Vehicle scrappage policy can help Craftsman Automation’s IPO listing day strategy; book profit or hold?

On March 25, 2021, the Rs 824-crore Craftsman Automation IPO will be listed on the BSE and NSE. Between March 15-17, 2021, the issue was sold at a price range of Rs 1,488-1,490 per share. The initial public offering received a lukewarm response from investors, with a subscription rate of 3.82 times. According to UnlistedArena.com, which monitors the grey market, shares of this auto part maker were trading at Rs 1,520 apiece in the grey market on Wednesday, a premium of Rs 30 or 2% over the issue price.

Craftsman Automation would benefit from scrappage policies, hybrid cars, and BS-VI.

Daimler India, Tata Motors, Tata Cummins, Mahindra & Mahindra, Simpson & Co. Limited, Escorts, Ashok Leyland, Perkins, Mitsubishi Heavy Industries, John Deere, and JCB India are among the company’s top clients. Among them are Royal Enfield and Perkins. Marwadi Shares and Finance Ltd told Financial Express Online that the company would list at a P/E of 76.65X with a market cap of Rs 3,148 crore, based on FY20 adjusted EPS of Rs 19.44 on a post-issue basis.“Investors should keep this stock for the long term to benefit from the BS-IV to BS-VI transition, vehicle scrappage strategy, and the introduction of electric vehicles,” it said.

Should you book benefit on the day you mention Craftsman Automation?

Craftsman Automation will join Bharat Forge Ltd, Endurance Technologies Ltd, Jamna Auto Ltd, Mahindra CIE Automotive Ltd, Minda Industries Ltd, Sundram Fasteners Ltd, and Ramkrishna Forgings Ltd as Dalal Street listed industry peers.

According to Ranjit Jha, CEO of Rurash Financial, Craftsman Automation is offering its shares at a high valuation, despite the fact that the company’s future looks bright due to its diversified clientele base, competitive advantage, and the expected revival of the automotive industry. “We are not expecting a high listing benefit from the IPO; however, if it is more than 10% from the issue price, investors should take advantage of the situation and book the same,” Jha advised.

Craftsman Automation Ltd is a leading engineering firm that specialises in precision part manufacturing. The IPO is estimated at 44 times EPS for annualised FY21, which appears to be a fair price. Craftsman Automation is expected to benefit greatly from its strong relationships with OEMs, says Vikas Jain, Senior Research Analyst at Reliance Securities, given the continued momentum in the automotive space and the expected sharp recovery in OEM volumes in FY22E. Furthermore, a stable cash flow, a higher OCF yield than peers, a likely increase in return ratio, and a comfortable leverage position provide comfort.

“Given the company’s low asset turnover ratio, we believe it will continue to expand without much revenue, resulting in substantial cash flows. “We will advise long-term holding of the stock,” Jain said.

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