Thread by @mmali09

Craftsman Automation

Diversifying Powertrain vertical: Interesting insights🧵

Sharing my notes on recent "Dr Axion India pvt." acquisition by #Craftsman

Buy price - ₹375 Cr
Axion FY21-22 Sales - ₹716 Cr
P/S - 0.5x

Adds >30% to the +₹2000 Cr Top line

Retweet♻️

1/n

Powertrain vertical (Cylinder Heads is part of this segment) - 52% of total revenue

Leading player for:
- CV (#1 position) - 54% revenue
- Off highway - 20% revenue
- Tractors (among top 3-4 outsourced players) - 18% revenue

Whereas, PV is only 8% only

2/n

Within Powertrain vertical, Cylinder heads & cylinder blocks make up the major chunk at 60% revenue

3/n

Cylinder Head:

SUV (PV) forms the biggest pie of the TAM in this product category where Craftsman didn't have any material presence as seen earlier.

4/n

Powertrain vertical particularly the cylinder block and cylinder heads are relatively high value & high margin products for Craftsman vis-à-vis transmission products due to the complexity involved in machining these products.

5/n

With that background lets look at Dr. Axion India business.

Incorporated in Dec 2006, it mfg. Cylinder heads for PV & CV

Its operations are supported by the South Korean R&D driven Parent co. DR Axion, who provides technical and operational expertise.

Strong Financials

6/n

The co. employs state of the art, automated production lines used by the parent.

Only 1 Mfg. plant - Chennai

Key customers:

PV:
- Hyundai Motor India Limited (HMIL) - 48% of total sales
- Kia Motors India Private Limited (KMIP)

CV:
Mahindra Heavy Engines Limited (MHEL)

7/n

Interestingly, its the sole supplier of Cylinder Head to both Hyundai & Kia in India (Almost 100%)

PV Market share based on total cars manufactured in India data.

- Hyundai - Top 3
- Kia - Gaining MS - Top 5

9/n

Facilitating M&M’s transition to aluminium engines

10/n

Financials:

- Sales volume grew by 39.0% YoY in 9M FY2022
- Sales growth at 49% CAGR FY19-22
- Synergies with Craftsman operations could potentially take the margins higher from here.

11/n

Powertrain segment revenue share could potentially look drastically different with almost 700 Cr. getting added to PV segment with this acquisition, moving from 8% -> almost 40%

12/n

Craftsman mgt. guided for 20-25% CAGR growth for the next 3-4 years. This acquisition pushes it further up and opens its doors to Top PV OEMs and

13/n

14/n

Acquisition is expected to be completed before 31st March, 2023.

Sources: AR, Concalls, Credit reports, DRHP, Corporate announcements.

Disclosure: Invested, may exit at any point.
Not a buy/sell recommendation.