Detailed Narrative
Aluminium Segment Growth and New Orders
The Aluminium segment is on a significant growth trajectory, fueled by substantial past investments and ongoing capacity additions. Management expects this segment to outperform others and continue its growth for many more quarters. New orders are being secured for both 4-wheeler and 2-wheeler applications, with some quick wins expected to contribute revenue within a couple of quarters and others, currently in development, slated for production in FY28 and FY29.
Kothavadi Project and Heavy HP Engines
The Kothavadi project, focused on heavy horsepower engines, is progressing well, targeting USD 100 million in revenue by FY29. Initial orders have already filled this target, and new inquiries suggest potential to exceed USD 100 million by FY30-31. Production is expected to ramp up, with 30% by FY28 and 50% by FY29, leading to full revenue realization by FY30. The casting validation process for current parts is anticipated to take another year, with revenue from general engineering castings expected to trickle in within 2-3 quarters as capacity utilization builds up.
Sunbeam Restructuring and Margin Improvement
The restructuring of the Sunbeam business is largely complete, with 90% expected to be finalized by December 2026. This initiative involves exiting negative-margin legacy businesses, which may lead to a 10-20% reduction in top-line revenue but is projected to significantly improve gross margins and value addition. Management is confident that Sunbeam will achieve mid-teens EBITDA margins by Q4, aligning with the Craftsman business profile.
Capex Plans and Funding Strategy
Craftsman Automation has an approved capex plan of INR 430 crores for its DR Axion subsidiary, potentially spread over a two-year period. Standalone capex is expected to average over INR 1,000 crores annually, leading to a consolidated capex of approximately INR 1,500 crores for FY27. This investment is directed towards new facilities like the Hosur unit for high-pressure die casting and general infrastructure for greenfield projects. While current funding may involve a cash mismatch, the company aims to rely solely on internal accruals for capex in subsequent years, maintaining a healthy net debt to EBITDA ratio.
Capacity Utilization and Market Traction
Current capacity utilization in the Powertrain segment is around 70%, with expectations to reach 75-80% during the festive season, though sustaining beyond 75% annually is challenging due to seasonal business nature. The Aluminium segment is already operating at over 80% utilization. The company is proactively expanding capacity, such as the Hosur facility, in phases over 2-6 quarters, driven by good traction in inquiries and expected market growth.
Rising Capex Costs and Operational Efficiency
Management highlighted a significant increase in capex costs, noting that building the same capacity as in 2016 now costs 5x to 7x more, with land prices up 8x-9x and construction costs 3x-4x. This makes incremental capex 'quite difficult'. Despite these challenges, the company expects its EBITDA to support future investments. The Industrial segment is benefiting from operating leverage, with orders increasing quarter-on-quarter in material handling and storage divisions, contributing to intact margins.