Craftsman Automation Ltd's Long-term rating upgraded to 'CRISIL A+/Stable', Short-term rating reaffirmed

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Craftsman Automation Limited (CAL) to 'CRISIL A+/Stable' from 'CRISIL A/Stable' and reaffirmed its rating on the short-term bank facilities 'CRISIL A1'.

The upgrade reflects the expected sustained improvement in business performance over the medium term driven by the recovery in offtake from automobile sector, especially the commercial vehicle (CV) segment, and the recovery in industrial sector supported by improving economic activity and private investment. The company is well positioned to capitalise on the uptick in demand scenario given its established clientele, diversified segment exposure and healthy operating capabilities including enhanced production capacities.

In fiscal 2022, CAL's revenue has grown by 43% on-year despite challenging conditions in the first half of the fiscal, supported by higher demand from medium and heavy commercial vehicle (MHCV) segment. Although the operating margin declined by 440 basis points to 24% in fiscal 2022 on account of increase in share of lower-margin manufacturing activity Vs machining(job work) income in auto power train segment, and steep increase in raw material prices which could not be fully passed on.

Revenue is expected to grow at 10-15% per annum over the medium term backed by steady medium-term prospects for automobile sector as well as other industrial activities including infrastructure, mining and construction. Continued modernisation of trucks from medium tonnage to high tonnage post revised axle norms in FY 2019, will continue to increase requirement for higher number of axles per truck, gearboxes and other critical components. This along with increased outsourcing by original equipment manufacturers (OEMs) will strengthen CAL's market position further. Furthermore, expected increase in the aluminium content in vehicles owing to the light-weighting trend driven by emission and efficiency norms and EV transition should augur well for the company. Demand for storage solutions is also expected to improve with increase in demand from warehousing and retail sectors. Operating margins are expected to improve over the medium term with benefits of higher volumes and cost reduction initiatives such as automation in overall operations of the company.

The rating also factors in the healthy financial risk profile of CAL supported by improvement in the debt protection metrics due to healthy cash accruals. Despite increase in debt, the debt metrics improved in fiscal 2022 and will likely improve further over the medium term. Gearing improved to 0.65 time as on March 31, 2022, from 0.72 time a year earlier, while the ratio of debt to earnings before interest, tax, depreciation and amortization (EBIDTA) was 1.4 times in fiscal 2022 (1.6 times in fiscal 2021). Continued steady business performance resulting in healthy cash accruals of above Rs 400 crore per annum, moderate capex spend and prudent working capital management, are likely to strengthen the debt metrics over the medium term; the debt to EBIDTA ratio is expected to improve to 1-1.2 times over the medium term.

The rating continues to reflect the strong position of the company in the engineering contract-manufacturing sector, established customer relationships, healthy operating margin and improving financial risk profile. These strengths are partially offset by large capex and working capital requirement, and vulnerability to slowdown in the automobile (auto) industry.

Shares of Craftsman Automation Limited was last trading in BSE at Rs. 2378.75 as compared to the previous close of Rs. 2371.90. The total number of shares traded during the day was 1694 in over 726 trades.

The stock hit an intraday high of Rs. 2442.25 and intraday low of 2302.00. The net turnover during the day was Rs. 4054991.00.

Source : Equity Bulls

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CraftsmanAutomation INE00LO01017 RatingUpdate