Exhibit 75: Balance sheet: Strong topline and profit growth to drive RoCE improvement and de-leveraging
Particulars (Rs mn) FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Equity share capital 101 101 106 106 106 106 106
Reserve & Surplus 6,720 7,115 9,589 11,142 13,714 17,160 21,201
Shareholder's equity 6,821 7,216 9,694 11,247 13,820 17,265 21,307
Minority Interest 12 - - - - - -
Total Debt 9,853 10,584 7,230 6,830 4,972 3,272 3,272
Deferred Tax Liability 355 386 684 684 684 684 684
Trade Payables 3,312 2,818 3,522 4,119 4,721 5,614 6,501
Other non current liabilities 2,901 2,069 2,390 2,390 2,390 2,390 2,390
Total liabilities & equity 23,254 23,073 23,519 25,270 26,586 29,225 34,154
Net Fixed asset 14,908 15,458 15,105 15,033 15,212 16,211 16,929
Total Investments 18 18 20 20 20 20 20
Other non current assets 1,335 443 342 342 342 342 342
Inventories 3,233 3,256 4,056 5,002 5,811 6,478 7,501
Trade Receivables 2,100 1,943 2,390 3,060 3,486 4,146 4,801
Cash and bank balances 266 716 467 473 (24) 289 2,821
Other Current Assets 1,394 1,238 1,140 1,340 1,740 1,740 1,740
Total assets 23,254 23,073 23,519 25,270 26,586 29,225 34,154
Capital Employed 16,407 17,084 16,457 17,604 18,816 20,248 21,758
RoE(%) 14.3 5.5 10.0 14.3 19.0 20.3 19.2
RoCE(%) 11.3 8.8 9.8 12.0 16.4 18.9 20.2
Net debt/equity (x) 1.4 1.4 0.7 0.6 0.4 0.2 0.0
Net debt/EBITDA (x) 2.2 2.5 1.5 1.2 0.8 0.4 0.0
Exhibit 76: Cash Flow statement: FCF generation to improve – build in Rs 7 bn FCF over FY22-25
Particulars (Rs mn) FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Net profit before tax 1,400 558 1,488 2,437 3,513 4,680 5,477
Depreciation 1,761 1,964 1,925 2,072 2,221 2,501 2,781
Change in working capital (331) (460) (330) (1,019) (633) (434) (791)
Net income tax (paid)/ refunds (248) (216) (227) (828) (885) (1,179) (1,380)
Cash flow from operations 3,600 3,063 3,624 3,435 4,839 5,994 6,490
Purchase of fixed assets (3,558) (1,387) (986) (2,200) (2,800) (3,500) (3,500)
Change in investments (0) (2) - - - - -
Cash used in investing (3,584) (1,380) (949) (2,130) (2,715) (3,390) (3,380)
Equity raised - - 1,456 - - - -
Debt raised / (repaid) 1,127 159 (3,323) (400) (1,858) (1,700) -
Cahs used in financing (236) (1,233) (2,925) (1,299) (2,621) (2,291) (579)
Net increase/decrease in cash (220) 451 (250) 7 (497) 313 2,532
Free cash flow (1,249) 313 1,577 392 1,331 1,958 2,467
FCF / PAT (x) (1.3) 0.9 1.6 0.2 0.5 0.6 0.6
FCF / EBITDA (x) (0.3) 0.1 0.4 0.1 0.2 0.3 0.3

Initiating coverage
Key risks
 Slower-than-expected recovery in auto industry production: CAL derives more than 70% of
its business from the auto industry (larger dependence on CVs and 2Ws) – slower-than-
expected pick-up in volumes here will impact CAL’s financial performance and can pose
downside risks to our estimates. In the near-term, key challenges that could weigh on volume
recovery are chip shortages (larger impact on PV and CV production), weak demand due to
high price increases and weak growth in income levels for consumers (impacting 2W
volumes) and any new Covid variants which could disrupt economic activity.
 Delay in the capex cycle recovery: CAL’s revenue in Industrial & Engineering business is
largely driven by the overall capex and investment cycle especially from the private players.
The capex cycle has undergone a sharp downturn post FY19 impacted by negative sentiment
around Covid and economic conditions. We are building in a capex cycle recovery over the
next 4-5 years which will drive growth in this segment. Any delay in recovery could have an
impact on financial performance for this segment.
 Elevated cost pressures could weigh on profitability in the near term: Commodity prices
have increased at a rapid pace during FY22, which has impacted Craftsman’s profitability
especially in the Automotive – Aluminium and the Industrial business. Automotive –
Powertrain business is not impacted as company is engaged in only machining (however
margin gets impacted optically especially in the ‘with material’ business). In the die-casting
business, company passes on the higher commodity costs but with a lag of 1-3 months.
Industrial and Engineering business is more project-based and hence there are no commodity
pass-through clauses here and Craftsman has to bear the impact. Continued escalation in
commodity costs will have a negative impact on profitability in these segments.
 Impact of rising EV penetration: CAL’s Automotive – Powertrain business largely focuses on

machining of cylinder block and cylinder heads which are engine components across multiple
segments like CV, tractors, off-highway, SUVs etc. Additionally, its Automotive – Aluminium
segment focuses on manufacturing of die-casting parts such as crank cases, cylinder heads,
block etc. which are again engine-related parts. These products do not find usage in an EV and
as such CAL’s revenue can be impacted by the impending EV disruption. However, we note
that (1) within its Auto revenues, 63% of revenue comes from CVs, off-highway and tractors
where the transition towards EVs will likely be much farther off (penetration to increase in
2Ws first followed by PVs), and (2) 25% of auto revenue comes from ICE 2Ws (includes both
motorcycles and scooters) – predominantly die-casting components for engines, which are
most at risk given the rising penetration in EVs. However, CAL has received orders from
PV/CV OEMs as well as 2W EV OEMs which will lead to further reduction in share of 2W –
ICE to 17% of auto revenue by FY25E. Further, as highlighted above, aluminium content in
electric scooters is similar or higher than ICE scooter so CAL’s relevance as a supplier will
remain intact. Faster than expected transition to EVs within the CV and tractor segments
could be a risk to terminal value growth assumptions and hence the valuation multiples.
 High competitive intensity in Aluminium casting and storage solutions business: CAL is one
of the leading players in the machining of cylinder heads and blocks for CVs and tractors and
as such faces relatively less intense competition in its Automotive – Powertrain segment.
However, competitive intensity is much higher in (1) Automotive – Aluminium Products
business and (2) Storage solutions business. There are multiple companies engaged in the
aluminium die-casting business in India and increasingly more and more companies are
focusing on PVs and non-auto business. For e.g. Endurance is one of the largest casting
companies in the country which was predominantly focused on 2Ws but has now won
multiple large orders on PVs as well as non-auto side. Similarly, in storage solutions, CAL is a
late entrant but has grown very rapidly to emerge amongst the top 3 players. In a bid to win
larger orders, CAL has had to quote aggressive prices for some of the projects. Given the high
competitive intensity, revenue growth and/or profitability could come under pressures in
both these segments.

Initiating coverage
Appendix
About the company
 Incorporated in 1986, Craftsman Automation Ltd (CAL) was founded by Mr. Srinivasan Ravi
(first gen entrepreneur) as an aluminium foundry unit in Coimbatore, catering to casting and
machining requirement of industrial and engineering segment. With its vast capabilities of
machining developed over the years, the company in 2004 ventured into supplying critical
engine parts such as cylinder blocks and heads to Automotive OEMs in India.
 It has quickly scaled up its business on the Auto side. This has been aided by breaking into
Daimler India Commercial Vehicles in 2008-09 (one of the key customers for Craftsman now)
for domestic & exports, which established it as one of the largest powertrain component
suppliers for MHCVs. It has also scaled up its business for large reputed OEMs in segments
such as tractors, off-highway, PVs etc.
 Having captured deep expertise as machining parts supplier for auto companies, Craftsman
in 2016 entered into supplying aluminum castings for 2-wheelers (highly engineered and
structural parts) to TVS Motors initially and then Royal Enfield, and is now diversifying into
Passenger Vehicles segment.
 Over the last 3-4 years, it has significantly scaled its Storage solution business offering
warehousing and automated storage solutions and has already become one of the Top 5
players in India in the segment, competing with the likes of Godrej Storage Solution,
Neelkamal among others.
Exhibit 77: Brief segment-wise summary of Craftsman Automation

%
Industry
Segments sales Key products Key Customers Key Competitors
Application
(FY21)
Daimler India, Tata Motors, Tata
Cylinder Block and
Cummins, Mahindra & Mahindra,
Commercial heads, Camshafts, Avtec, Nelcast, Kirloskar Ferrous,
Simpson & Co. Limited, TAFE
Automotive vehicles, SUV, Transmission parts, Neosysm, Ghatge Patil, Shriram
52.0 Motors and Tractors, Escorts,
Powertrain Tractors and off- Gear box housings, Foundry, Sound castings, Shiriniwas
Ashok Leyland, Perkins, Nelcast,
highway vehicles Turbo charges and Engg, Ashok Iron Works
Mitsubishi Heavy Industries, John
Bearing caps.
Deere and JCB India.
Two-Wheelers, Crank case and cylinder Endurance Technologies, Sundaram
Daimler India, Royal Enfield,
Automotive SUV and blocks (2W) , Engine and Clayton, Rockman Industries, Rico
21.1 Mahindra & Mahindra and TVS
Aluminium Commercial Structural parts (PVs), Auto, Auranagabad Electricals, Alicon
Motors.
Vehicles Gear box housing (HCV) Castallloys, Jaya Hinda Industries
Siemens, Mitsubishi Heavy Hercules Hoists Ltd, Grip Engineers
Infrastructure, Aluminium Castings, Industries, Rhein Getribe, Ashok Pvt Ltd, Sparkline Equipment Pvt Ltd,
Power Gear Boxes, Tooling & Leyland, Elgi Equipments, Voith MM Engineers Pvt Ltd, Alicon
Industrial Engg ex.
20.9 Transmission, Mould Base, Sheet Turbo, Pricol, Siemens, Daimler Castalloy Ltd, Vee J Pee Aluminum
storage
Switchgear and Metal fabrication and India, M&M, Tata Motors, TAFE Foundry Pvt Ltd, Amar Founders Pvt.
Material handling SPM Manufacturing Motors, Simpson & Co. JCB, RE, Ltd.Daichi overseas private limited,
Elgi Equipment, Shapers India Alutech Foundry India (P) Ltd
Stationary racking, Godrej Storage, Neelkamal Storage,
E-retail, Organised
Warehousing and Reliance Retail, Mahindra Retail, Mangal industries, Armes Maini,
Storage Solutions 6.0 Retail, Third Party
automated storage and Tata Motors, John Deere, M&M Godrej Koerbor*, Daifuku, Wipro Pari,
Logistics (3PL)
retrieval system (AS/RS) Mangal industries, Mura Tech

Initiating coverage
Exhibit 78: Evolution of Craftsman since inception
Exhibit 79: Shareholding structure as on Dec 2021

Marina III International
(Singapore) Finance
Pte Ltd Corporation
5.5% 4.8% Others
12.3%
Foreign
Portfolio
Investors Promoters
3.7% 59.8%
Alternative
Investment
Funds
5.3%
Mutual Funds
8.6%
Note: Marina III (Singapore) Pte sold 1.56 million shares and International Finance Corporation 1.41 million equity share
during the IPO in March 2021.Their pre-IPO stake was 15.5% and 14.06% in Craftsman respectively

Initiating coverage
Exhibit 80: Segmental Revenue mix – FY21 Exhibit 81: Segmental EBITDA mix – FY21
Automotive - Powertrain Automotive - Aluminium Automotive - Powertrain Automotive - Aluminium

Industrial & Engg. Industrial & Engg.
27% 23%
52% 8%
21% 69%
Exhibit 82: Machining (higher value add) was ~25% of Exhibit 83: TVS and Daimler India are large customers
FY21 revenue
TVS
Swa rf s ales Motors Daimler
& others 14% india
8% 17%
Ma chi ning
s a les Tata
25% Motors +
Domestic Tata
Cummins
s a les Others 1%
58% 58%
M&M
Exports 3%
9% RE
Nelcast 5%
2%
Business segments
Auto Powertrain:
 Craftsman is one the largest players in machining of critical powertrain components; it is the
largest player in India in machining cylinder blocks and cylinder heads in the medium and
heavy commercial vehicles category.
 Key products include engine parts such as cylinder block and cylinder head, camshafts,
transmission parts, gear box housings, turbo charges and bearing caps. It undertakes
machining services and product sales, directly to domestic and export markets.
 Key customers include Daimler India, Tata Motors, Tata Cummins, Mahindra & Mahindra,
Simpson & Co Ltd, TAFE Motors and Tractors, Escorts, Ashok Leyland, Perkins, Nelcast,
Mitsubishi Heavy Industries, John Deere and JCB India.

Initiating coverage
Exhibit 84: Key products in the Auto Powertrain business
Exhibit 85: Powertrain segment-wise revenue breakup (FY21)
PVs
11%
Off
Highway
13%
Tractors CVs
15% 61%

Initiating coverage
Exhibit 86: Key players in powertrain and transmission manufacturing and machining across segments
Key players 2W/3Ws PVs CVs Construction Equipment Tractor
Avtec Ltd.     
Endurance Ltd.     
Jaya Hind Industries Ltd.     
Sundaram Clayton     
Alicon cast Alloy     
Ashok Iron Works     
Continental Engines     
DCM Engineering Products     
Hinduja Foundries     
Nelcast     
Kirloskar Ferrorus Industries     
Craftsman Automation Liited     
Source: RHP, Axis Capital
Auto aluminium
 Started in 2014, Craftsman has developed aluminium products for automotive customers. It
has in a short period built capabilities and process around the high pressure die casting, low
pressure die casting and gravity die casting machines to manufacture components, machining
tools for machining and assembly lines.
 Key products include crank case and cylinder blocks for two wheelers, engine and structural
parts for passenger vehicles and gear box housing for heavy commercial vehicle.
 Key customers are Daimler India, Royal Enfield, Mahindra & Mahindra and another leading
south-based two-wheeler manufacturer.
Industrial & Engineering Segment

 Company manufactures aluminium products for power transmission, high-end precision
products and undertake sub-assembly, material handling equipment, manufacture gear and
gear boxes, special purpose machines (SPM), which includes metal cutting and non-metal
applications such as washing and leak testing solutions and tool room, mould base and sheet
metal.

Initiating coverage
Exhibit 87: Industrial & Engg: High-end sub-assembly, Contract Manufacturing & Others
Storage solution:
 In its storage solutions business, the company provides diverse products and storage
solutions to several sectors such as FMCG, E-commerce, food and beverages, logistics,
pharmaceutical and electronics. The sub-segment solutions comprise stationary racking for
warehouses, V-store, roll form products and Automated Storage and Retrieval Systems
(ASRS).

Initiating coverage
Exhibit 88: VStore Heavy Duty product Exhibit 89: Multi-deep shuttle ASRS
Exhibit 90: Craftsman’s manufacturing presence in close proximity to customers and spread across India

Initiating coverage
Exhibit 91: Manufacturing capabilities across plants

Year of
Facility Location Capabilities/Division Leased/Owned
commissioning
A. Flagship Facility
Arasur, Coimbatore Power train products Owned 2003
Gears and gearboxes
Tool room and mould base
Special machines manufacturing
Material lifting products
High pressure die casting
Foundry (high pressure die casting
Low pressure die casting and gravity die casting
High-end sub assemblies
Precision parts
Storage products
Jigs and fixtures
Equipment (Sheet metal fabrication and storage)
Marine engine products
Industrial aluminium products (power transmission, railway, oil and gas etc. and
other industrial products
B. Integrated facilities
Pimple Jagtap, Pune - IV Storage products Leased 2018
Machining and assembly
Bengaluru - II Special machines manufacturing Leased 2019
Bengaluru - I Pressure die casting foundry Leased 2015
Machining and assembly
C. Satellite Facilities
Kurichi, Coimbatore Aluminium foundry Owned/Leased
Sanaswadi, Pune II Machining and assembly Leased 2014
Sanaswadi, Pune III Machining and assembly Leased 2011
Ballabgarh, Faridabad - I Machining and assembly Leased 2011
Ballabgarh, Faridabad - II Machining and assembly Leased 2018
Sriperumbudur Machining and assembly Leased 2010
Jamshedpur Machining and assembly Leased 2007
Pithampur Machining and assembly Leased 2005

Initiating coverage
Board of directors
 He holds a bachelor’s degree in mechanical engineering from PSG College of Technology,

Mr. Srinivasan Ravi Coimbatore.
Chairman and MD  He is the Promoter of the Company and a first generation entrepreneur. He has experience
of more than 34 years in the automotive industry.

Coimbatore and a master’s degree in mechanical engineering from RWTH Aachen
Mr. Ravi Gauthamram University, Germany.
Whole-time Director  He has been on the Board since Feb 2014 and is engaged in building the product strategy in
the industrial and engineering segment. Prior to joining the company, he was associated with
Caterpillar India Private Limited.
 He holds a bachelor’s degree in commerce (honours) from University of Delhi and is also a
chartered accountant. He holds a master’s degree in business administration from the
Mr. Udai Dhawan Wharton School, University of Pennsylvania.
Nominee Director  He was associated with Standard Chartered Private Equity Advisory (I) Private Limited,
SkyWorks Capital, LLC, Kotak Mahindra Capital Company Limited, Sabre Inc., J.P. Morgan,
and Arthur Andersen & Co in the past.
 He holds a bachelor’s degree in technology in mechanical engineering from Indian Institute

Mr Chandrashekhar of Technology, Bombay and a post-graduate diploma in business administration from Indian
Bhide Institute of Management, Ahmedabad.
Independent Director  He has experience in automotive industry. He was associated with Mahindra & Mahindra
Limited in the past.
 He holds a bachelor’s degree in mechanical engineering from University of Madras. He has

completed senior executive course of the 3-tier programme for management development
Mr. Sundararaman
from Indian Institute of Managemen t, Ahmedabad and BPL strategic leadership programme
Kayanaraman
from Indian Institute of Management, Bengaluru.
Independent Director
 He has experience in automotive industry. He was associated with TG Kirloskar Au tomotive
Private Limited, Kirloskar Systems Limited, BPL Limited and Widia (India) Limited in the past.
 She holds a bachelor’s degree in arts from University of Madras and a bachelor’s degree in
law from University of Mysore. She is a fellow member of the Institute of Company
Secretaries of India. She has attended the advanced management program of Harvard
Ms. Vijaya Sampath
Business School, USA and a program on managing strategic alliances conducted by the
Independent
Wharton School, University of Pennsylvania, USA.
Non-executive
 She has experience in corporate laws and advisory and chairs the FICCI committee on
Director
corporate laws. She was associated with Lakshmikumaran & Sridharan Attorneys as a senior
partner and with the Bharti Airtel Limited as group general counsel and company secretary
in the past.

Initiating coverage
Key managerial personnel

Mr. Srinivasan Ravi Coimbatore.
Chairman and MD  He is the Promoter of the Company and a first generation entrepreneur. He has experience
of more than 34 years in the automotive industry.

Coimbatore and a master’s degree in mechanical engineering from RWTH Aachen
Mr. Ravi Gauthamram University, Germany.
Whole-time Director  He has been on the Board since Feb 2014 and is engaged in building the product strategy in
the industrial and engineering segment. Prior to joining the company, he was associated with
Caterpillar India Private Limited.
 He joined the company on January 1, 2002 as quality system engineer. He holds a diploma in
mechanical engineering from PSG College of Technology and Polytechnic where he was
Mr. Thiyagaraj
awarded the best outgoing student award. He also holds a bachelor’s degree in mechanical
Damodharaswamy
engineering from Bharathiar University.
COO – Automotive  He has experience in the manufacturing and automotive industries. Prior to joining the
Company, he was associated with Rieter-LMW Machinery Limited
 He was appointed on February 3, 2020 on contractual basis for a period of five years. He
holds a bachelor’s degree in commerce from the University of Madras. He is an associate of
Mr. C.B. Chandrasekar the Institute of Cost Accountants of India and Institute of Company Secretaries of India.
CFO  He has overall experience of more than three decades in the fields of finance, secretarial and
accounting. Prior to joining the company, he was associated with Lakshmi Machine Works
Limited and Elgi Equipments Limited.
 He is associated with Craftsman since Jul-19 where he is responsible for the overall
operations of the flagship manufacturing plant of the company at Coimbatore. He also
Mr. Sampath Kumar coordinates and implements all strategic initiatives across all 3 product segments.
Morri  Prior to CAL, he was the Plant head at Tata Mo tors Jamshedpur facility for 2 years and CEO
Plant Director at TML Drivelines from 2012-2017. He started his career at HMT and Tata Motors in 1983
and has been associated with Tata Group till 2017.
 He holds a PGDBM from XLRI and is an M-Tech from IIT-Kharagpur
 He is currently responsible for Manufacturing and Supply Chain operation of Automotive

and General Engg. Division (part of Powertrain division) at Coimbatore facility. He leads the
Mr. Paul Arikkat project management team to improve new product planning and introduction processes.
Senior VP  Prior to CAL, he was with Daimler India as General Manager- Production from 2009-18 and
then Senior Advisor for 2 years. He has also worked with Cummins India in the Automotive
Engg. Division from 1994-2009 and as Deputy Manager Research at IOCL from 1986-94.

Initiating coverage
Financial Summary (Consolidated)

Profit & Loss (Rs mn) Cash flow (Rs mn)
Y/E March FY20 FY21 FY22E FY23E FY24E Y/E March FY20 FY21 FY22E FY23E FY24E
Net sales 14,925 15,600 21,480 26,511 31,526 Profit before tax 558 1,488 2,437 3,515 4,629
Other operating income - - - - - Depreciation & Amortisation 1,964 1,925 2,072 2,221 2,501
Total operating income 14,925 15,600 21,480 26,511 31,526 Chg in working capital (460) (330) (1,019) 93 (728)
Cost of goods sold (5,868) (6,665) (9,731) (12,173) (14,609) Cash flow from operations 3,063 3,624 3,435 5,564 5,712
Gross profit 9,057 8,935 11,749 14,338 16,917 Capital expenditure (1,404) (993) (2,200) (2,800) (3,500)
Gross margin (%) 60.7 57.3 54.7 54.1 53.7 Cash flow from investing (1,380) (949) (2,130) (2,715) (3,400)
Total operating expenses (5,077) (4,552) (6,467) (7,981) (9,310) Equity raised/ (repaid) - 1,456 - - -
EBITDA 3,980 4,383 5,282 6,357 7,607 Debt raised/ (repaid) 159 (3,323) (400) (1,500) (1,500)
EBITDA margin (%) 26.7 28.1 24.6 24.0 24.1 Dividend paid (61) - (55) (55) (55)
Depreciation (1,964) (1,925) (2,072) (2,221) (2,501) Cash flow from financing (1,233) (2,925) (1,299) (2,260) (2,132)
EBIT 2,016 2,458 3,210 4,136 5,106 Net chg in cash 451 (250) 7 589 180
Net interest (1,486) (1,073) (844) (705) (577)

Other income 86 101 70 85 100
Key ratios
Profit before tax 616 1,486 2,437 3,515 4,629
Y/E March FY20 FY21 FY22E FY23E FY24E
Total taxation (158) (514) (828) (886) (1,166)
OPERATIONAL
Tax rate (%) 25.6 34.6 34.0 25.2 25.2
FDEPS (Rs) 22.8 46.1 76.1 124.5 163.9
Profit after tax 458 972 1,608 2,630 3,462
CEPS (Rs) 117.5 137.2 174.2 229.6 282.2
Minorities - - - - -
DPS (Rs) - - 2.6 2.6 2.6
Profit/ Loss associate co(s) 0 2 - - -
Dividend payout ratio (%) - - 3.4 2.1 1.6
Adjusted net profit 458 974 1,608 2,630 3,462
GROWTH
Adj. PAT margin (%) 3.1 6.2 7.5 9.9 11.0
Net sales (%) (17.9) 4.5 37.7 23.4 18.9
Net non-recurring items (58) - - - -
EBITDA (%) (10.1) 10.1 20.5 20.3 19.7
Reported net profit 400 974 1,608 2,630 3,462
Adj net profit (%) (53.0) 112.7 65.1 63.5 31.7
FDEPS (%) (53.0) 102.5 65.1 63.5 31.7
Balance Sheet (Rs mn) PERFORMANCE
Y/E March FY20 FY21 FY22E FY23E FY24E RoE (%) 6.5 11.5 15.4 21.0 22.3
Paid-up capital 101 106 106 106 106 RoCE (%) 11.3 13.5 17.2 20.9 24.0
Reserves & surplus 7,115 9,589 11,142 13,716 17,124 EFFICIENCY
Net worth 7,216 9,694 11,247 13,822 17,229 Asset turnover (x) 0.7 0.7 0.9 1.0 1.1
Borrowing 10,584 7,230 6,830 5,330 3,830 Sales/ total assets (x) 0.6 0.7 0.9 1.0 1.1
Other non-current liabilities 1,476 1,607 1,607 1,607 1,607 Working capital/ sales (x) 0.1 0.1 0.1 0.1 0.1
Total liabilities 19,276 18,530 19,684 20,758 22,665 Receivable days 48 56 52 48 48
Gross fixed assets 22,077 23,365 25,365 27,765 31,265 Inventory days 109 132 113 99 99
Less: Depreciation (6,619) (8,260) (10,332) (12,553) (15,054) Payable days 94 115 93 92 92
Net fixed assets 15,458 15,105 15,033 15,212 16,211 FINANCIAL STABILITY
Add: Capital WIP 888 320 520 920 920 Total debt/ equity (x) 1.5 0.9 0.7 0.4 0.2
Total fixed assets 16,346 15,425 15,553 16,131 17,130 Net debt/ equity (x) 1.4 0.8 0.6 0.3 0.2
Total Investment 18 20 20 20 20 Current ratio (x) 1.7 1.6 1.7 1.7 1.7
Inventory 3,256 4,056 5,002 5,447 6,478 Interest cover (x) 1.4 2.3 3.8 5.9 8.8
Debtors 1,943 2,390 3,060 3,486 4,146 VALUATION
Cash & bank 716 467 473 1,062 1,242 PE (x) 87.1 43.0 26.0 15.9 12.1
Loans & advances 26 26 26 26 26 EV/ EBITDA (x) 13.0 11.1 9.1 7.3 5.8
Current liabilities 3,797 4,989 5,586 6,551 7,513 EV/ Net sales (x) 3.5 3.1 2.2 1.7 1.4
Net current assets 2,469 2,745 3,770 4,265 5,174 PB (x) 5.5 4.3 3.7 3.0 2.4
Other non-current assets 443 342 342 342 342 Dividend yield (%) - - 0.1 0.1 0.1
Total assets 19,276 18,530 19,684 20,758 22,665 Free cash flow yield (%) 4.0 6.4 3.0 6.6 5.3

Initiating coverage
Axis Capital Limited is registered with the Securities & Exchange Board of India (SEBI) as “Research Analyst” with SEBI-registration number
INH000002434 and which registration is valid till it is suspended or cancelled by the SEBI.
DISCLAIMERS / DISCLOSURES
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Capital Limited (ACL), the Research Entity (RE) as defined in the Regulations, is also engaged in the business of Investment banking, Stock broking and
Distribution of Mutual Fund products.
2. ACL is also registered with the Securities & Exchange Board of India (SEBI) for its investment banking and stockbroking business activities and with the
Association of Mutual Funds of India (AMFI) for distribution of financial products.
3. ACL has no material adverse disciplinary history as on the date of publication of this report
4. ACL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of
this report should be aware that ACL may have a conflict of interest that may affect the objectivity of this report. Investors should not consider this report as
the only factor in making their investment decision.
5. The RE and /or the research analyst or any of his / her family members or relatives may have financial interest or any other material conflict of interest in the
subject company of this research report.
6. The research analyst has not served as director / officer, etc. in the subject company in the last 12-month period ending on the last day of the month immediately
preceding the date of publication of this research report.
7. The RE and / or the research analyst or any of his / her family members or relatives may have actual / beneficial ownership exceeding 1% or more, of the
securities of the subject company as at the end of the month immediately preceding the date of publication of this research report.
8. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report ACL or any of its associates
may have:
i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this
research report and / or;
ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;
iii. Received compensation for products or services other than investment banking, merchant banking or stockbroking services from the subject company
of this research report.
9. The other disclosures / terms and conditions on which this research report is being published are as under:
i. This document is prepared for the sole use of the clients or prospective clients of ACL who are / proposed to be registered in India. It may be also be
accessed through financial websites by those persons who are usually enabled to access such websites. It is not for sale or distribution to the general
public.
ii. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
iii. Nothing in this document should be construed as investment or financial advice, or advice to buy / sell or solicitation to buy / sell the securities of
companies referred to therein.
iv. The intent of this document is not to be recommendatory in nature
v. The investment discussed or views expressed may not be suitable for all investors. Each recipient of this document should make such investigations as
it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the
merits and risks involved), and should consult its own advisors to determine the suitability, merits and risks of such an investment.
vi. ACL has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made
as to the accuracy, completeness or fairness of the information and opinions contained in this document
vii. ACL does not engage in market making activity.
viii. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement
as may be required from time to time without any prior approval
ix. Subject to the disclosures made herein above, ACL, its affiliates, their directors and the employees may from time to time, effect or have effected an own
account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment
banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct entity, independent of each other. The recipient shall take this into account before interpreting the document.
x. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of ACL.
The views expressed are those of analyst and the Company may or may not subscribe to all the views expressed therein
xi. This document is being supplied to the recipient solely for information and may not be reproduced, redistributed or passed on, directly or indirectly, to
any other person or published, copied, in whole or in part, for any purpose and the same shall be void where prohibited.
xii. Neither the whole nor part of this document or copy thereof may be taken or transmitted into the United States of America “U.S. Persons” (except to
major US institutional investors (“MII”)), Canada, Japan and the People’s Republic of China (China) or distributed or redistributed, directly or indirectly,
in the United States of America (except to MII), Canada, Japan and China or to any resident thereof.
xiii. Where the report is distributed within the United States ("U.S.") it is being distributed pursuant to a chaperoning agreement with Axis Capital USA, LLC
pursuant to Rule 15a-6. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this
document may come shall inform themselves about, and observe, any such restrictions.
xiv. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or
consequential including but not limited to loss of capital, revenue or profits that may arise from or in connection with the use of the information.
xv. Copyright of this document vests exclusively with Axis Capital Limited.

Initiating coverage
Axis Capital Limited

Axis House, C2, Wadia International Centre, P.B Marg, Worli, Mumbai 400 025, India.
Tel:- Board +91-22 4325 2525; Dealing +91-22 2438 8861-69;
Fax:- Research +91-22 4325 1100; Dealing +91-22 4325 3500
DEFINITION OF RATINGS
Ratings Expected absolute returns over 12 months
BUY More than 15%
ADD Between 5% to 15%
REDUCE Between 5% to -10 %
SELL More than -10%
Research Disclosure - NOTICE TO US INVESTORS:
This report was prepared, approved, published and distributed by Axis Capital Limited, a company located outside of the United States (a “non-US
Company”). This report is distributed in the U.S. by Axis Capital USA LLC, a U.S. registered broker dealer, which assumes responsibility for the research
report’s content, and is meant only for major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the
“Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be
effected through Axis Capital USA LLC rather than with or through the non-US Company.
Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority,
Inc. (“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. The non-US Company is not registered as a broker-
dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. The non-
US Company is the employer of the research analyst(s) responsible for this research report. The research analysts preparing this report are resident outside
the United States and are not associated persons of any US regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a US
broker-dealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations
regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
The non-US Company will refrain from initiating follow-up contacts with any recipient of this research report that does not qualify as a Major Institutional
Investor, or seek to otherwise induce or attempt to induce the purchase or sale of any security addressed in this research report by such recipient.
ANALYST DISCLOSURES
1. The analyst(s) declares that neither he/ his relatives have a Beneficial or Actual ownership of > 1% of equity of subject company/ companies;
2. The analyst(s) declares that he has no material conflict of interest with the subject company/ companies of this report;
3. The research analyst (or analysts) certifies that the views expressed in the research report accurately reflect such research analyst's personal views
about the subject securities and issuers; and
4. The research analyst (or analysts) certifies that no part of his or her compensation was, is, or will be directly or indirectly related to the specific
recommendations or views contained in the research report.

AxisCap - Craftsman Automation - IC - 23 Feb 2022

Uploaded by

Copyright:

Available Formats

AxisCap - Craftsman Automation - IC - 23 Feb 2022

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

AxisCap - Craftsman Automation - IC - 23 Feb 2022

Uploaded by

Copyright:

Available Formats

Craftsman Automation

True to its name; initiate coverage with BUY

BUY  Craftsman is a diversified engineering company and a process expert with

Financial Summary (Consolidated)

Investment thesis ....................................................................................................................... 7

Auto – Powertrain: Cyclical recovery and robust order wins.................................. 18

Auto Aluminium: Expect strong ramp-up over next 3 years .................................... 26

Industrial: Storage solutions and capex cycle growth drivers ................................. 33

Key risks ..................................................................................................................................... 48

February 23, 2022 2

2W PV MHCV LCV Tractors CAL Auto revenues

February 23, 2022 3

February 23, 2022 4

Exhibit 5: …and strong ramp-up of Storage Solutions business (6x revenues)

Revenue EBITDA margin % (RHS) (%)

3.0 7.0 8.0

February 23, 2022 5

Exhibit 7: Higher asset turns and WC normalization to drive RoCE improvement

Source: Company, Axis Capital

Source: Company, Axis Capital Source: Company, Axis Capital

3.6 3.6 3.4

Source: Company, Axis Capital

February 23, 2022 6

1. Cyclical recovery in auto industry, especially in MHCVs

February 23, 2022 7

Source: Company, Axis Capital

February 23, 2022 8

2W PV MHCV LCV Tractors CAL Auto revenues

2. Beneficiary of pick-up in exports from MNCs and other domestic companies…

February 23, 2022 9

(USD bn) Exports YoY growth % (RHS) (%) Others

February 23, 2022 10

3. …and of import substitution and higher outsourcing by OEMs in India

 Increasing trend of outsourcing by OEMs: With respect to machining of powertrain

(USD bn) Imports YoY growth % (RHS) (%) Drive

February 23, 2022 11

Process expert offering significant value-add for customers

February 23, 2022 12

 In-house engineering and manufacturing capabilities: Ability to manufacture special

Ramping up casting capabilities as well

February 23, 2022 13

Exhibit 20: Revenue-breakdown by end-segment: PV/CV contribution to increase

February 23, 2022 14

February 23, 2022 15

February 23, 2022 16

February 23, 2022 17

Auto – Powertrain: Cyclical recovery and robust order wins

Market leader in machining of critical engine/powertrain components

February 23, 2022 18

Exhibit 24: FY21 revenue breakdown for Auto – Powertrain segment

Source: Company, Axis Capital

February 23, 2022 19

Source: SIAM, Axis Capital

Source: SIAM, Axis Capital

February 23, 2022 20

Domestic truck volumes YoY % Domestic truck tonnage YoY %

(1) (1) (3)

Exhibit 28: Share of CV revenue in Powertrain to increase led by industry recovery

February 23, 2022 21