Motilal Oswal Sees Nearly 39% Upside From This Small Cap Auto Ancillary Stock, Has Rallied By 94.29% In 3-Year

Motilal Oswal, a leading stock broking firm sees a potential upside of 39% from the share price of Craftsman Automation Limited, a small cap auto ancillary stock. The brokerage has suggested investors to buy the shares of this small cap company as it believes that price will go upto a target of Rs 3, 925 per share. Given are the details below.

Recently Craftsman Automation Limited has acquired a 76% stake in DR Axion India Pvt Ltd against cash consideration of Rs 3.75billion. Motilal Oswal is of the view that the acquistion id beneficial to the company, as it will complement the business in the Passenger vehicle (PV) segment, adding diversification to it.

As per the brokerage report, DR Axion India Pvt Ltd incorporated in 2006 is a market leader in cylinder heads. The company manufactures Aluminium cylinder heads (~78% of revenue) and cylinder block (~17%) for PV original equipment manufacturers (OEMs). "It has one manufacturing facility at Chennai having low pressure and gravity die casting processes with total capacity of roughly 32k tons/year (current utilization at 70%). It currently supplies to M&M in India (~40% of revenue) and Hyundai/KIA (single source supplier). It is the largest player in India for cylinder head and a sole supplier to Hyundai and Kia. Also, it is the single source supplier for cylinder head for MM."

The acquistion will be a win-win situation for both the parties, as the share of PVs within the Al casting is expected to increase to over 60%. "While DR Axion India Pvt Ltd employs low pressure and gravity die casting processes, Craftsman Automation Limited specializes in high pressure die castings (~75% of the revenue), it currently accounts for just 4% of its revenue from aluminum (AL) die casting. DR Axion India Pvt Ltd exclusively serves the PV segment, and this will help former to expand its foothold in the segment."

According to the brokerage firm, "We expect this acquisition to be earnings per share (EPS) accretive, resulting in upgrades in our FY24E/FY25E consolidated EPS by 14%/11% to factor in for consolidation of DR Axion India Pvt Ltd and associated acquisition debt. We now estimate consolidated revenue, EBITDA and PAT to grow roughly by 30%, 28% and 44% CAGR over FY23E-25E. However, we now lower our target PE multiple for Craftsman Automation Limited to 18x of FY25E EPS (vs 20x earlier) as we now consolidate for DR Axion India Pvt Ltd. Maintain BUY with TP of Rs 3,925 per share."

About Craftsman Automation Limited

Craftsman Automation Limited was established in 1986 as a small scale industry in the southern Indian city of Coimbatore. It produces automobile parts, It largely offers gears, heavy parts, sheet metal equipment, special purpose machines, engineered components, and assembly. It has strategically located 12 manufacturing facilities in India and has a market capitalisation of Rs 6,127.21 crore.

Its latest stock price is Rs 2,900 per share, which is 2% up on intraday basis. In last one year the stock price has rallied by 33.06% and over three years it has gained by a huge 94.29%. Its 52-week high is at Rs 3,709.95 per share and 52-week low is at Rs 2,024 per share.

Disclaimer:

The stock has been picked from the brokerage report of Motilal Oswal, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.