Craftsman Automation Ltd
NSE:CRAFTSMAN
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
3 837.1
6 604.55
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Craftsman Automation Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Conference Call of Craftsman Automation Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Ravi, Chairman and Managing Director of Craftsman Automation Limited. Thank you, and over to you, sir.
Good afternoon, everybody, and thank you very much for joining this earnings call. I will just give a brief introduction on the last quarter performance. The Q3 volumes on the powertrain were good, on the aluminum segment were poor. And because of that, I think we have seen overall growth but not so much -- not a good quarter for the aluminum business. The demand for automotives, automobiles has been quite stable. And I just want to give a comparison on 9-month figure on year-to-year. The turnover was INR 2,195 crores, vis-a-vis last year, full year we did INR 2,206 crores. And 9 months PBT is INR 259 crores, which is more than last year's full year PBT. 9 months PAT has been INR 167 crores, which is higher than the INR 160 crores PAT of the full year.
EBITDA for the 9 months has been INR 499 crores. It is slightly lower than the full year figure of INR 537 crores, but much higher than the INR 380 crores for the corresponding period for the 9 months. CapEx is at INR 259 crores, mainly the maintenance CapEx and technological improvement. And all the key financial parameters improved overall, while we consider the DR acquisition, borrowing separately. If it is added to that and then we look at the correct numbers, I would say. Debt-to-equity is 0.82. Debt-to-EBITDA is 1.6. But if you are removing the acquisition finance, the debt-to-EBITDA will be also around 1.3. EBITDA Margin is 23% overall for the 9-month period. Last year, full year, it was 24%. EBIT margin has been 15%, for the last full year has been 15% also.
PBT is 12% for 9-month period, comparably 11% for the full last year. PAT margin has been 8% for the 9 months. And the comparable full year has been 7%. The ROCE pretax annualized has improved to 23% in comparison for the 20% last year, for the full year. ROE annualized is 18% and last year was 15%. EPS not annualized is INR 79.24. For last year, it has been INR 75. The 9-month segment for the auto powertrain, it has grown by 39%. It has grown from INR 817 crores to INR 1,134 crores. Aluminum segment has grown from INR 385 crores to INR 544 crores. But on a quarter-to-quarter, there is some decline on the aluminum segment.
Industrial Engineering segment has grown 48% year-on-year, INR 350 crores to INR 517 crores. Storage business has added -- achieved a turnover of INR 279 crores. Previous year, year-to-date December was INR 188 crores, so we had a 48% growth. Automotive powertrain segment EBIT has grown by 33%, INR 218 crores to INR 289 crores. Aluminum segment EBIT has grown for the 9-month period from INR 30 crores to INR 42 crores, that is 38%. Industrial Engineering EBIT has grown by -- from INR 13 crores to INR 44 crores. That is quite significant absolute in percentage. So I'll leave the floor open for question and answers, please.
[Operator Instructions] The first question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Can you share value-add for each of the 3 segments?
Sorry to interrupt Mr. Gandhi. Sir, your audio is very loudly speaking. Can you speak a little softer or decrease the volume on your phone?
Sure. Can you share the value-add for each of the segments?
For the quarter, Mr. Gandhi?
Yes.
For the auto powertrain, it has been INR 249 crores. Aluminum has been INR 61.5 crores. And industrial engineering has been INR 58.3 crores.
And what is the reason for such a sharp drop in margins for the aluminum business? I mean, this is the second quarter in a row where we are seeing drop despite aluminum prices also being soft.
Yes. I will answer that logically and what is the actual situation. We had a first good quarter. Q1 has been very good on the aluminum business. Extraordinary quarter. On Q2, we had a decline in aluminum prices. And normally, the pipeline inventory will be there a little so that adjustment happens in real time, but the stock cannot be adjusted for the lower value. So we had some drop for the Q2. And the aluminum prices continued to soften from Q3, so we couldn't rebound. If the price had been stable, we have rebounded or if the price had increased, we would've got some benefit, but still it didn't happen there also.
The operating leverage has come down quite substantially in Q3. We had a top line reduction of INR 20 crores even though our gross margin or value addition has been -- as a percentage has been more or less same, the top line reduction of INR 20 crores resulted in INR 8 crores, INR 9 crores of practically the value-addition reduction, which is actually reflected in the EBITDA absolute number and such a low base on the top line, the INR 8 crores has got a big impact to look at to when we look at as a percentage. But absolutely it's only INR 8 crores. And we are now seeing stable aluminum prices or increasing aluminum prices. So I'm not worried about that particular factor for Q4. On an year basis, I think we'll be far, far better on this.
Okay. And in the third quarter, what would be the utilization rate for the aluminum business?
Sorry to interrupt, Mr. Gandhi. Sir, may we request you to use the handset mode while speaking. Your audio is not clear.
What would be the utilization rate for the aluminum business in the quarter and for 9 months?
I think the top line is showing that already we are operating around 60-odd percent. I think it has come down below that. In Q4, there are 2 aspects which are unique to that quarter. One is the festive season. So we'll have October, very steep ramp up. I mean, September, October, and then hope that festive season will pick up. But in October end, I think the call will be taken by the customers to either slow down production or continue the production at that rate, depending on the actual sale. So -- and we saw that the sales didn't pick up, and then we have the festive holidays. So that is also a disruption. There is a cost there also.
And the inventory was still available for the OEMs especially if you're really dependent on 2-wheeler, you may understand that around 70% is still dependent on 2-wheeler, close to 70% on the aluminum products segment. There the plant shutdowns and also annual shutdowns have happened. So this has put on pressure. Normally in Q3, even last year Q3 has not been great for us. We have always been performing in Q4 far, far better. This is the fundamental.
So 60% is for the 9 months utilization for third quarter?
Yes. If you look at it, it is average for 9 months, it's 60%, but for the Q3, it would have been much lesser.
Okay. Okay. And lastly, can you talk about DR Axion acquisition? What was your thought process behind acquiring an aluminum business? What do you expect out of it? Throw more light on that?
As you may know that whatever is on public domain only those numbers I can give, because everything else will come post the actual takeover, which is going to happen shortly. It is only the legal formality that is going on. Everything is going smoothly. That is the good news. But I would like to...
More than numbers, more so about your thought process on how the deal will ...
I will speak more broadly because the DR Axion management in Korea and we will come out with a joint statement and we are going to jointly cooperate also in the future. So I would not like to make part a few statements without -- I would say, the continued shareholder, I would say. It is going to be a subsidiary of Craftsman player, but they'll be continuing shareholders, there will be strategic cooperation between us. Having said that, consolidated basis, if you look at the next financial year, if you look at it, would be more than 60% will come from the passenger vehicle segment.
So that is a major strategy behind this move on a consolidated basis, number one. Number two is we are looking at the OEM, we have Indian OEMs, we are supplying on the auto powertrain and some of the major Indian OEMs also on the aluminum segment also, and we've got some new businesses there also. But on the Japanese and the Korean majors, we didn't get any breakthrough. With this, we are a key supplier, and I think strategy is very important so that we are looking at a customer who is today #3 in the world. They have taken the earlier #3 as a passenger vehicle manufacturer globally. And more importantly, this particular manufacturer, of course, is very, is very, very strong on EV, even in North America totally. So this is the idea behind our acquisition.
The next question is from the line of Dhaval from Girik Capital.
A couple of questions from my side. The first would be so you said the fourth quarter visibility for aluminum components, if you can comment on that. And also overall, what visibility you have for FY '24 across each of the segments? Yes, this is my first question.
We don't give forward-looking statement as numbers or guidance. But what I can say is the Q4 will be much better than Q3, and it will be better, much better than Q4 of last year. That's all I can say across all the 3 segments of the business. I think that far I can comment and commit.
And on the industrial and engineering side, if you can give the breakup between storage solution and precision products?
Yes. I can give it to you. Storage, quarterly turnover has been INR 80 crores in Q3, vis-a-vis INR 111 crores in Q2. So we had a decline of around INR 30 crores on storage business for Q3.
Okay. And this decline would be because overall the industrial activity has been good, what has led to this decline?
Some of the major consumers, including the retail as well as e-commerce players, the major 2 players in the country, one is multinational, one is Indian. Yes they held back investments and they're going to start doing it again only from January. This is the main reason. These are big-ticket customers, where big value was there. We are a supplier to all of the customers, one of these 2. So it is a major impact. I think the whole market has seen some contraction in Q3 when compared to Q2. But we see that coming back, Q4 onwards it will be more or less stable. One good thing is our percentage of automated solutions has, as a percentage, been increasing.
And even high-end solution...
I'll give you a number on this. The overall INR 277 crores on the storage solutions for the 9 months, the automated solutions has been INR 80 crores versus the static solutions have been INR 197 crores. So that is very healthy, going forward. On the automation storage, the gestation periods are a little longer. The site readiness and the project finalization and implementation takes more time. So we will gather momentum as we go on.
And sir, how much would be the debt on the books? And how do you see the debt moving for the next 3 financial years post the acquisition? So if you can give some rough visibility, how do you see your debt moving?
So I will now put across, I mean, mention the numbers. If you look at March '22, our debt was overall INR 716 crores overall as a company. And when we look at it net of cash for December '22, it is INR 650 crores. And when you look at the equal year-on-year on last December to this December, it is last December was INR 679 crores, and this is INR 650 crores, so net of cash. So overall, the debt has -- sorry to read the number differently. I am sorry. Net of cash, the debt is INR 650 crores in December compared to INR 679 crores in March '22.
So we have come down by INR 29 crores on debt net of cash. But now we have taken some borrowing for the -- I'm not meant to reveal numbers now, on the acquisition. But in spite of that, I think the operating leverage of the financial ratios are not getting adverse. I would say, it is within line of slightly above last year. There's no need to raise any equity in the current situation. And the way we are going it by September itself, on an annualized basis, it will be improved further in spite of the acquisition of DR Axion.
Okay. So right now, your gross debt would be roughly around INR 700 crores.
Gross debt has been higher. Net of cash, because we have one FD, which is a large amount. So net of cash is INR 650 crores as of December end.
So your gross will be how much, if you can give it?
See, the problem is I don't want to -- we have talked that acquisition cost of something, and we have taken some loans. So there is FD sitting there, that FD will -- either will be used to close loans or it will be used to pay for the DR Axion acquisition . So this is real cash, not the cash, which is sitting as FD.
Understood. And sir, over next 2 years, 2- to 3-year period, how do you plan to repayment of the debt or how will it move?
So the acquisition finance that has been taken is over a period of 8 years -- 7,8 years. So we are seeing a repayment of only around INR 30 crores, INR 40 crores. And initially, there will be an interest of INR 20 crores, INR 30 crores. We don't see that as a big subject. And also that will put less pressure on Craftsman aluminum division through increased capacity on gravity die casting and low-pressure die casting, which is the only segment which DR Axion is there. So I think the CapEx cycle on aluminum will be much lower for Craftsman. So in that way, you look at it, it is front end of the CapEx, which is there. So the borrowing, if any, will be for maintenance CapEx and opportunities in the powertrain business mostly. And some in the industrial engineering segment.
The next question is from the line of Abhishek from Dolat Capital.
Sir, as you mentioned that in debt, total debt has gone down to INR 6.5 billion. But if we see this quarter number, there's a sharp jump on interest costs. So one reason is that there's an increase in the interest costs. What is the other reason, sir?
There are 3 reasons for it, Mr. Abhishek. One reason is, as we mentioned, the 200 basis points, the interest has gone up, number one point. And number two is we have drawn down loan and put it as FD, that is quite a huge money, I'm talking about upward of INR 300 crores. So the point is that is driving in this arbitrage, which has affected a little for a few months, at least a couple of months. The third thing is the Forex one-time loss because of the exchange rate which may get partially corrected in Q4 because it's a notional one, which can go up and down. Already, we are seeing rupee gaining a little now. So that is around to the tune of INR 5 crores. So that is an impact. These are the 3 major points, which has affected the financial cost.
And as you are saying, sir, in the coming years, you would like to repay your date of INR 40 crores to INR 50 crores. But actually the acquisition of DR Axion, that would be -- cost would be around INR 375 crores to INR 400 crores. In that case, don't you think that your debt will increase to INR 800 crores, INR 900 crores or INR 1,000 crores kind of the number?
As I mentioned that our debt is around INR 625 crores -- INR 650 crores as of now. There will be cash generation in Q4, yes, and there will be outflow towards acquisition of DR finance. And I have mentioned a number which is in line with the EBITDA to debt on that number. I think that number will be -- we want to bring it down to 1, but we may remain at -- it was 1.33 last year. We will be maintaining same 1.33 for this financial year also. We thought, without the acquisition, if you look at it, it would have been at 1, I think so, 1:1.
And sir, what is the CapEx plan for the quarter 4 of FY '23 and FY '24.
FY '24, the estimate will be between INR 325 crores, INR 350 crores is the estimate overall, this maintenance CapEx as well as CapEx. And Q4, I will not be able to say correctly, in the region of INR 30 crores, INR 35 crores will be CapEx because some shipments of CapEx deliveries may come in March or may come in April, that may change the equation a little. So just an estimation.
You are talking about the INR 300-plus crores as CapEx for the FY '24. Is it because of the acquisitions cost or is it excluding acquisition...
No, it's not acquisition. Now look at stand-alone Craftsman, we were INR 1,500 crores 2 or 3 years ago. Now we have grown at least in the top line by 30%, 40% and on the value-addition, it may be around 30-odd percent year-on-year for 2 years. So the top line of around INR 3,000 crores is -- the top line has doubled. So there has to be -- there is capacity utilization is improving quarter-on-quarter, I mean, in a year-on-year average.
So we may run out of capacity if the market picks up in the next few quarters, totally. So there may be some CapEx requirement apart from the maintenance CapEx, apart from capacity balancing. So the 2 years of CapEx, I mean, if you look at the numbers of the 2 years of CapEx, it is around INR 550 crores for FY '22 and FY '23 combined, but the turnover has gone from INR 1,500 crores to may be close to INR 3000 crores, I would say.
And these capacity additions would be mainly in the powertrain business, right?
Yes, aluminum with only 1 or 2 equipments, which on high-pressure die casting, which we still need to do. It is there, but mostly, it will be on the powertrain business because powertrain business by the size of the business is larger, number one. Number two is it is an older business where maintenance CapEx is also slightly higher than as a percentage of the total CapEx of the company. The third thing is capacity addition of the new order, something we need to add at that particular situation. Bulk of it will go to powertrain.
And as you know, the powertrain business, the gestation period is not too much from the time of investment to the returns, which will be better for the shareholders. In that in the earlier question -- the earlier questioner asked me one particular question, why DR Axion. There's no time gap between the time of investment to the returns coming in. This is very, very important in this market condition where going for Greenfield projects may be a little more futuristic. And we want to create a base price, not only on turnover, on EBITDA numbers also to have a better momentum in the future.
Sir, despite fall in the RM cost and the better mix, EBITDA of aluminum, industrial and engineering segment continue to be under pressure. You had already done inventory correction in the last quarter as well. So what kind of the EBIT margin visibility from quarter 4 or for FY '24 from these 2 segments?
The aluminum segment is today still a very, very small segment on the top line. And there, what happens is the INR 8 crores value-addition reduction because of turnover reduction or demand production is changing the percentage very, very adversely. But you look at absolute amount, it's earning only INR 8 crores.
And that means the capacity utilization is quite low. It is not at...
Yes, yes. It is -- for Q3, it has been very low.
Okay. So we don't see a better margin visibility until and unless we get a better operating leverage than this?
No, for the full year, the margin will be far, far better than the whole of last year. So that is very, very sure because we have worked out our numbers, I don't want to give an estimate today. But I think we are growing on absolute value-addition apart from top line and the -- also on EBITDA as a percentage when compared to last year and absolute EBITDA number also will be quite substantial growth over last year.
And what is the issue with the...
Also more importantly, ROCE will be better compared to last year, for this year.
What is the issue with the industrial engineering segment? This quarter, the revenue from the storage segment was lower despite the company is not able to make EBITDA margin?
Sorry, the line is not clear, please, Mr. Abhishek.
So what is the reason of Industrial Engineering segment's lower EBIT margin? Despite the lower revenue from the storage segment, the company is not able to make a good EBIT margin. What are the challenges actually?
Actually, there's no challenges. Actually there's the -- I mean, bunched up CapEx capital goods what we have manufactured for our own powertrain business which customer has paid for, and also our aluminum machines that customers have paid for. So there strategically, we have not added any margin at all. It'll benefit the powertrain business as well as the alumina product division. So that has bunched up in Q3. But otherwise for an annual basis, overall, for the 9-month period, we are looking at the pretax ROCE for industry engineering has improved from -- for the whole of last year, it was 10%, now it is 15%. And for a 9-month period last year it was 5%, it has increased to 15%. And the absolute EBITDA number also for the 9-month period is high. So full year, we will be doing better. Q4 will be having a reversal of this bunch-up. Actually, there's no challenge. Because the base is small, the product segment is wide, any shift in the segment of the product sales will have an impact. That is the reason. So once we reach double or triple the size, we'll not have this big variation on quarter-to-quarter. But now there will be big variation, INR 5 crores, INR 10 crores can change a lot.
The next question is from the line of Senthil Kumar from Joindre Capital Services Limited.
Congratulations, first of all, congratulations for a good set of numbers despite raw material cost pressure. I just want to understand what is the percentage of contract entails pass-through of raw material cost in our business?
All powertrain business and aluminum business is the pass-through. There can be a little delay, one, due to the either quarterly or monthly whatever contracts we have with the customer. There can be a delay because of the inventory which can adversely affect or positively affect. So we have seen the positive effect also coming in Q1, and we got an adverse -- a little adverse in Q2, Q3, and we will see some positive in Q4. We are not having any problem about a pass-through on an annual basis. But if we look on quarter-on-quarter, there can be a little mismatch between the buying time and the price correction time with the customer.
Okay. I understand that. So do you have any high-cost inventory in our books as on December 2022?
No.
Okay. So I just want to understand what is the order book as on December 2022?
On powertrain and on the aluminum products, we never have an order book, it is on a monthly schedule basis with some quarterly forecast. Actually, there's no purchase order as such. We have to see the portal and supply. That is it. But the annual numbers or whatever our customers are there in the commercial vehicle, farm sector, construction equipment, and the industry engines as well as passenger vehicle and two-wheelers, I think the top 10 customers are very, very clear for us.
And the segment is we have got the prime products. So there is the newer products also. I think whatever growth or contraction happens, it will directly have a bearing on us. But on the powertrain business, we're adding new businesses. So contraction might not be affected fully, but growth will come in total for us. So even in the powertrain business on a 9-month period, we have grown overall 39% compared to last year for a 9-month period. But the industry has not grown that much, but why we have grown is because of the new products, which are also contributing.
Okay. Okay. Okay. And last question, what is the working capital cycle in terms of days?
Cash conversion cycle is around 60 days.
Increased from 52 days from -- as on the March 2022. Am I right, sir?
No, it has been -- for FY '22 it has been also 62. Now it is in 59.
So 59, decreased from 62. And lastly, can you give a breakup of revenue in terms of exports and domestic now especially the Europe market, your thoughts on that.
The overall sales for the export, INR 162 crores has been the 9-month direct export.
Your thoughts on you visibility in Europe regions, sir?
We are a little affected now in -- for the exports to Brazil. There is political turmoil. So we have seen some contraction of 20% for Q4. But overall, on the powertrain business, we are growing quite strongly in Q4, so this small contraction is not going to affect us.
Sir, for FY '24? For the next full year.
For the full year, you are talking about, FY '24? FY '24, we see powertrain business, aluminum business, industrial engineering business, all growing in the range of 15% to 20% compared to this year. I mean I'd like to make one statement. We've been always saying that we are going to grow at 20% CAGR from the time of IPO on this matter. I think we'll stick to that number, some years we may grow more, some years we may grow less. But we will ensure -- I mean, not ensure, we are working towards our promise about 20% CAGR.
The next question is from the line of Akshat Mehta from Sameeksha Capital.
No, I think majority of my questions are already answered. So if I have any question, I'll get back and do it. Thank you.
The next question is from the line of Disha Sheth from Anvil Wealth Management Private Limited.
I wanted to check what is your view on CV demand, 2-wheeler and PCR since we supply a lot of things to all the categories? How is the demand on the ground?
I would just like to make a generic statement without going to any specifics, I will also look at talking about only Q4 and the next financial year, not dwelling too much in the future because I think the OEMs are in a better situation to clarify all their plans. Going into Q4, the powertrain demand will be very high. Well, not very high, means much higher than the Q3 demand and also on the aluminum segment on the 2-wheeler. The reason being that is high demand, both on the commercial vehicle segment as well as on the 2-wheeler segment, where prominently we supply.
On the commercial vehicle segment, there is a real-time emission norm test, which is applicable from April. And hopefully, the government's regulations, which are yet to be out may come out with saying that you could manufacture until the last working day of this financial year, that is March 31, and sell it any time during the next year. This may lead to some inventory, no one wants to keep inventory, but they might not abruptly stop production in early March and then affect the quarter sales. So we will have a smooth transition which is happening.
There can be a little pre-buy and a little push in the market because of the real-time emission standards, which are there on the commercial vehicle. On the 2-wheeler segment, it cannot go lower than this. Yes, we have seen EV coming in. We have also got business for EV, which is not substantial in numbers, not substantial in the products what we have, our contribution towards EV as an aluminum segment is not that great. I mean aluminum segment itself is not so high on critical parts I mean.
We are waiting and watching because still it is a fragmented segment, we are with at least 1 of the top 3 players in this segment. But still we find that the subsidy has got a very big role to play in the sales of these vehicles numbers growing. And these numbers, yes, they will be able to sustain and grow. But I'm not very confident or sure that this growth can be -- exponential growth can happen without government extending the subsidies for a few more years. So I would not like to comment anything beyond that. My knowledge is limited to this.
Okay. And sir, one more thing you mentioned at the start that INR 20 crores, there was some loss of sale on aluminum products. Can you repeat that? I just missed that.
No, there's no loss and all. Reduction in sales, INR 20 crores top line reduction means that the value-addition portion is INR 8 crores is the hit we take. The INR 8 crores hit on a small top line, the percentage it goes topsy-survy is what I tried to explain.
Okay. And sir, next year, we have a INR 350 crore CapEx plan plus the higher debt which we took for acquisition. So our cash flow would be affected, which would again lead us to take more debt. So how are we managing that? Any views on that?
I wish to clarify that the EBITDA numbers for the 9-month figure is INR 499 crores totally. So you could analyze it or maybe it is slightly more than normal because Q4 is always a better number. Then we can apply some percentage which we'll do better than next year. So overall, I think the company will -- debt will reduce next year. Now when you look at the absolute debt, if you are minusing the DR Axion acquisition payout, which will happen, then debt would have in real terms itself would have reduced by 15%, 20% is what is my estimate compared to last year in spite of the CapEx what we have done this year.
So the overall cash generation going forward, if any growth in absolute EBITDA number, the cash generation will be there. So we have the -- we do not measure ourselves by debt to equity because that is not the right metric. That will be looking very, very rosy. But I would say that next year, we'll end up at around 1.3 EBITDA to debt, which is -- our target is 1, but because of the acquisition, I think, even this year, we could have been 1 without that acquisition. So next year, we will be at 1.3 or better.
Okay. And sir, when we are guiding of 15% to 20% CAGR growth. So what margins do you think for FY '24 we are working on the range with when we think of this?
I don't see any margin expansion happening. There can be possibly the advantage or the tailwind of operating leverage, there is also a headwind of inflation overall at the product mix. So I think if we grow at 20%, we can nullify the inflation and we will still manage the -- keep the margins impact is what we are hoping for.
Around 23% is what we think is intact.
No, this 23% and product mix changing is many things. Some are -- in the powertrain are job work, so which is not an apple-to-apple comparison, the margin will come only on our value addition. If there's any commodity price increase, it will be only the top line getting inflated, but our value addition will remain -- absolute number may remain the same. So we measure ourselves from the value addition of the gross margin or material margin, various terms are there for accounting, that is what we measure on our margins side.
Okay. And sir, last question, when you gave the numbers auto powertrain value-added is INR 249 crores versus what was it last year?
INR 190 crores.
And for aluminum it was...
It was INR 242 crores. Last year was -- Q3 was INR 190 crores on value addition for powertrain. And this year, it has been -- for the powertrain has been INR 249 crores.
Yes. And aluminum same, it was INR 61 crores for this quarter? So last year, how much it was?
Aluminum this year has been INR 61 crores for this quarter. Last year, it has been INR 60 crores.
Okay. And industrial, against 58% this year last year has been?
INR 48 crores.
The next question is from the line of Pranay Roop Chatterjee from BCMPL.
Firstly, on the powertrain business, I think we had a slight margin contraction last quarter itself. And you had mentioned quite a few reasons like inflation, et cetera. This quarter, despite strong volumes, the margin is still sort of flat. So should we take -- number one, why is this margin not improving basis volumes in powertrain? And is this like the new normal in terms of steady state months?
No, there is -- we are looking at the top line and looking at it, the product mix, we have to look at, again, the value addition there. So if say a Daimler business increases or some other area where we are doing some tractor parts where you're buying the casting, the percentage may look different. So what we have to see is the absolute growth in the EBITDA number when compared to last year, and then if you look at 9 months to 9 months, let us look at 9-month number. It is -- INR 302 crores has grown to INR 380 crores.
Got it. Okay. So you're saying the quarter-on-quarter, month-on-month, there will be a difference because you are doing different kinds of work. So margin will not make sense. You are saying we should look at the absolute number.
Yes, please look at the absolute number of value addition, COGS you have to remove. There will be inflation. There will be operating leverage to our advantage, inflation to our disadvantage. So with the growth happening, we'll be hopefully nullifying. But the product mix change that will have an impact positively and negatively depending on the -- if we look at as a total as a percentage.
Okay. Okay. Then secondly, on aluminum products division. I think you mentioned a few points on why the margin has moved how it has. My question is, what can we expect the steady-state margins to be over here, after things sort of normalize? We can speak the ex-DR Axion, just your segment of the business, what is the sort of normalized level? And also on aluminum products, so you had 2 large order wins. One was a INR 200 crore order and one was a INR 150 crore order. Any update on when we can expect -- which quarter the revenues will start coming in?
Already, one of the parts has started, it is ramping up. And the other product will come in Q2 of next year. That is before the festive season on the passenger vehicle for the domestic customer. So both of it will have a good benefit in H2, not in H1, a portion of Q2 and full of H2 is what we look at. The -- when you said when stability will come, the absolute EBITDA number or it has to grow, when I look at the INR 100 crore EBITDA number is too small for aluminum division, which we will be there in and around that particular number this year. And when you look at when we cross that INR 175 crore, INR 200 crore level, that is the top line also has to grow. It will grow in a couple of years. At that level, we will not have this bigger fluctuation for INR 5 crores, INR 10 crores. It may be that 1% may -- 1% or 2% may go up and down, but not as large as this.
Okay. Fair. Okay. Then on the I&E margins, you mentioned -- sorry if I got you wrong. You mentioned something around supplying something to your aluminum and powertrain division at 0 margin because of which the numbers were affected. If you can explain to me what the quantum of that was, let me understand better.
No, I would like to clarify, it is -- we didn't supply to the division, we supplied to our customers who are paying for the equipment. The equipment is being placed in our auto parts solution as well as our auto and aluminum product division for the production of those parts for them. So the option is that we are one of the key suppliers in the country for such sort of equipment. So we had some repeat orders coming in, which the orders were first placed in '18, '19. And the same product volumes have increased for this domestic passenger vehicle manufacturer.
I don't want to refer names, but you may guess on this matter where we were obliged to take it up at the same old price where there is no margin at all totally. It is almost like COGS to COGS. But there is INR 30 crores number which has come for this particular quarter, everything has come this quarter. So if we knock off the INR 30 crores, and look at the EBITDA numbers, I think it is reasonable. So next quarter itself, we will see that change happening on that. On an annual basis, it will get more or less averaged out for a higher level of better performance.
Understood. And last question was on CapEx. You already have given some color. If I'm not wrong, you mentioned INR 350 crores for the next year, and do correct me if I'm wrong. That is one. And the larger question is, how can I think about the peak asset turns in you individual segments? And this I'm speaking more from a medium-term perspective. So let's say, we assume a 20% CAGR in each of your segments theoretically over the next 4 to 5 years. How can we build in CapEx accordingly, so I would build up the...
For you to build a model, then I have to give you certain raw numbers for you to understand just the ballpark numbers. Our gross block is roughly around INR 2,800 crores -- INR 3,071 crores, which might not be appearing in our annual reports, it may be reported lower because when we move to Ind AS, the net block became the gross block. But our actual investment in plant and machinery is INR 3,000 crores approximately. So now with the net block of around [Indiscernible] we can say that this number has given this year a top line of INR 3,000 crores. That means with this product mix, I will not -- and maybe a value addition of around overall of 45% or something like that. I don't know [Indiscernible]. Just speaking through whatever I vaguely remember, I don't want to you to hold me against this.
But what I'm saying is it's giving you 0.5 on the value addition totally overall. So any incremental -- when you have a depreciation of around INR 225 crores, of depreciation, then normally maintenance CapEx itself is equal to the depreciation. So when we are saying INR 350 crores, theoretically, we are saying INR 100 crores to INR 150 crores is the capacity expansion, say it is happening somewhere, which is actually leading to 5% of the increase in gross block overall totally. But we should not look at the gross block alone, we should also look at the net block. Net block is currently INR 1,675 crores. So we do INR 100 crores it is practically on INR 1,675 crores net block. It is say 6%, 7% increase in investment. So with that, we are able to manage to use CapEx effectively to our 15% to 20% growth.
Got it. Okay. Okay. And you mentioned next year, INR 350 crores, right? That was the number.
Yes.
The next question is from the line of Joseph George from IIFL.
Just one question. So when I look at the aluminum business, if I recall correctly, about 3 or 4 quarters back, once revenues scale up to about INR 700 crores or so, there is a potential for this business to generate about 17% to 18% EBITDA margin. Right now, when I look at this quarter, obviously, it's about 10% and you gave the explanation in terms of fluctuation in aluminum prices and all of that. But when all those things, those cost lines, RM, aluminum, et cetera, normalize, do you stand by what you had said 3 or 4 quarters back that this can be a 17%, 18% kind of EBITDA margin business?
I'll -- yes, I stand by. But before that, I'll clarify the first detail because you are not so audible. On the 9-month year-to-date figure, the aluminum revenue has been INR 543 crores, which has yielded an EBITDA of INR 76 crores. So as a percentage, if you look at it that way, 76 divided by 543. We are at 14% for the 9-month period. So this 14% will improve with the Q4, which is normally a good quarter overall. Yes, the scale is not sufficient, operating leverage also is not sufficient, so with better operating leverage I still stick to the statement of 18% EBITDA once we cross the INR 1,200 crore top line on aluminum product division.
The next question is from the line of Darshil from Sapphire Capital.
Yes. I think most of my questions have been answered. So I would just like to know if you could just share something more about your acquisition in terms of a synergy or something that is expected, that would be really helpful.
Again, on the broader technical and strategy point I will mention Today, our aluminum business in Craftsman this year will be approximately around INR 800 crores just for a ballpark number for you to understand. And in that ballpark number, it is predominantly 65% or something like that is coming from 2-wheeler business [indiscernible], balance is coming from some passenger vehicle, commercial vehicle and other industrial segment, everything put together is around 30-odd percent, which is coming. So approximately, again, I'm talking in the interest of time, not to give current numbers.
But the -- if you look at it, the next -- the process what we're using for now specifically coming to the auto aluminum. In auto aluminum, our 80% or 90% of our sales or revenue is coming from high-pressure die casting and the balance is coming from low-pressure die casting and gravity die casting. So we're predominantly there on the high-pressure die casting. Now the acquisition DR Axion doesn't have high-pressure die casting in India. Of course, they have it in the parent company. Strategically we may do that there also, but it is a joint statement which we need to come out in the future. The synergy is that 100% of the DR Axion is today gravity die casting, which is 80% of that and 20% is coming from low-pressure die casting, again, approximately.
So it -- and 100% of the products are going for passenger vehicle segment. So this gives a very good equilibrium and the half year sales has been INR 500 crores for this year. So hopefully, they do better and then next year, hopefully, they grow. Yes, and we are also growing here. So this gives exact synergy for attracting more customers and Craftsman need not invest further in gravity or low pressure in a big way.
And I just wanted to ask about our CapEx plan. So with a 60% capacity utilization, what level would it reach maybe next year or something that you are targeting so that -- sorry, I would like to reframe the question. So when -- at what kind of capacity utilization could we reach our previous EBITDA of 25% -- above 25%?
Please do not measure EBITDA as a percentage of the top line, again on the value addition only, because the product mix changes, the raw material costs, say, for example, the value addition of certain customers, key automotive customers where you're doing cylinder blocks, value addition is only 20%. So our EBITDA when we look at it maybe around 6% on the top line, but on the value addition, it may be 25% or 30%. So I think better we look at from the value-addition portion only. The second point of what I -- when you said about 60% capacity utilization that is on the aluminum segment what we talked about. On the auto powertrain, it's very obvious that we have grown significantly in this particular year.
And we are -- we cannot go beyond 80%, 85% because of the seasonality of some businesses. And the line balancing which has returned and customer peak demand, we have to meet the customer peak demand. So 80%, 85% is realistic. On a very, very good year, we may reach that level. But 75% to 80% is the nominal operation, which may happen. And there in auto powertrain, we are almost reaching that level very soon. So with the maintenance CapEx, which is almost equal to depreciation of INR 225 crores, INR 250 crores, the overall CapEx what we are saying is INR 350 crores is the actual CapEx will be INR 100 crores to INR 120 crores, again spread over all the 3 segments of the business, but mainly in auto powertrain.
The next question is from the line of T.S. Vijay Sarthy from Anand Rathi.
Just one question. So if I look at the value-addition figure that you have given on the percentage terms, I think sequentially, both powertrain and aluminum has maintained, but more so in aluminum space. Now if the inventory cost is not factored in, then there is some impact on EBIT margin, but is there any other impact other than the inventory cost?
I think operating leverage is the major portion.
Okay. So which means the EBIT margins for Q4 should move up for aluminum because the leverage will come.
Yes, yes, correct.
And I mean this is Q1 versus Q2, sir -- sorry for this. So powertrain business value addition has come down, percentage terms. What was it about, sir? Could you help me understand?
Q1 to Q2, on auto powertrain?
Yes, sir.
Yes. There is the product mix change, Mr. Vijay Sarthy.
So is it because we had higher with material business.
No, no. We had different customers with [indiscernible] who was taking more supply from us in that quarter.
So that is unlikely to change? Is the proportion changed for...
So quarter-to-quarter, we may not be able to predict. But on an annual basis, there cannot be much change from one year to another year. There will be a gradual shift because of the new orders coming in.
Okay. And the other thing which you talked about that some of the products that you sold without margin, is it relating to any development project?
There's capital goods items where it is not related to the auto powertrain nor to the aluminum product division. It is due to the machines what we manufacture that our customers buy. And then we also get to use those machines for their production. There, in the interest of the entire activity, we have foregone the margin and supply to them more or less at the marginal cost.
Is it related to development projects or is it a commercial -- proper commercial operation?
It is a capital goods sale to the customer where they give a purchase order and we supply the equipment to them. Yes, there is some strategic advantage because this equipment will get to be used by Craftsman itself during the life of the product.
This is unlikely to -- I mean this is likely to change in Q4 or how should we understand?
That volume or value is very less. It was bunched up in Q3, so it seems to be an aberration, especially with storage division not performing to the expected levels in Q3. So it looks lopsided, that's not going to continue. The division itself is not a very big division. So it is ...
The next question is from the line of Khush Nahar from Electrum PMS.
Yes. So my question is regarding the DR Axion acquisition. So basically, the cost structure would remain the same with respect to the employee cost and the gross profit margins?
You've seen the numbers from public domain for FY '22 or you're talking about something in -- for the first half of the current year, which is the number you are considering?
For FY '22.
FY '22 number?
Yes.
FY '22 number, the operating leverage was not there. The new products had gone into heavy CapEx in FY '21 and FY '22. So the operating margins has improved in H1, totally. So that is not representative, that was an impact -- it has impacted a year, I would say.
The next question is from the line of Mukesh Saraf from Spark Capital.
Firstly, in some of the comments relating to DR Axion, you had mentioned about some EV components. So just wanted to check, are these the inverter housings, et cetera, that we're talking about, sir? The aluminum casting.
Mr. Mukesh, I would first to clarify one thing. Today, in Korea -- South Korea, 30% of the passenger vehicle segment being made in -- manufactured in Korea are EV, currently. And today, the customers for DR Axion in Korea as well as India, they are #3 in the world as a passenger vehicle manufacturer as a whole after Toyota and Volkswagen, they are #3. This is for the last calendar year which is a published number. The most important factor is in North American market, they are #2, behind Tesla totally.
They are the highest-selling EV products and well-respected EV products. So ever if EV comes to India or to any other place, we stand -- our continuing shareholder in this case, where we have a strategic alliance, are making components for EV vehicles back in Korea. So it is -- I have not visited them yet. So we plan to visit them in February. So we are still at nascent stage. The demand is still not there. And even whatever EV product is going to be manufactured in India, maybe the products or the assemblies may come from different countries. I'm not sure where it's going to come from. So when it matures, we will have an opportunity to have the early bird advantage because the knowledge is already available with our...
Got it. Right, sir. Understood. And probably royalties, et cetera, might change based on these new products. But the current royalties that DR Axion is paying, does it include these EV products or is there like a product agreement there, sir? Or anything that you can share on that?
No, I cannot reveal beyond a certain point, but for the existing products, whatever we are doing, there is no royalty to be paid. For the new products, it is a different story.
Got it. Got it, sir. And just one last one is on the tax rate. We still see that you're on the full tax -- the earlier tax regime. So when are we moving to the new tax regime, sir?
We are at the crosswords now. It is -- the gas are narrowed down to a single-digit number in crores probably. So as we see it, most likely, we may move to the new tax regime. And we have to restate for the...
Okay. So 4Q itself it might happen into that?
Yes, fourth quarter it is likely to happen because it is narrowed down. And if we see a little advantage also, we will shift over.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Srinivasan Ravi for his closing comments.
Thank you very much for the engaging conversation, and thank you for all the confidence in the past few quarters, and we are going to a very good exciting next year, I would say. Fourth quarter is also -- will be reasonably okay. Yes, surely we will do good. But the point is we are poised for a better year next year. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Craftsman's Automation Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.