The initial public offer of Craftsman Automation opened on March 15 and the offer will close on March 17, 2021. The IPO was subscribed 126% on Tuesday, the second day of the bidding process. Shares under the IPO are being offered in the price range of Rs 1,488-1,490, and investors can subscribe to the issue by betting in lots of 10 shares.
Commenting on the IPO, Prashanth Tapse, AVP Research Head, Mehta Equities said, "We believe Craftsman Automation IPO offer gives investors an investment opportunity in a diversified industrial & engineering company involved in designing, processing, and OEM manufacturer who is a leader in cylinder blocks & heads."
"We are optimistic about this sector as demand would rise due to the use of aluminum auto products to reduce weight as well as to meet BSVI emission norms wherein Craftsman has a strong presence with a decent market share. "Make in India" an initiative by the Indian Govt will also add impetus to the emergence of India as an automobile manufacturing hub for the world," he added.
"Considering its well-diversified presence in automobile segments and long-standing relationships with marquee customers with a global presence, Craftsman is well placed to tap the sector growth but one should also consider a few risks before making an informed decision to invest in this IPO that would be like high debt on books with low-profit margins, high competition in domestic as well as global markets which can keep margins under lower single digit, exposure to the cyclicality of automobile business with changing BS norms and rise in focus towards EV vehicles which would reduce components demand," Tapse stated.
"On valuations parse at upper price band (Rs 1,490), the issue is asking for a market cap of Rs 31,480 million with the price-earnings ratio at 44x FY21E annualized earnings vs. industry average P/E at ~72x and on P/BV ratio the company is asking for 4x FY21E annualized book value vs 4.9x industry average which seems this IPO offer is priced on industry average. (Point to be noted that FY21E annualized earnings contents lower interests due to loan moratorium benefits availed). Hence considering all the above factors risk concerns weigh more over rationales to invest in this IPO offer so we recommend risky investors can "Subscribe with Caution" while conservative investors can give a miss on this offer."
Craftsman Automation (Craftsman) is a diversified engineering company with vertically integrated manufacturing capabilities. It is engaged in 3 business segments, namely powertrain and other products for the automotive segment (Automotive - Powertrain and Others), aluminium products for the automotive segment (Automotive - Aluminium Products), and industrial and engineering products segment (Industrial and Engineering). Craftsman is the largest player involved in the machining of cylinder blocks and cylinder heads in the intermediate, medium and heavy commercial vehicles segment as well as in the construction equipment industry in India. They are among the top 3-4 component players with respect to machining of cylinder block for the tractor segment in India. It also owns and operates 12 strategically located manufacturing facilities across 7 cities in India, with a total built up area of over 1.5 msf.
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