Goldman Sachs initiates coverage on Craftsman Automation with a Buy rating and a target price of Rs11,600

Overview

This report marks Goldman Sachs' initiation of coverage on Craftsman Automation (CRAF.BO). The report positions the company as a leading Indian manufacturer of engine blocks, engine castings, and lightweight aluminum components, and highlights how its acquisitions of DR Axion and Sunbeam Lightweighting Solutions have expanded its aluminum casting capabilities and reduced reliance on a single powertrain business. The core investment themes include demand for heavy-duty backup generator sets driven by AI data centers, higher aluminum content per vehicle from EV penetration, localized export opportunities as global automakers expand engine manufacturing in India, and operational improvement at Sunbeam.

Core views

Goldman Sachs' positive view is mainly based on four points. First, CRAF has secured heavy-duty high-horsepower engine block orders and stands to benefit from rising demand for large diesel generator sets in global AI data center backup power construction. Second, the company has strengths in aluminum castings and precision machining, while the EV transition is increasing aluminum content in vehicles. Third, global automakers such as Ford and Stellantis are localizing engine and platform component production in India, creating incremental orders for Indian engine block suppliers. Fourth, Sunbeam integration and the exit from low-margin businesses are expected to improve profitability and ROE. The report forecasts EPS growth of 32.0%/50.8%/33.5% for FY27E/FY28E/FY29E and believes the current forward P/E of 35x is below the roughly 44x valuation of large, high-margin casting and forging peers.

Analysis framework

The report uses a bottom-up fundamental analysis of the company, combining product capabilities, customer certifications, capacity, and industry demand to validate the investment thesis. For EV aluminum content, the report uses model-by-model comparisons to estimate the increase in aluminum usage in EVs relative to ICE vehicles. For the data center opportunity, it compiles signals on demand, capacity, and backlog from generator-set companies such as Caterpillar, Cummins, Rolls Royce (MTU), and Generac to assess supply bottlenecks in upstream engine blocks and crankshafts. For valuation, the report uses a 12-month P/E target price framework, supplemented by scenario analysis and peer valuation comparisons.

Methodology notes

• Valuation methods12-month P/E target price

  Derive the target price from earnings forecasts and a target price-to-earnings multiple

  The report gives a 12-month target price of Rs11,600, implying about 27.5% upside based on the current share price of Rs9,099.35.

• industry_demandModel-by-model aluminum content comparison

  Compare per-vehicle aluminum usage between EV and ICE models

  Using samples of Indian cars and two-wheelers, the report notes that comparable EVs contain more than 120% more aluminum than ICE vehicles, and electric two-wheelers contain about 36% more aluminum than ICE two-wheelers.

• supply_chainData center backup power supply chain bottleneck analysis

  Infer upstream component opportunities from generator-set demand, backlog, and engine supply constraints

  The report believes shortages in the large-engine supply chain are not only occurring at the final assembly stage, but are also concentrated in upstream components such as engines, engine blocks, and crankshafts.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Craftsman Automation (CRAF.BO)

  Covered company, assigned a Buy rating in the report

  Strengths

  It has high-precision machining, OEM certifications, strong customer stickiness in critical components, end-to-end capabilities from aluminum ingots to fully machined parts, and has already secured heavy-duty engine block orders.

  Weaknesses

  FY25 results were dragged down by Sunbeam's negative EBITDA, while leverage and free cash flow still need improvement.

  Comparison

  The report states that CRAF currently trades at about 35x forward P/E, below the roughly 44x valuation of large, high-margin casting and forging peers; versus local casting peers, CRAF has stronger machining capabilities.

  Risks

  Cancellation of HHP generator-set orders or export projects, a slowdown in domestic auto demand in India, aluminum cost inflation, and weaker-than-expected improvement at Sunbeam.

• Sunbeam Lightweighting Solutions

  A subsidiary acquired by CRAF in FY25 and the integration target for its aluminum lightweighting business

  Strengths

  It can free up capacity to take on new aluminum business and, if integration succeeds, help expand aluminum lightweighting opportunities.

  Weaknesses

  Its FY25 EBITDA margin was -6%, causing an approximately Rs730mn drag on CRAF's overall EBITDA.

  Comparison

  The goal is to gradually move closer to Craftsman's historical company-average EBITDA margin range of 15%-20%.

  Risks

  If optimization of legacy low-margin businesses and ramp-up of new business are slower than expected, it may continue to weigh on margins and ROE.

Key data

• 12-month target priceRs11,600Implies about 27.5% upside.
• Current priceRs9,099.35The report's price reference is the closing price on 2026-07-17.
• Market capitalizationRs238.0bn / $2.5bnDisclosed on the first page under Key Data.
• Enterprise valueRs253.9bn / $2.6bnDisclosed on the first page under Key Data.
• FY27E/FY28E/FY29E EPS growth32.0% / 50.8% / 33.5%From Goldman Sachs' forecast table.
• FY26E/FY27E/FY28E/FY29E EBITDARs12,375.9mn / Rs16,063.3mn / Rs19,599.9mn / Rs24,024.9mnGoldman Sachs expects EBITDA to continue growing.
• FY26E/FY27E/FY28E/FY29E EBITDA margin15.3% / 16.3% / 17.5% / 18.5%Margins are expected to improve year by year.
• Comparable EV vs. ICE aluminum contentabout 2.2x, up about 121%Based on a model-by-model analysis of aluminum content in Indian vehicles.
• Electric two-wheeler vs. ICE two-wheeler aluminum contentabout 36% higherIn the sample, median aluminum usage is 14kg for ICE two-wheelers and 19kg for electric two-wheelers.
• Data center generator-set demand50%-85% YoY growth signalsThe report cites information from Caterpillar, Cummins, Rolls Royce (MTU), Generac, and others.

Impact & implications

If the report's thesis plays out, CRAF will evolve from a traditional powertrain component supplier into a growth-oriented industrial components company with exposure to AI data center power infrastructure, automotive lightweighting, and India-based export manufacturing opportunities. From a valuation perspective, the market may reassess the scarcity value of its heavy-duty engine block and aluminum casting capabilities. Operationally, HHP orders, progress at Kothavadi capacity, Sunbeam's loss reduction, and lower aluminum prices will directly affect the pace of earnings upgrades.

Risks

• Cancellation of HHP generator-set orders or export projects.
• A slowdown in domestic auto demand in India.
• Aluminum cost inflation compressing margins.
• Sunbeam's turnaround and business optimization progressing more slowly than expected.
• A slowdown in data center backup power demand or easing bottlenecks in the large-engine supply chain, reducing CRAF's pricing power and order opportunities.
• The rollout progress or scale of India localization projects by Ford, Stellantis, and others may fall short of expectations.

What to watch

• New HHP engine block orders and progress with export customers.
• Construction and commissioning progress at the Kothavadi plant.
• Margin improvement, capacity release, and the exit from low-margin businesses at Sunbeam Lightweighting Solutions.
• Aluminum price trends and their impact on gross margin and EBITDA margin.
• Data center orders, backlog, and capacity expansion pace at large generator-set companies such as Caterpillar, Cummins, Rolls Royce (MTU), and Generac.
• The launch pace of EV models in India and changes in EV penetration in two-wheelers.
• India manufacturing plans related to Ford's Chennai engine project, the Stellantis-Tata JV, and Jeep global export models.