Craftsman Automation IPO subscribed 89% so far on Day 2

NEW DELHI: The initial public offering (IPO) of Craftsman Automation was subscribed 89 per cent so far on Tuesday, the second day of the bidding process. The issue was subscribed 55 per cent on the first day.

The issue has received bids for 34,25,220 shares against the 38,69,714 shares on offer. Shares under the Craftsman 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. Retail investors can bid for a maximum of 13 lots.

The IPO comprises a fresh issue of equity shares aggregating up to Rs 150 crore, and an offer for sale of up to 45,21,450 shares by the promoter and existing shareholders. On Friday, the company raised a little over Rs 247 crore from 21 anchor investors.

ICICI Securities said Craftsman Automation is a play on revival in the automotive industry, especially M&HCV space. “With a lumpy capex cycle behind it and focus on debt reduction, it is well poised to clock healthy returns ratios in FY22-23. At IPO price, it is offered at reasonable forward valuations,” said the brokerage, which has a ‘subscribe’ rating on the issue.

The company counts Daimler India, Tata Motors, Ashok Leyland, M&M, TAFE, Escorts, John Deere, JCB India, TVS Motors, Royal Enfield, among others, as its top clients. Its clientele in the industrial and engineering segments includes Siemens and Mitsubishi Heavy Industries. The company’s top 10 customers constituted 59 per cent of its sales in the first nine months of FY21. Over 50 per cent of its sales came from clients that were associated with it for the past 10 years or more.

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Craftsman Automation is a company with vertically integrated manufacturing capabilities, and is engaged in three business segments: Automotive – Powertrain and Others, Automotive – Aluminium Products and Industrial and Engineering. It is one of the leading players in the machining of cylinder blocks for the tractor segment.

“In terms of valuation, the pre-issue P/E works out to 73 times FY20 earnings (at the upper end of the issue price band), which is high considering its historical two-year CAGR top-line and bottom-line growth. Further, the company’s return ratios are also low compared with its peers. Thus, we recommend a ‘neutral’ rating on the issue,” said Amarjeet Maurya – AVP – Midcaps, Angel Broking.

Ashwin Patil of LKP Securities said that despite rich valuations, he would recommend investors to ‘subscribe’ to the IPO, “considering its visibility of top-line growth, competitive edge, superior profitability compared with its peers, prudent cost management, strong return ratios, wide clientele spread across the globe, sound R&D base and technological progress.”

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