Strategic Analysis of Indian Manufacturing Pioneers

artisan automation: India is increasingly becoming a global manufacturing hub and is attracting the attention of boards of directors around the world. These changes are driven by two main factors: First, rising geopolitical tensions will trigger diversification of the sourcing base among global companies, and second, China’s aging population and rising costs will weaken China’s competitiveness over the next five to seven years.

India’s appeal lies in its rich talent pool, strong domestic economy, resilient supply chain, and government initiatives such as Make in India and Atmanirbhar Bharat, propelling the country on its journey to become a leading global manufacturing hub.

Today, our focus is on Craftsman Automation, a leader in precision manufacturing across multiple sectors, and exploring its future amid India’s strategic position in the manufacturing landscape. With a P/E ratio of 29.1 compared to the industry’s 33.5, the stock deserves closer scrutiny to be included on your investment watchlist. Let’s take a deeper dive to see its potential.

artisan automation company

Company Overview

Craftsman Automation Limited is a company headquartered in Coimbatore and engaged in various engineering work. They can design their own products and make all the necessary tools and machines themselves. It was started in 1986 by S Ravi, Chairman and Managing Director.

They work primarily in India and have 13 factories across the country. Craftsman Automation manufactures a variety of parts for a variety of industries such as automotive, factory, and engineering. They also make products for sectors such as pharmaceuticals and online shopping.

Artisan Automation – Business Segments

The company has divided its business operations into three segments: Automotive Powertrain, Aluminum Products, and Industrial and Engineering.

car powertrain

In the automotive powertrain world, Craftsman Automation is a leading manufacturer of automotive powertrain components. It is one of the largest machine shops in the country and produces engine crankcases, cylinder heads, camshafts, transmission housings, differential carriers and axle housings with over 30 years of experience in precision product machining. This segment still remains a major contributor to revenue, with approximately 51% coming from this segment in fiscal 2023.

aluminum products

Our craftsmen with expert knowledge of various casting methods are highly regarded for their reliable aluminum die casting services. They serve as a trusted partner to leading automotive OEMs and industrial manufacturers across a variety of sectors.

The company’s main products include crankcases and cylinder blocks for motorcycles, as well as engine and structural parts for automobiles. We also offer gearbox housings for both two-wheelers and MHCVs. In fiscal 2023, this segment contributed approximately 25% to total revenue.

Industry and Engineering

The Industrial & Engineering category primarily focuses on non-automotive businesses and serves a variety of user segments. This segment can be further categorized into two sub-segments: (i) Storage Solutions, (ii) Advanced Subassembly and Contract Manufacturing and Others. In fiscal year 2023, this segment contributed approximately 24% to total revenue.

Craftsman’s main products in this segment consist of stationary storage racks designed for industrial and warehouse applications. We also specialize in Automated Storage and Retrieval Systems (“ASRS”) tailored to meet the needs of both warehouse and industrial sectors.

artisan automation – finance

In FY 2023, ACE saw a notable increase in revenue, surging 43.5% to Rs 3,183 billion compared to Rs 2,217 billion in FY 2022. After analyzing four years from FY2020 to FY2023, the company recorded a solid Compound Annual Growth Rate (CAGR) of 28.7%.

At the same time, net profit also increased significantly, increasing by 54% from ₹163 billion in fiscal 2022 to ₹25.1 billion in fiscal 2023. Over the four years from fiscal 2020 to fiscal 2023, cumulative net profit recorded an impressive CAGR of 84.4%.

In FY23, ACE maintained positive financial metrics, boasting a strong return on equity (ROE) of 17.33% and return on equity (ROCE) of 19.41%. The company’s debt ratio in the same fiscal year was 0.99.

future prospects

diversification

The company plans to diversify across all business segments. In the Powertrain segment, we continue to win more business deals in the M&HCV segment while also working to expand our presence in other automotive segments.

In the aluminum space, Craftsman has taken significant steps to solidify its position in the emerging electric vehicle trend in the automotive sector. Additionally, the company has taken defining initiatives in growing the industrial aluminum vertical.

take over

Craftsman Automation Ltd had acquired a controlling stake in DR Axion India Private Limited for Rs 3.75 billion in February 2023. This is a state-of-the-art automotive manufacturing facility. This acquisition will strengthen the company’s position in the passenger vehicle segment.

Additionally, this acquisition will also open up the possibility of introducing e-mobility solutions into the nascent passenger vehicle segment in India.

The company is currently focused on leveraging synergies from recent acquisitions, which will strengthen its position in the passenger vehicle segment of its aluminum business, which primarily caters to the two-wheeler segment.

Sound operational efficiency

CAL has maintained operational efficiency by focusing on niche products and strengthening technical capabilities while implementing cost optimization measures. The company has consistently achieved impressive operating margins exceeding 20% ​​in recent years, driven primarily by high margins in its processing operations.

However, in fiscal 2023, the proportion of high-profit processing businesses decreased along with an increase in material costs, resulting in an operating profit margin of 21.6% from 24.2% in the previous year.

To alleviate these challenges, CAL is actively pursuing cost control initiatives including automation, employee base optimization, and waste reduction. Additionally, the improvement in utilization rate following the acquisition of DR Axion, which typically has low margins, is expected to contribute to maintaining operating margins of at least 20% in the medium term.

conclusion

In conclusion, Craftsman Automation Limited (CAL) is positioning itself as a promising player in India’s evolving manufacturing landscape. With its diverse product line and strategic acquisitions, CAL is well positioned to succeed in a dynamic market environment. Despite the challenges, the company’s focus on diversification and innovation bodes well for continued success. Witnessing India’s growth as a global manufacturing hub, CAL’s future growth trajectory remains optimistic.

So, please share your thoughts and opinions on CAL’s strategy and its broader impact on the Indian manufacturing sector. What do you think about CAL’s prospects amidst changing market dynamics? Let us know in the comments below!

Written by Nalin Surya

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