Craftsman Automation Caps German Outlay, Rejects Big Deals

Craftsman Automation said a proposed German machine shop could require only Rs 20-30 crore for a couple of machines, supporting its existing foundry rather than creating a major overseas platform. Craftsman said its German subsidiary generates almost 4% of revenue, while its overseas investment gross net block is about 2%-3%.

Why is Craftsman setting up a German machine shop?

Craftsman is considering the machine shop to support its German foundry and reduce delays created by outsourced machining. Management said the German structure has a holding company, a real-estate company and a foundry, with the foundry currently its only manufacturing business there.

The proposed facility would process incremental machining requirements internally while Craftsman continues to use local German machine shops for other work. Management said this could reduce working-capital intensity because outsourcing currently creates a delay between foundry output and machining completion.

Craftsman described the proposal as optional and said it has not decided the final investment amount. The planned activity is tied to existing large-engine-family products supplied by the foundry, rather than entry into a new overseas manufacturing segment.

How much will Craftsman invest in German machining?

Craftsman said the possible German machine-shop investment is Rs 20-30 crore for a couple of machines. Management said this amount would be a very small percentage of the Rs 100-130 crore already invested in the German subsidiary.

The company did not commit to a final outlay or timetable for the machines. Management said there would be no major foreign-subsidiary capital expenditure, characterising the possible machining spend as a small strategic addition to the foundry operation.

The contrast is substantial: the upper end of the possible Rs 20-30 crore machine-shop outlay is below the lower end of the Rs 100-130 crore management said has already been invested in Germany. Management also said the incremental facility would not be capital intensive because it would be limited to a small number of machines.

Why is Craftsman avoiding large overseas investments?

Craftsman said it is not a fan of investing outside India in a big way because management understands the risks associated with overseas operations. It described the German machining proposal as strategic and limited, intended to help the foundry serve customers rather than establish a broad foreign manufacturing footprint.

Management said it has been averse to overseas acquisitions for many decades. Its view is that businesses available for acquisition can have limited remaining life cycles, while good companies in Europe are likely to merge with larger regional groups.

Craftsman said it could consider an overseas acquisition only where there is a technological advantage or where the target is very small compared with the parent business. That qualification means management has not ruled out every foreign transaction, but it has set a narrow test for one.

How important is the German business to Craftsman?

Craftsman said its German subsidiary contributes almost 4% of group top line, making it a limited contributor to revenue. Management also said the gross net block of the German investment may be about 2%-3%, indicating that the foreign asset base remains small relative to the wider business.

The German foundry supplies large-engine-family products and, according to management, has reported revenue growth with decent profitability. Management said power, raw-material and labour costs are indexed with customers, and described the business as steady and profitable.

The possible machine shop would therefore deepen the operating link around an existing foundry rather than change the scale of Craftsman's overseas exposure. Its role is to absorb incremental machining work, while the company retains external suppliers for other German machining requirements.

What does Craftsman's wider capital plan prioritise?

Craftsman's stated capital programme is centred on Indian powertrain, aluminium casting and machining capacity. Management said it had undertaken significant capital expenditure in the first half, added lines and plants, acquired land and built infrastructure intended to support expansion over the next three to five years.

For Q3, management guided to consolidated capital expenditure of Rs 500-600 crore. It said Q4 capital expenditure might be limited because some longer-term projects will be phased into subsequent years, after greenfield facilities were established across India in powertrain and aluminium segments.

That domestic Q3 spending range is far above the possible Rs 20-30 crore German machine-shop outlay. Management said the infrastructure already installed for the foundry and basic machine shop would make a later phase of high-engine capacity less capital intensive.

Craftsman has said it is targeting 15% compound annual growth in real terms, while management expects the stationary-engine programme to reach a US$100 million run rate by Q3 or Q4 of FY'30. The German machine shop is not presented as a separate growth engine; it is intended to improve execution and working-capital management for the existing foundry.

Conclusion

Craftsman's capital-allocation stance is that Germany will remain a focused support operation rather than a major destination for investment or acquisitions. The possible Rs 20-30 crore machining facility is small beside the Rs 100-130 crore already invested in the German subsidiary, whose revenue contribution is almost 4% of group top line.

The next point to watch is whether Craftsman approves the optional German machine shop and discloses its final investment size. Management has also guided to Rs 500-600 crore of consolidated capital expenditure in Q3, while indicating that Q4 spending may moderate as longer-term Indian projects move into later phases.