Craftsman Automation has launched its three-day initial public offering (IPO) today- March 15, 2021. This is the first IPO to be launched by an auto components manufacturer in the past 3 years. Let us take a closer look into the company and its IPO.
Company Profile – Craftsman Automation
Craftsman Automation Limited is an engineering company based in Coimbatore. It was incorporated in 1986 and is primarily engaged in the design, development, and manufacturing of automotive components. The company is well-known for the machining of cylinder blocks and cylinder heads in commercial vehicles and tractors. A cylinder block is the basic framework of a vehicle’s engine that plays an important role in maintaining stability and controlling temperature. The company offers a wide range of such components to automobile manufacturers in India and abroad.
The company’s products and services segments are divided into three verticals:
- Automotive- Powertrain and others: This includes engine parts such as cylinder heads, cylinder blocks, transmission parts, turbocharges, etc. These components are used in the production of commercial vehicles, special utility vehicles, and tractors. This segment contributes nearly 17.3% to the overall revenue of the company.
- Automotive- Aluminium products: This segment includes key products such as cylinder blocks, as well as crankcases for two-wheelers, passenger vehicles, and commercial vehicles. This division contributes 47.5% to the company’s overall revenue.
- Industrial and Engineering: The main products in this segment include high-end precision products (castings) and storage solutions. It caters to the pharma, fast-moving consumer goods (FMCG), and e-commerce industry. This segment contributes 35.2% to the total revenue.
Craftsman Automation owns and operates 12 state-of-the-art manufacturing facilities across 7 cities in India. These units are strategically located near major automobile manufacturing hubs. The company has established itself as a leading provider of essential components to large automakers. Some of their prominent clients include Mahindra & Mahindra, Tata Motors, Escorts, Ashok Leyland, Daimler India, JCB India, and TVS Motors. 90% of their revenue comes from the domestic market and the remaining 10% from exports.
About the IPO
In February 2021, Craftsman Automation received approval from SEBI to float an initial public offering (IPO). The public issue will open on March 15, 2021, and close on March 17, 2021. The total issue size of the IPO is Rs 823.70 crore. This comprises a fresh issue of equity shares aggregating up to Rs 150 crore. It also includes an offer for sale (OFS) of 45.21 lakh equity shares (aggregating up to Rs 673.70 crore) by promoters and existing shareholders. The price band for the IPO has been fixed at Rs 1,488-1,490 per share.
Individual investors can bid for a minimum of 10 equity shares (1 lot), which will amount to Rs 14,900. The maximum number of shares that can be applied by a retail investor is 130 equity shares (or 13 lots). Thus, the maximum amount one can invest in the IPO is Rs 1,93,700. But take care not to apply for more than 1 lot, as your capital may get blocked for no reason if the IPO is oversubscribed.
Craftsman Automation will utilise the net proceeds from the IPO for two main purposes. The main priority is to make repayment or pre-payment of its existing debts. As per reports, around 80% of the IPO proceeds will be used for repaying debts. The remaining amount will be used for general corporate purposes. The company’s promoters, lead by Srinivasan Ravi, currently hold a 63.4% stake. The total promoter holding in Craftsman Automation will reduce to 59.76% post the successful completion of the IPO.
|.||31 Dec 2020(FY 21)||31 March 2020 (FY20)||31 March 2019 (FY19)||31 March 2018 (FY18)|
|Profit After Tax||50.6||41.07||97.36||31.5|
From the table, it is clear that Craftsman Automation’s financial performance has not been consistent over the years. The company’s revenue grew at a CAGR of ~20% between 2017 and 2019. After this period, it faced a decline in both domestic and international demand across all three product verticals (due to a slowdown in the automobile industry). The Industrial & Engineering division is the only segment that has shown positive growth in the last three years. The fall in revenue was also due to the high capital expenditure it incurred for setting up production plants. On the other hand, it shows how they have focused on scaling up production activities.
The company’s profit has shown a strong rebound at Rs 50.6 crore for the 9 months ended December 2020, despite a heavy fall in revenue. This was primarily because their interest costs (for loans) had fallen due to the moratorium introduced by the government amidst the Covid-19 pandemic.
Another factor to consider is the overall debt burden of the company. Between 2016 and 2020, Craftsman Automation’s long-term debt has grown at a CAGR of around 20%. This is quite alarming indeed. Its total debt as of December 31, 2021, stood at Rs 890.11 crore. As mentioned before, the company will use a major part of its IPO proceeds to reduce this debt.
- There has been a significant decline in automobile sales due to the ongoing Covid-19 pandemic. The company is uncertain whether its sales will recover even after the impact of the Covid-19 pandemic is over.
- Craftsman Automation has not been able to meet debt obligations through its debt financing arrangements. Also, some of the company’s assets have been mortgaged as securities with lenders. In case they are unable to pay off debts, it may adversely affect their business operations, financial results, and cash flows.
- As mentioned before, the company has prominent clients from the automobile industry. There could be instances wherein the firm loses key customers, which could lead to a decline in production and sales. This could affect its overall business operations and financial results.
- The company operates in a highly competitive business environment. Its market share and profits could decline if they are unable to respond to competition and pricing pressures. This could ultimately affect their operations and financial results. [Craftsman Automations’ peers in the auto-components industry include Bharat Forge, Endurance Technologies, Mahindra CIE Automotive, and Sundaram Fasteners]
- Craftsman Automation is also involved in certain legal proceedings amounting to Rs 21.24 crore.
- The company does not have long-term contracts or exclusive arrangements with its suppliers. Its operations could be severely affected by supply chain disruptions, which has been a major issue for many firms amidst the Covid-19 pandemic.
IPO Details in a Nutshell
|IPO Date||March 15, 2021 – March 17, 2021|
|Issue Type||Book Built Issue IPO|
|Face Value||Rs 5 per equity share|
|IPO Price||Rs 1,488 to Rs 1,490 per equity share|
|Lot Size||10 shares|
|Issue Size||Rs 823.70 crore|
|Fresh Issue (goes to the company)||10,06,711 equity shares of Rs 5 each (aggregating up to Rs 150 crore)|
|Offer for Sale (goes to promoters)||45,21,450 equity shares of Rs 5 each (aggregating up to Rs 673.70 crore)|
|Allotment Date||March 22, 2021|
|Listing Date||March 25, 2021|
|Listing At||BSE, NSE|
Axis Capital and IIFL Securities have been appointed as the book-running lead managers to the public issue. Craftsman Automation had filed draft papers for its IPO in December 2020. You can read it here.
Craftsman Automation had filed draft papers for an IPO with SEBI way back in June 2018. It had even received the regulator’s approval for the same. However, the company could not launch the public issue as market conditions were not favourable during that period. Now, the question arises whether investors would show interest in this company amidst a slowdown in the automobile sector. Moreover, there are red flags such as declining revenues and large debts. Do consider the risks associated with this company and come to your own conclusion.
Ahead of the IPO, the company was able to raise Rs 247.11 crore from 21 anchor investors. HSBC Global Investment Funds, Tata Mutual Fund (MF), Aditya Birla Sunlife MF, The Nomura Trust are some of the prominent anchor investors of the firm.
In the current scenario, almost every IPO is providing some lucky investors with great listing gains. Before applying for Craftsman Automation’s IPO, I will personally wait to see if the portion reserved for institutional investors gets oversubscribed.
What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section.