Target: ₹3,539

CMP: ₹2,780.30

For Craftsman Automation, growth across segments were the highlights for the quarter. It continued to improve value-addition across divisions. Improving CV off-take, driven by M&HCVs and the off-highway segments augur well for long-term growth. Similarly, demand for PVs and two-wheelers is expected to be strong during the festival season as supply-side constraints have started to normalise. We maintain a Buy, at a revised TP of ₹3,539 (19x FY25e)

Q2 revenues grew 36 per cent year-on-year, 14 per cent quarter-on-quarter to ₹770 crore, on greater offtake in automobiles. The powertrain/aluminum/industrial engineering divisions grew 9 per cent/15 per cent/26 per cent sequentially to ₹380 crore/₹200 crore/₹200 crore. For the aluminum business, the large order it won in April would be entering production by Q4 FY23, while the order from Peugeot would enter the production phase by Q3 FY24.

For storage solutions, it has a strong order book and revenues are expected in subsequent quarters. We expect strong growth across CVs, PVs and two-wheelers as supply-side constraints have improved and pent-up demand is strong. Hence, we expect 23 per cent growth in FY23, and 10 per cent in FY24.

The Q2 FY23 EBITDA margin contracted 213 bps to 22.1 per cent on high inventory from previous quarters and raw material prices. Value additions in power-train were ₹230 crore (₹220 crore last quarter), in aluminum products ₹68 crore (₹71 crore) and in industrial engineering ₹75 crore (₹58 crore). We expect an operating leverage-led margin expansion in subsequent quarters due to better capacity utilisation and off-take across the automobile industry. Hence, we expect margins of 24 per cent in FY23 and 24.8 per cent in FY24.

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