Craftsman Automation Eyes ₹1,000 Cr Capex, Targets Debt Reduction

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AuthorAnanya Iyer|Published at:
Craftsman Automation Eyes ₹1,000 Cr Capex, Targets Debt Reduction
Overview

Craftsman Automation plans ₹1,000 crore capex and targets reducing debt-to-EBITDA to 1.5. The company detailed segmental performance, with Aluminium facing startup losses but expected recovery, Alloy Wheels needing utilization boost, and strong outlook for Industrial/Engineering and Powertrain. Management sees EV shift benefits and continued ICE investment.

📉 The Financial Deep Dive

  • Segmental Performance & Margin Trends:
    • Aluminium: Experienced sequential margin dip due to startup operational losses at the new Shoolagiri plant. Management anticipates improvement from Q4 FY26, utilizing pass-through mechanisms for raw material costs.
    • Alloy Wheels: Current utilization is below 50% of the 5.8 million capacity, impacting margins which are lower than the target high single digits. These are projected to reach targets by Q3 FY27 with utilization exceeding 60-70%.
    • Powertrain: Shows growth signs in tractor and commercial vehicle segments. Future growth is expected from higher engine/gearbox capacities and new product development.
    • Industrial & Engineering: Achieved a significant and sustainable jump in EBIT margin, with further expansion expected in the next fiscal year driven by operating leverage and growing demand.
    • Sunbeam: Operational improvements have led to EBITDA margins around 7%, with a target of ~10% by fiscal year-end and further gains in FY27. Several customers contributing 5% of revenue are under exit notice for business streamlining.
    • DR Axion: Maintains strong EBITDA margins of around 20%. A new plant under construction may cause short-term pre-operative cost impacts, with normalization expected within 3-4 years.
  • Financial Health & Strategic Outlook:
    • The consolidated debt-to-EBITDA ratio stands at 2.55x (annualized 9-month figure), with a target to reduce it to 1.5x.
    • A substantial standalone capital expenditure of approximately ₹1,000 crores is planned for the current fiscal year.
    • The company is evaluating the sale of land valued at ~₹350 crores to support debt reduction initiatives.
    • Management guidance forecasts high teens revenue growth for Aluminium products and high single to low double-digit growth for Industrial Engineering and Powertrain segments.
    • The stationary engine order book is progressing towards $100 million revenue by FY29/FY30.
    • Consolidated Return on Capital Employed (pre-tax) is approximately 16%, with annualized Return on Equity (ROE) around 12%.
    • The company sees strategic advantages from the industry shift towards EVs and lightweighting across ICE, hybrid, and EV segments, particularly for its aluminium products.
    • Continued investment in ICE Powertrain is deemed a strategic necessity.

🚩 Risks & Outlook

  • Specific Risks:
    • Execution risks associated with the substantial ₹1,000 crore capex.
    • Reliance on land sale (~₹350 crores) for debt reduction, which may face market conditions or buyer availability.
    • Startup operational losses in the Aluminium segment (Shoolagiri plant).
    • Low utilization and the timeline for margin improvement in the Alloy Wheels segment.
    • Short-term margin dilution due to pre-operative expenses for the new DR Axion plant.
  • The Forward View:
    • Investors should closely monitor the performance trajectory of the new Shoolagiri plant and the ramp-up in utilization for Alloy Wheels.
    • Progress on the ₹1,000 crore capex execution and the actualization of the land sale for debt reduction will be key watchpoints.
    • The company's ability to capitalize on the EV transition, particularly with its aluminium products, while sustaining growth in its traditional Powertrain business, will be crucial for future performance.
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