Craftsman Automation IPO listing day strategy: Vehicle scrappage policy may benefit; book profit or hold?

The Rs 824-crore Craftsman Automation IPO will list on BSE and NSE on March 25, 2021. The issue was sold in the price range of Rs 1,488-1,490 per share between March 15-17, 2021. The initial public offering received a tepid response from investors with a 3.82 times subscription. In the grey market on Wednesday, shares of this auto component maker were trading at Rs 1,520 apiece, with a premium of Rs 30 or 2 per cent over the issue price, according to UnlistedArena.com, which tracks the grey market.

Scrappage policy, electric vehicles, BS-VI to benefit Craftsman Automation

The company’s top clients include Daimler India, Tata Motors, Tata Cummins, Mahindra & Mahindra, Simpson & Co. Limited, Escorts, Ashok Leyland, Perkins, Mitsubishi Heavy Industries, John Deere, JCB India. Royal Enfield, Perkins, among others. Marwadi Shares and Finance Ltd told Financial Express Online that considering FY20 adjusted EPS of Rs 19.44 on a post-issue basis, the company is going to list at a P/E of 76.65X with a market cap of Rs 3,148 crore. “Investors should hold this stock for the long-term to reap the benefits of BS-IV to BS-VI transformation, vehicle scrappage policy and electric vehicles introduction,” it added.

Should you book profit in Craftsman Automation on listing day?

On successful listing on Dalal Street, Craftsman Automation will join listed industry peers such as Bharat Forge Ltd, Endurance Technologies Ltd, Jamna Auto Ltd, Mahindra CIE Automotive Ltd, Minda Industries Ltd, Sundram Fasteners Ltd and Ramkrishna Forgings Ltd. Craftsman Automation is offering its shares at rich valuations, although the future looks bright for the company owing to the diversified clientele base, competitive edge, and the revival of the automotive industry going ahead, says Ranjit Jha, CEO, Rurash Financial. “We are not expecting a high listing gain from the IPO, if it is more than 10% from the issue price, one should take advantage of the situation and book the same,” Jha advised investors.

Craftsman Automation Ltd is a leading engineering company, which is engaged in the manufacturing of precision components. The IPO is valued at 44x EPS for annualized FY21, respectively, which look to be reasonably priced. Given ongoing traction in automobile space and expected sharp recovery in OEMs’ volumes in FY22E, Craftsman Automation is expected to benefit immensely on account of its strong associations with OEMs, says Vikas Jain, Senior Research Analyst at Reliance Securities. Further, healthy cash generation, better OCF yield compared to peers, likely improvement in return ratio and comfortable leverage positioning offer comfort. “In our view, considering low asset turnover ratio, the company can sustain growth hereon without much capex, which should result in sizable cash flows. We would recommend holding the stock from long-term,” Jain said.

(The recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)