The stock, trading at ₹6,764 as of November 07, 2025, has delivered a stellar 34.55% return over the past year, significantly outperforming the Sensex's 4.62% gain by a margin of 29.93 percentage points. However, beneath the headline growth numbers lie emerging concerns about margin sustainability and rising interest costs that warrant careful investor scrutiny.
The September quarter results underscore Craftsman's ability to capitalise on robust automotive demand, with the company achieving its highest-ever quarterly revenue. The sequential revenue growth of 12.20% from Q1 FY26's ₹1,784 crores reflects strong order book execution across its diversified product portfolio. However, the quarter also witnessed a concerning escalation in interest costs, which surged to ₹77.01 crores—the highest level recorded in recent quarters—raising questions about the sustainability of profitability expansion in a rising debt environment.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Op. Margin (%) | PAT Margin (%) |
|---|---|---|---|---|---|---|
| Sep'25 | 2,001.59 | +12.20% | 90.86 | +30.55% | 15.08% | 4.54% |
| Jun'25 | 1,784.00 | +1.99% | 69.60 | +4.25% | 14.85% | 3.90% |
| Mar'25 | 1,749.25 | +10.99% | 66.76 | +416.32% | 13.93% | 3.82% |
| Dec'24 | 1,576.09 | +29.83% | 12.93 | -79.04% | 12.62% | 0.82% |
| Sep'24 | 1,213.95 | +5.45% | 61.69 | +15.98% | 15.88% | 5.08% |
| Jun'24 | 1,151.19 | +4.15% | 53.19 | -14.66% | 17.14% | 5.17% |
| Mar'24 | 1,105.34 | — | 62.33 | — | 18.72% | 6.38% |
Financial Performance: Growth Trajectory Intact Despite Margin Headwinds
Craftsman Automation's Q2 FY26 financial performance presents a nuanced picture of robust top-line expansion tempered by margin pressures. Net sales of ₹2,001.59 crores represented a significant 64.88% year-on-year increase, driven by strong demand across the company's automotive components portfolio and successful ramp-up of new business wins. On a sequential basis, the 12.20% quarter-on-quarter growth demonstrates sustained momentum in order execution.
Operating profit before depreciation, interest, and tax (excluding other income) reached ₹301.90 crores in Q2 FY26, marking the highest level in the company's recent history. However, the operating margin of 15.08% remains significantly below the 18.72% achieved in March 2024, reflecting ongoing challenges in cost management. The sequential improvement of 23 basis points from Q1 FY26's 14.85% offers some comfort, but the year-on-year compression of 280 basis points warrants attention.
Net profit after tax stood at ₹90.86 crores, delivering a PAT margin of 4.54%—a marked improvement from Q1 FY26's 3.90% but still substantially below the 6.38% margin recorded in March 2024. The margin erosion stems primarily from elevated interest costs, which surged to ₹77.01 crores in Q2 FY26 compared to ₹41.32 crores in the year-ago quarter, representing an 86.38% year-on-year increase. This escalation reflects the company's aggressive capital expenditure programme to support growth, which has pushed long-term debt to ₹1,651.86 crores as of March 2025.
On a half-yearly basis (H1 FY26), Craftsman Automation generated consolidated revenues of ₹3,785.59 crores with a combined net profit of ₹160.46 crores. This translates to an average PAT margin of 4.24% for the first half, significantly below the full-year FY25 margin of 3.50%, indicating some improvement but still highlighting the margin compression challenge facing the business.
Operational Dynamics: Capital Efficiency Under Pressure
Beneath the headline growth numbers, Craftsman Automation's operational metrics reveal a business in transition, balancing aggressive expansion with capital efficiency challenges. The company's Return on Equity (ROE) of 13.63% on an average basis demonstrates reasonable capital efficiency, though this has declined from higher levels in previous periods. The latest ROE of 7.36% reflects the impact of recent equity dilution through a preferential allotment that expanded the equity capital base to ₹11.93 crores from ₹10.56 crores.
Return on Capital Employed (ROCE) presents a more concerning picture. The average ROCE of 15.47% indicates moderate returns on deployed capital, but the latest ROCE has slumped to just 9.54%—well below the cost of capital and significantly trailing the company's historical performance. This deterioration stems from the substantial capital investments made to support growth, with fixed assets ballooning to ₹3,285.13 crores as of March 2025 from ₹2,327.75 crores a year earlier—a 41.14% increase.
The company's leverage profile has intensified considerably. Long-term debt surged to ₹1,651.86 crores in FY25 from ₹1,124.84 crores in FY24, pushing the debt-to-EBITDA ratio to approximately 2.01 times. With interest coverage (EBIT to Interest) averaging just 3.29 times, the company operates with limited cushion to absorb further interest rate increases or operational setbacks. The net debt-to-equity ratio of 0.78 times remains within manageable bounds but has been steadily climbing.
⚠️ Capital Efficiency Alert
Declining Returns Signal Margin Pressure: ROCE has deteriorated sharply to 9.54% from an average of 15.47%, whilst ROE has compressed to 7.36%. The combination of aggressive debt-funded expansion and margin compression raises concerns about the sustainability of returns for shareholders. With interest costs at record highs of ₹77.01 crores in Q2 FY26, the company must demonstrate margin recovery to justify its elevated valuation multiples.
Working capital management presents another area requiring attention. Trade payables increased substantially to ₹1,334.33 crores in FY25 from ₹800.64 crores in FY24, whilst current assets grew to ₹2,548.93 crores from ₹1,782.98 crores. The cash flow from operations of ₹283 crores in FY25 fell short of the ₹513 crores generated in FY24, reflecting the working capital intensity of the business during this growth phase.
Industry Context: Riding the Automotive Capex Wave
Craftsman Automation operates in the highly competitive Auto Components & Equipments sector, which has experienced significant volatility over the past year. The broader sector delivered a negative return of -12.84% over the past 12 months, making Craftsman's 34.55% gain particularly noteworthy. This outperformance of 47.39 percentage points versus the sector benchmark reflects the company's success in securing new business wins and expanding its addressable market.
The Indian automotive components industry is undergoing a structural transformation driven by electric vehicle adoption, increasing localisation by global OEMs, and the shift towards higher value-added products. Craftsman is well-positioned to capitalise on these trends through its diversified capabilities spanning powertrain components, aluminium die-casting, and precision machining. The company's vertically integrated manufacturing setup, with over 1.5 million square feet of built-up area, provides competitive advantages in cost and quality control.
However, the industry faces headwinds from raw material price volatility, particularly aluminium and steel, which have compressed margins across the sector. Additionally, the transition to electric vehicles poses both opportunities and risks—whilst creating demand for new components, it also threatens to disrupt traditional powertrain component manufacturers. Craftsman's ability to pivot its product mix towards EV-compatible components will be crucial for sustaining growth beyond the medium term.
Market Positioning Advantage
Craftsman Automation's diversified customer base across passenger vehicles, commercial vehicles, and off-highway segments provides natural hedging against sector-specific downturns. The company's contract manufacturing capabilities position it favourably to capture outsourcing trends from global OEMs seeking to reduce capital intensity. With institutional holdings at 39.81%, the company enjoys strong backing from sophisticated investors who recognise its long-term growth potential despite near-term margin pressures.
Peer Comparison: Premium Valuation Demands Scrutiny
Craftsman Automation's valuation metrics stand out significantly when benchmarked against industry peers, commanding premium multiples that reflect market expectations of sustained growth and margin recovery. The company's Price-to-Earnings ratio of 69.35 times trailing twelve-month earnings substantially exceeds the sector median, positioning it amongst the most expensive stocks in the auto components space.
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Craftsman Auto | 69.35 | 5.65 | 13.63 | 0.07 | 0.78 |
| Gabriel India | 71.31 | 15.03 | 20.70 | 0.24 | -0.01 |
| ZF Commercial | 49.95 | 0.71 | 10.12 | 0.15 | -0.55 |
| Sundram Fasteners | 35.50 | 0.49 | 13.82 | 1.17 | 0.15 |
| Amara Raja Energy | 24.62 | 2.42 | 12.85 | 1.07 | -0.03 |
| CIE Automotive | 20.35 | 2.36 | 10.77 | 1.63 | -0.04 |
The Price-to-Book ratio of 5.65 times reflects market confidence in the company's ability to generate returns well above its cost of capital over time. However, this premium appears increasingly stretched when juxtaposed against the current ROE of 7.36%, which suggests the company is destroying value at current return levels. The peer group average P/BV of approximately 4.2 times indicates Craftsman trades at a 34% premium to comparables.
Craftsman's ROE of 13.63% on an average basis positions it in the middle of the peer pack, lagging Gabriel India's impressive 20.70% but ahead of ZF Commercial's 10.12%. However, the elevated debt levels distinguish Craftsman from peers like Gabriel India and CIE Automotive, which operate with negative net debt positions. This leverage amplifies both upside potential and downside risk for equity holders.
The dividend yield of merely 0.07% ranks amongst the lowest in the peer group, with the company retaining most earnings to fund its capital-intensive expansion. The payout ratio of 7.80% confirms management's prioritisation of growth investments over shareholder distributions. For income-seeking investors, peers like CIE Automotive (1.63% yield) or Sundram Fasteners (1.17% yield) offer more attractive alternatives.
Valuation Analysis: Expensive Entry Point Despite Growth Credentials
Craftsman Automation's current valuation metrics paint a picture of a richly priced stock that has run ahead of fundamental improvements. Trading at ₹6,764 with a market capitalisation of ₹15,912 crores, the stock commands a P/E multiple of 69.35 times—more than double the industry average of 31 times. This premium valuation reflects market expectations of sustained earnings growth and margin recovery, but leaves little room for disappointment.
The EV/EBITDA multiple of 20.40 times and EV/EBIT of 35.06 times further underscore the expensive nature of the current valuation. Historical analysis reveals that the stock's valuation grade has oscillated between "Expensive" and "Fair" over recent months, with the current "Expensive" designation in place since September 30, 2025. The 52-week trading range of ₹3,700 to ₹7,324.95 demonstrates significant volatility, with the current price sitting 7.66% below the recent peak.
On a price-to-book basis, the 5.65 times multiple implies the market values the company's assets at a substantial premium to their accounting value. Whilst this can be justified for businesses generating high returns on capital, Craftsman's current ROCE of 9.54% and ROE of 7.36% fall short of levels that would typically support such premium valuations. The disconnect between valuation multiples and return metrics suggests the market is pricing in significant operational improvements that have yet to materialise.
Based on a discounted cash flow analysis incorporating the company's growth trajectory, margin profile, and capital intensity, a fair value estimate of approximately ₹5,800-6,000 appears reasonable. This implies the stock is trading 13-17% above its intrinsic value at current levels. For the valuation to be justified, Craftsman would need to demonstrate sustained margin expansion back towards historical levels whilst maintaining robust revenue growth—a challenging combination given the current interest cost burden and competitive dynamics.
Shareholding Pattern: Institutional Confidence Remains Steady
The shareholding structure of Craftsman Automation reflects a balanced mix of promoter control and institutional participation, with notable stability across recent quarters. Promoter holding has remained constant at 48.70% over the past five quarters, demonstrating strong alignment between founding shareholders and the long-term vision of the business. The absence of any pledged shares further reinforces promoter confidence and financial stability.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 48.70% | 48.70% | 48.70% | 48.70% | 0.00% |
| FII | 15.44% | 15.83% | 15.64% | 17.00% | -0.39% |
| Mutual Funds | 17.72% | 17.04% | 17.36% | 16.07% | +0.68% |
| Insurance | 1.94% | 0.98% | 0.90% | 0.54% | +0.96% |
| Other DII | 4.71% | 4.65% | 4.46% | 4.39% | +0.06% |
| Non-Institutional | 11.48% | 12.80% | 12.95% | 13.30% | -1.32% |
Foreign Institutional Investors (FIIs) hold 15.44% of the equity, showing a marginal decline of 0.39% quarter-on-quarter. This modest reduction follows a more significant decrease from 17.00% in December 2024, suggesting some profit-booking by global investors following the stock's strong run. However, the presence of 154 FII accounts indicates broad-based international interest rather than concentrated holdings.
Domestic Mutual Funds have increased their stake to 17.72% in September 2025 from 17.04% in the previous quarter, representing a vote of confidence from domestic institutional investors. The presence of 27 mutual fund schemes holding positions demonstrates diversified institutional support. Insurance companies have notably doubled their holdings to 1.94% from 0.98%, signalling growing interest from long-term institutional capital.
The sequential decline in non-institutional holdings from 12.80% to 11.48% suggests retail investors may be taking profits at elevated valuations. This rotation from retail to institutional hands typically indicates maturing investor interest, though it can also signal valuation concerns amongst price-sensitive individual investors. Overall institutional holdings of 39.81% provide a stable shareholder base that should support stock price stability.
Stock Performance: Stellar Returns Amidst Sector Weakness
Craftsman Automation's stock price performance over the past year stands in stark contrast to broader auto components sector weakness, delivering exceptional returns that have significantly rewarded patient investors. Trading at ₹6,764 as of November 07, 2025, the stock has generated a one-year return of 34.55%, vastly outperforming the Sensex's 4.62% gain and the auto components sector's negative return of -12.84%.
| Period | Stock Return | Sensex Return | Alpha | Sector Return |
|---|---|---|---|---|
| 1 Week | 1.47% | -0.86% | +2.33% | — |
| 1 Month | 1.20% | 1.57% | -0.37% | — |
| 3 Months | 4.71% | 3.22% | +1.49% | — |
| 6 Months | 46.09% | 3.06% | +43.03% | — |
| YTD | 26.59% | 6.50% | +20.09% | — |
| 1 Year | 34.55% | 4.62% | +29.93% | -12.84% |
| 2 Years | 38.48% | 28.14% | +10.34% | — |
| 3 Years | 108.77% | 36.01% | +72.76% | — |
The six-month return of 46.09% represents the stock's strongest performance period, generating positive alpha of 43.03 percentage points versus the Sensex. This surge coincided with improving quarterly results and growing investor recognition of the company's market position. The stock's ability to outperform its sector by 47.39 percentage points over one year highlights its status as a relative strength leader within auto components.
From a technical perspective, the stock currently trades above all key moving averages—5-day (₹6,755), 20-day (₹6,620), 50-day (₹6,727), 100-day (₹6,448), and 200-day (₹5,605)—signalling strong underlying momentum. The technical trend classification of "Bullish" since November 04, 2025, supports the continuation of positive price action in the near term, though the stock's recent consolidation near ₹6,800 levels suggests some profit-taking after the sharp rally.
The risk-adjusted returns profile reveals important considerations for potential investors. With a beta of 1.35, Craftsman exhibits higher volatility than the broader market, amplifying both gains and losses. The stock's volatility of 39.44% substantially exceeds the Sensex's 12.35%, placing it in the "High Risk High Return" category. The positive Sharpe ratio indicates returns have compensated investors for the elevated risk, but future volatility should be expected.
"Whilst Craftsman's stock has delivered exceptional returns, the combination of expensive valuation, elevated leverage, and margin compression creates a risk-reward profile that favours caution for fresh investors at current levels."
Investment Thesis: Quality Growth Story Meets Valuation Concerns
Craftsman Automation presents a complex investment case where robust fundamental growth collides with stretched valuations and operational challenges. The company's proprietary investment score of 78 out of 100 places it firmly in "BUY" territory, reflecting recognition of its strong market position, growth trajectory, and quality fundamentals. However, this rating demands careful contextualisation given the multiple headwinds facing the business.
The positive assessment rests on several pillars. First, the company's 5-year sales growth of 36.30% demonstrates sustained ability to capture market share and expand its addressable market. Second, the ROCE of 15.47% on an average basis—whilst declining—still indicates reasonable capital efficiency relative to industry standards. Third, institutional holdings of 39.81% provide validation from sophisticated investors with deep research capabilities. Fourth, the absence of promoter pledging eliminates a key governance risk that plagues many mid-cap companies.
The quarterly financial trend classification of "Positive" and technical trend of "Bullish" provide additional support for the constructive view. The company achieved record quarterly revenues and profits in Q2 FY26, demonstrating execution capabilities despite challenging industry conditions. The expanding institutional shareholding, particularly the doubling of insurance company stakes, signals growing confidence amongst long-term capital allocators.
However, significant concerns temper enthusiasm. The "Expensive" valuation grade represents the most immediate red flag. At 69.35 times trailing earnings, the stock prices in perfection, leaving minimal margin of safety for operational missteps or industry headwinds. The deterioration in ROCE to 9.54% and ROE to 7.36% in the latest period raises questions about whether the company can justify premium multiples through superior returns.
The debt burden presents another material risk. With interest costs reaching ₹77.01 crores in Q2 FY26—representing 61.49% of profit before tax—the company operates with limited cushion for margin volatility. The debt-to-EBITDA ratio of 2.01 times and interest coverage of 3.29 times provide adequate but not comfortable buffers. Any further margin compression or revenue disappointment could quickly pressure financial flexibility.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Robust Revenue Growth: 64.88% YoY sales expansion in Q2 FY26 demonstrates strong market position and order book execution capabilities
- Diversified Portfolio: Vertically integrated operations across powertrain, die-casting, and machining provide natural hedging and cross-selling opportunities
- Institutional Backing: 39.81% institutional holdings with 27 mutual funds and 154 FII accounts signal sophisticated investor confidence
- Market Leadership: Stock outperformance of 47.39% versus auto components sector over one year reflects competitive positioning strength
- Clean Governance: Zero promoter pledging and stable 48.70% promoter holding demonstrate strong alignment and financial stability
- Growth Track Record: 5-year sales CAGR of 36.30% establishes credibility in capturing emerging opportunities
- Positive Momentum: Record quarterly revenues and profits with sequential margin improvement indicate operational trajectory
⚠ KEY CONCERNS
- Margin Compression: Operating margin declined to 15.08% from 18.72% YoY; PAT margin down to 4.54% from 6.38%
- Elevated Debt Burden: Interest costs surged 86.38% YoY to ₹77.01 crores, consuming 61.49% of PBT
- Deteriorating Returns: ROCE plunged to 9.54% from 15.47% average; ROE compressed to 7.36% from 13.63% average
- Expensive Valuation: P/E of 69.35x (vs industry 31x) and P/BV of 5.65x leave minimal margin of safety
- High Leverage: Debt-to-EBITDA of 2.01x and interest coverage of 3.29x provide limited cushion for volatility
- Working Capital Intensity: Cash from operations declined to ₹283 crores from ₹513 crores YoY reflecting capital demands
- Sector Headwinds: Auto components sector delivered -12.84% returns; EV transition poses disruption risks to traditional products
Outlook: What to Monitor Going Forward
POSITIVE CATALYSTS
- Margin Recovery: Sequential improvement in operating margins from 14.85% to 15.08% suggests stabilisation; further gains towards 17-18% would significantly enhance profitability
- Debt Reduction: Any deleveraging initiatives or cash flow improvement that reduces interest burden would unlock substantial earnings upside
- New Business Wins: Contract manufacturing opportunities from global OEMs seeking to localise production could drive next growth phase
- EV Component Ramp: Success in pivoting product portfolio towards electric vehicle components would secure long-term relevance
- Capacity Utilisation: Improved utilisation of recently commissioned capacity could drive operating leverage and margin expansion
RED FLAGS TO WATCH
- Further Margin Erosion: Any decline below 15% operating margin would signal structural profitability challenges requiring attention
- Interest Cost Escalation: Rising interest rates or additional borrowing that pushes interest above ₹80 crores quarterly would pressure earnings
- Working Capital Deterioration: Negative operating cash flow or rising debtor days would indicate execution challenges
- Institutional Selling: Sustained FII or mutual fund stake reduction would signal waning confidence in the growth story
- Revenue Growth Deceleration: QoQ revenue decline or YoY growth below 30% would raise questions about order book sustainability
The forward outlook for Craftsman Automation hinges critically on management's ability to deliver margin recovery whilst sustaining revenue momentum. The company must demonstrate that recent capacity investments can generate returns exceeding the cost of capital, thereby justifying the premium valuation multiples. Success in securing large contract manufacturing deals from global OEMs would provide visibility on medium-term growth and potentially command valuation re-rating.
The transition towards electric vehicles represents both the largest opportunity and risk facing the business. Craftsman's ability to develop and commercialise components for EV powertrains, battery systems, and electric drivetrains will determine its relevance beyond the current internal combustion engine cycle. Management commentary on EV-related revenue contribution and order pipeline will be critical monitoring points in coming quarters.
From a financial perspective, investors should closely track the trajectory of interest costs and debt levels. Any signs of deleveraging through strong operating cash flow generation would significantly enhance the investment case. Conversely, additional debt raises to fund further expansion would raise concerns about capital discipline and return expectations. The company's ability to generate positive free cash flow whilst maintaining growth will be the ultimate test of business quality.
The Verdict: Quality Business, Expensive Entry Point
Score: 78/100
For Fresh Investors: Exercise patience and wait for better entry points. Whilst Craftsman Automation possesses strong fundamental qualities and growth potential, the current valuation of 69.35x earnings prices in perfection. Consider initiating positions on any meaningful correction towards ₹5,800-6,000 levels, which would provide a more reasonable risk-reward balance. Investors with high risk tolerance and long-term horizons (3+ years) may consider small positions at current levels.
For Existing Holders: Maintain holdings but resist the temptation to add at current valuations. The stock has delivered exceptional returns, and the fundamental growth story remains intact. However, the expensive valuation and margin pressures warrant a cautious stance. Consider booking partial profits if the stock approaches ₹7,200-7,300 levels, whilst retaining core holdings for the long-term growth opportunity.
Fair Value Estimate: ₹5,900 (13% downside from current levels)
Rationale: Craftsman Automation represents a quality business with strong growth credentials, evidenced by 36.30% sales CAGR and expanding market share. However, the combination of expensive valuation (69.35x P/E), deteriorating returns (ROCE at 9.54%), elevated leverage, and margin compression creates a risk-reward profile that favours caution. The BUY rating reflects long-term potential, but fresh investors should await more attractive entry points for optimal outcomes.
Note: ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results. Stock prices can be volatile and may decline, resulting in loss of principal. The views expressed are based on information available as of the publication date and may change without notice.
