Craftsman seeks 6%-20% price resets on legacy contracts

Craftsman Automation Limited said legacy contracts may require price resets of 6%-7% to 15%-20% as manpower, energy and other costs have risen. Management said the revisions apply to gross-margin value addition rather than the full sales value, while aluminium-related customer discussions are expected to play out over the next two quarters.

Why is Craftsman seeking price resets on legacy contracts?

Craftsman is seeking resets because some older contract prices no longer cover increased manpower, energy and associated costs. On its 29 October 2026 earnings call, Chairman and Managing Director Srinivasan Ravi said the company was discussing price rationalisation across customers and product lines, with particular focus on legacy products.

The need is greater where volumes of legacy products have contracted. Ravi said lower volumes can turn an older contract into a drag, requiring a larger reset, while orders placed in the last few quarters may not warrant an increase because their prices were set more recently.

Craftsman also said new projects cannot be undertaken at historical prices because capital-goods costs have steadily increased. Management said it had completed much of its capital expenditure before the sharper rise in capital-goods costs, but long project gestation and global equipment-supply bottlenecks now affect capacity additions.

How large are Craftsman’s requested price increases?

Craftsman said requested revisions range from 6%-7% to 15%-20%, depending on the customer, product, commodity exposure and timing of the original order. Management distinguished between contracts affected mainly by manpower, power and routine inflation, and older contracts where reduced volume also requires a broader revision.

The 6%-20% range applies to the gross-margin or value-addition portion, rather than the full value of sales. Ravi said the effect on an original equipment manufacturer’s top line may therefore be lower than the percentage range suggests, and did not quantify a group-wide revenue effect because commodity-linked content differs by contract.

Craftsman did not disclose what share of sales comes from legacy products or how much of the requested pricing has been accepted. The range is therefore a framework for negotiations rather than a uniform price increase across the company’s revenue base.

What is affecting Craftsman’s aluminium margins?

Craftsman said aluminium margins faced a temporary correction after it built inventory during raw-material scarcity and rising prices, before prices fell suddenly. Management said the additional material was ordered to protect customer product lines amid uncertainty over supply and the Middle East crisis.

Some aluminium customer settlements remain under discussion and cannot be recognised until agreements are reached. Ravi said Craftsman was negotiating either price increases or compensation for the aluminium price correction, and that most customers were open to discussions; management expects benefits from those talks over the next two quarters.

New aluminium capacity is also carrying start-up costs and working-capital requirements. DR Axion Plant-2 had started trial production by 29 October 2026, and management said operating leverage at new plants would require another two quarters to reach a more profitable position, unlike mature plants that already benefit from scale.

Can Craftsman’s growth offset the margin pressure?

Craftsman said year-on-year growth should continue for the next two to three quarters, supported by earlier investments, product approvals and plants coming on stream. An analyst said first-half gross profit grew about 30% year on year and second-quarter growth was in a similar range; management said energy and aluminium were the principal recent headwinds.

Powertrain growth is expected to continue overall, although management expects tractor activity to contract over the next two quarters. In aluminium, management said the order-win pipeline is long, but new plants are operating below optimum utilisation and are temporarily reducing the benefit from the added capacity.

Management said it is becoming more selective on customers and products, assessing lifecycle and profitability as its manufacturing base expands. Craftsman said its larger scale improves its ability to pursue larger customers and products for Indian and export markets, but it did not provide a company-wide margin target from that strategy.

What does Sunbeam show about Craftsman’s pricing approach?

Craftsman’s Sunbeam business shows that management may exit work rather than seek a reset where economics cannot be improved. Ravi said certain low-margin products would leave over the next couple of months after customers requested support through the festive season, while exits from some smaller customers were mostly complete.

Management said Sunbeam revenue may decline after these product exits, but absolute margins should improve because some work was negative at the earnings before interest, tax, depreciation and amortisation level. Ravi said there was no point in attempting to reset prices on such products, unlike the 6%-20% negotiations on other legacy contracts.

Craftsman expects the third and fourth quarters to look better for Sunbeam and said new orders from new customers could emerge in the next financial year. Those are management expectations, and the company did not disclose a Sunbeam revenue or margin target for the transition.

Conclusion

Craftsman has put a 6%-20% range around the price changes it says are needed to restore the economics of older contracts. The company separates those negotiations from commodity pass-through, while aluminium inventory effects, unsettled customer claims and suboptimal new-plant utilisation have affected recent margins.

The next developments are the aluminium price and compensation discussions management expects to progress over the next two quarters, as well as the ramp-up of DR Axion Plant-2 and other facilities. Management also expects tractor contraction over the next two quarters and plans to complete Sunbeam’s exit from certain negative-EBITDA products over the next couple of months.