Everything to know about Craftsman Automation IPO

The current IPO season is not stopping. With many companies going public, it looks like IPO is the new fad. This year should be renamed as an IPO year. Despite the Covid-19 pandemic, this year may be remembered as the golden period for investors and the companies, with investors getting up to 100% returns in the share market and an endless list of companies launching an IPO.

An IPO of Craftsman Automation Limited is opening on Mar 15 2021. Let's look at all the details you need to know about this IPO.

About Craftsman Automation Limited

Established in 1986 in Coimbatore, Craftsman Automation Ltd is a leading engineering company engaged in manufacturing precision components. It designs and manufactures a range of engineering products. It is one of the leaders in the machining of cylinder blocks for tractors. 

It has three business segments: Automotive-Powertrain, Automotive-Aluminium Products, and Industrial and Engineering division. They are engaged in the manufacturing of material handling equipment, i.e. hoists, industrial gears, marine engines, crane kits, gearboxes, locomotive equipment, storage solutions, etc.

The company owns 12 manufacturing facilities across various cities of India. Its customer base includes blue-chip companies like Tata Motors, Daimler India, Tata Cummins, Mahindra & Mahindra, Royal Enfield, Siemens, Escorts, Ashok Leyland, VE Commercial Vehicles, TAFE Motors & Tractors, etc.

Promoters: Srinivasan Ravi, holding around 52.89% of total equity pre-IPO.

Financial of Craftsman IPO 

IPO Timetable and Details of Craftsman

Application Range

Objects of the Issue

• To make repayment/pre-payment of a company's borrowing fully or partially.
• To meet general corporate purposes.

Should You Invest in Craftsman Automation IPO ?

Competitive Strengths

• Leading manufacturer of engineering products.
• Strategically located.
• Vertically integrated manufacturing facilities.
• Strong product design capabilities.

Financial Analysis of Craftsman IPO

• FY 18-19 was a golden period for the company, with a massive 20% increase in revenue. And the profits tripled. But they did not maintain this progress in the next FY due to excess capital expenditure to set up production units. 
• The company has maintained positive cash flows from operating activities.
• The company is trying to reduce borrowings through this IPO, which can make it a net zero-debt company.
• The material cost has reduced significantly, indicating economies of scale. This led to a positive impact on the PAT.
• In comparison to its peers, it had a low Return on Net Worth (RONW) of 6.2%. 
• Considering the issue price to be the listing price, its P/E Ratio will be higher than 74, close to the industry average.
• A significant portion of around 15% of revenue is still trade receivables.

Risks

• The business environment is competitive. If it cannot respond quickly to the increased competition and expected pricing pressures, it will lose market share. It will reduce its profits and revenue.
• Automobile sales have been declining even before COVID-19 due to economic slowdown. And it is uncertain whether the sales will recover shortly.
• The effect of the COVID-19 pandemic on the company's business results of operations and financial condition is uncertain and cannot be predicted.
• Inability to meet its obligations could adversely affect its business.
• A substantial portion of its assets is mortgaged to lenders as collateral security for some of its borrowings. Failure to pay debts timely may lead to the seizure of their assets which could affect their business operations significantly.
• The subsidiaries of the company have booked losses in the last three Financial Years.
• Craftsman Automation does not have long-term contracts with its suppliers. Any significant disruption in the supply chain of raw materials could adversely affect its results in operations.
• The diverse joint ventures and strategic investments in the past and the future may be burdensome to integrate and manage. It may lead to uncertainties and the risk of conflict.
• In the event of failure to meet export obligations, the company may be liable to pay proportionate duty along with interest. Continuous failure may lead to revocation of EPCG Licenses.

Final Thoughts

Craftsman Automation Ltd is considered a leader in its segments. Being a reputed Original Equipment Manufacturer (OEM), it has big customers, but the demand for its products may be uncertain. Its financial performance has been quite inconsistent over the years due to expansion plans. Its IPO is valued accurately, considering the P/E Ratio of the industry. So the Grey Market Premium may below. If the IPO is not subscribed as per the company's expectations, then it may remain a high-debt company, with its assets being pledged with lenders. 

There is a long list of risks to be considered before investing in the IPO. The effect of COVID-19 can be seen significantly. The group companies have also underperformed. The competitive business environment may be unfavourable for the company in the long run. The export sales may be affected due to changes in foreign policies.

Now that you have all the plus and minus in front of you, you'd be wise enough to do your own calculations and decide whether to opt-in or opt-out.