Craftsman Automation IPO: Information Analysis

A diversified manufacturing company, Craftsman Automation primarily operates in the auto-ancillary sector. Under its largest division, Automotive-Powertrain, the company produces components like cylinder blocks, camshafts, cylinder heads, bearing caps, etc. This division, which contributed 48 per cent to the company's topline in FY20, supplies these parts to original equipment manufacturers (OEMs) operating in the non-passenger vehicle (PV) sector (tractors, heavy commercial vehicles, off-highway vehicles, etc.) such as Ashok Leyland, JCB India, Daimler India, Escorts, etc. Its second division, Automotive-Aluminium Products, manufactures items like crankcases, gearbox housings, structural parts, cylinder blocks, etc., by using various kinds of die-casting methods (high pressure, low pressure, etc.). This division's products are used in two-wheelers, commercial vehicles and passenger vehicles by leading OEMs, such as Royal Enfield, TVS, etc. This division contributed 17 per cent to the company's FY20 topline. The third division, Industrial and Engineering, undertakes contract manufacturing and high-end sub-assembly for a variety of items, such as gearboxes, milling machines, etc. This division also offers storage solutions to FMCG, e-commerce and pharma players by producing pallets, shelves and automated storage and retrieval systems. It contributed 35 per cent to the company's FY20 topline and is the only segment that has consistently grown in the last three years. This Coimbatore-based company was founded in 1986 by Mr Srinivasan Ravi, who continues to be the promoter. It has 12 manufacturing facilities across seven cities, with the Coimbatore facility being the major one. Although the company mainly focuses on domestic sales, it also derives a portion of its sales (around 10 per cent) from exports. Strengths Strong position: The company is the largest manufacturer of cylinder blocks and cylinder heads in the construction equipment industry and intermediate, medium & heavy commercial vehicles segments. It is also one of the top four-component manufacturers of cylinder blocks for the tractor segment and has long-term relationships with major OEMs. Completion of CAPEX cycle: The company has already incurred a substantial portion of the required capital expenditure for all of its three segments and expects to incur only incremental maintenance-related expenses, going forwards. Strong EBITDA margins: The company has one of the highest EBITDA margins in the industry, which the management attributes to its business model. Its business model involves carrying a lesser amount of inventory on its balance sheet than peers. High growth in the storage-solutions segment: The company's storage-solution business grew at a CAGR of 204 per cent during the last financial years and contributed around 6 per cent to the comp