Detailed Narrative
Q3 FY26 Operating Performance and Margin Trends
For Q3 FY26, the company's overall operating margin hovered around 15% to 15.3%. The aluminium standalone margins experienced a sequential dip due to startup losses at the new Shoolagiri plant, which is expected to ramp up production by Q2 next year. Alloy wheel utilization remains below 50% of the 5.8 million capacity, with margins not yet reaching double-digit levels, but management anticipates 60-70% utilization by Q3 next year. The Industrial and Engineering segment saw a sharp jump in EBIT margin, which is deemed sustainable with expected expansion in the next financial year.
Strategic Focus on Sunbeam and Business Rationalization
The heavy lifting for Sunbeam's turnaround is complete, with EBITDA margins expected to improve from Q2 next year, targeting 10% by year-end from the current 7%. As part of simplifying Sunbeam's business model, the company divested its aluminium piston asset to Shriram Pistons, which generated approximately INR30 crores in revenue from two customers. This move is aimed at focusing on core competencies and improving efficiency, as 95-97% of the company's revenue now comes from 4-5 key customer groups.
Capital Expenditure and Debt Management
Craftsman Automation plans a standalone capex of approximately INR1,000 crores for the current year, primarily for capacity expansion. The consolidated Net Debt to EBITDA ratio stands at 2.55 on a 9-month annualized basis. The company aims to stabilize this ratio at 1.5 and considers below 2.0 comfortable. Management indicated that with a 5% growth rate, a 1:1 Net Debt to EBITDA ratio could be achieved within two years, and mentioned land assets worth INR350 crores available for sale to aid debt reduction.
Order Book and Growth Outlook by Segment
The stationary engines segment has an order book at an annual revenue level of $60 million, with a target to reach $100 million by FY29/FY30, driven by demand from data centers and AI. Revenue growth for Industrial Engineering and Powertrain segments is projected to be in the high single-digit to low double-digit range, while aluminium products are expected to grow in the high teens. The company plans to add 5-10% capacity in the Powertrain business over the next 12 months.
ICE to EV Transition and Aluminium Content
The company acknowledges the benefits of light weighting for both ICE and EV vehicles, particularly for increasing EV range and reducing battery costs. However, a significant increase in aluminium content in passenger vehicles, especially for EVs, requires OEMs to adopt new platforms and designs. While this transition is happening, management notes it is not at the desired pace, as new plant builds are necessary for OEMs to incorporate substantial changes.