Q4FY23 Review: Craftsman Automation: Q4 miss but outlook stays strong

10 May 2023 , 10:45 AM

Craftsman’s Q4 results were lower than expected in standalone as well as DR Axion (recent acquisition). The weak margins in DR Axion was due to accounting adjustments post acquisition; this should normalise in coming quarters. The miss in standalone was due to lower revenue in Powertrain Segment. However, mgmt is confident of 20% organic growth in FY24 (we forecast 16.5%), with strong growth across its three segments. Analysts of IIFL Securities have upgraded their FY24/FY25 EPS estimates by 4%/3%, as we build in DR Axion into their forecasts (EPS accretive), which more than offset the slight cut to standalone earnings. Craftsman is a play on growth in underlying auto industry volumes, market-share gains, ramp-up of new verticals and leverage from increase in capacity utilisation.

Q4 results weaker than expected: 

Craftsman’s Q4 revenue grew 49% YoY (incl. acquisition), and 20% YoY organically (standalone). Standalone revenue missed estimates by 2% due to lower revenue in Powertrain segment. Standalone Ebitda margin missed analysts of IIFL Securities’ estimate by 100bps, resulting in a 6% miss in absolute Ebitda. DR Axion performance was weaker than expected with Ebitda margin of about 11%, lower than Apr’22 – Jan’23 margin of about 14%. As a result, DR Axion had EPS dilutive impact in Q4 results.

Mgmt confident of 20% organic growth in FY24: 

Mgmt is confident of 20% growth in each of its three segments, relying on underlying auto industry volume growth, commencement of new orders and scale up of relatively new segments such as storage solutions. Mgmt highlighted two new orders (1 domestic, 1 exports) which would commence deliveries in 2Q/3QFY24. Analysts of IIFL Securities forecast 18-20% organic revenue growth in Aluminium and Industrial segments. However, analysts of IIFL Securities Powertrain segment forecast is lower at 14% due to weakness in tractors and exports of CV components.

DR Axion margin to normalise in FY24; transaction to be EPS accretive: 

Mgmt mentioned that margins in Feb-Mar were impacted by accounting changes to bring it in line with Craftsman’s policies. Margins are likely to step up to 14% in FY24 and possibly improve from there with higher capacity utilisation and efficiencies. As a result, analysts of IIFL Securities expect the transaction to be EPS accretive. This offset the slight cut to their standalone EPS and led to overall upgrade of 3-4% in FY24/FY25.

Analysts of IIFL Securities maintain BUY with TP of Rs3,800