Craftsman Automation IPO today, should you subscribe?

The Rs 824-crore initial public offering (IPO) of Craftsman Automation Limited, subscribed 22% on the first day of bidding so far. The public offer has received bids for 8.65 lakh shares at around 12.03 pm against the total issue size of 38.69 lakh shares.

The auto component maker Craftsman Automation on Friday raised a little over Rs 247 crore from anchor investors. The anchor investors include HSBC Global Investment Funds, Tata Mutual Fund (MF), Aditya Birla Sunlife MF, The Nomura Trust and Banking Co Ltd, Max Life Insurance Co Ltd and Integrated Core Strategies Asia Pte Ltd.

The company has fixed a price band of Rs 1,488-1,490 a share for its IPO, which will close for public subscription on March 17. Half of the issue has been reserved for qualified institutional buyers, 35% for retail investors and 15% for non-institutional bidders.

Here’s what brokerages said:
Prabhudas Lilladher: Subscribe-long term
The brokerage recommends ‘Subscribe’ for long term on Craftsman Auto’s IPO given i) positive demand outlook on MHCV/tractor industry (that contributes over 70% of revenue pie), healthy financial performance in tough times, robust growth potential in Auto Aluminum as well as storage divisions and expansion in ROCE led by lean capex and debt reduction plans. Despite around 18% revenue decline in FY20, the company posted margins of nearly 27% (highest across auto ancillary space). While a large part of the capex cycle is now behind, the brokerage expects ROCE (currently at ~11%) to improve going forward coupled with anticipated debt reduction.

Ventura Securities: Subscribe
Total revenue is expected to grow at a CAGR of 14.6% over FY20-23 to Rs 2243 crore EBITDA over the same period is expected to grow at 12.7% CAGR to Rs 570 crore with margin contraction of 130 basis points to 25.4% in FY23 and PAT is expected to grow at 76% to Rs 224 crore with margin expansion of 720 basis points to 10% over FY20-23. ROE in FY23 is forecasted to be 17% and ROCE to be 16.7%.

ICICIdirect: Subscribe
Craftsman Automation is a play on revival in the automotive industry, especially M&HCV space. With a lumpy capex cycle behind it & a focus on debt reduction, it is well poised to clock healthy returns ratios in FY22-23E. At IPO price, it is offered at reasonable forward valuations.