Craftsman Automation to exit loss-making Sunbeam contracts

Craftsman Automation plans to withdraw Sunbeam products that are negative at the earnings before interest, tax, depreciation and amortisation (EBITDA) level after supporting customers through the festive season. Management said smaller-customer exits are mostly complete and larger accounts are being handed over, so revenue may fall but absolute margins should rise.

Why is Craftsman leaving Sunbeam business?

Craftsman is leaving the relevant Sunbeam work because some contracts generate negative EBITDA and management does not see value in attempting to reset their prices. In response to an analyst’s question on Sunbeam, management said the company had decided to give up low-margin revenue, with certain contracts negative at the EBITDA level. It said continuing to supply those products would not serve the profit and loss account.

The decision is specifically about profitability rather than preserving reported sales. Management said Craftsman’s top line may reduce once the contracts end, but its absolute margins will improve as loss-making products leave the mix. It described the expected profit and loss outcome as “very healthy,” while not providing a numerical Sunbeam revenue base, margin target or estimated profit improvement.

When will Craftsman exit the Sunbeam contracts?

Craftsman expects the remaining products to go away in the next couple of months after the festive-season support requested by customers. Management said customers had asked the company to continue supply through the festive season, and Craftsman had done so. The process therefore follows customer transition needs rather than an immediate halt in production.

The exit is at different stages for different accounts. Management said withdrawal from certain smaller customers is mostly complete, while larger customers are being hand-held during the transfer process as they develop alternatives or make other arrangements. The remaining transition process therefore includes larger accounts rather than the smaller-customer portfolio already largely exited.

How will the Sunbeam exit affect Craftsman’s revenue and margins?

Craftsman has explicitly said Sunbeam revenue may decline, while absolute margins should improve because EBITDA-negative work will no longer be carried. This is a direct trade-off between sales volume and profitability: management is accepting a lower top line rather than retaining contracts that lose money at the EBITDA level. It did not quantify either the prospective sales reduction or the expected margin increase.

The company’s approach differs from its treatment of some other contracts where commercial corrections may be possible. On legacy products elsewhere in the group, management said required price increases can range from 6%-7% to 15%-20% of gross margin or value addition, depending on the commodity, product and order timing. For the Sunbeam contracts, however, it said there was no point in trying to reset prices, making an exit its stated solution.

The distinction matters because a price increase protects profitability while retaining revenue, whereas an exit removes both revenue and related losses. Craftsman’s management did not say that all low-margin Sunbeam work is loss-making, nor did it give the early-teens or mid-teens margin timetable raised by the analyst. Its disclosed position was narrower: contracts that are negative on EBITDA will be removed after the customer handover.

What other factors are affecting Craftsman’s profitability?

Craftsman said the Sunbeam actions come alongside temporary margin pressures in its aluminium operations and start-up costs at newer plants. Management said aluminium pricing discussions with customers were still under way, preventing it from booking certain corrections. It identified a one-time aluminium impact in the second quarter, expected that effect to be very marginal in the third quarter, and said there should be no such effect in the fourth quarter.

New powertrain and aluminium facilities are also operating below optimal levels while working capital is deployed and production ramps. Management said operating leverage at those newer plants would take another two quarters to reach a more profitable situation, whereas mature plants already benefit from operating leverage. It added that a substantial part of future margin recovery depends on price corrections across original equipment manufacturers, or OEMs.

The company’s aluminium exposure also illustrates the difference between passing through material costs and earning margin on value addition. Management said it had ordered additional aluminium amid supply concerns and the Middle East crisis to protect customer product lines, but was affected when prices later fell. It said the decision produced a second-quarter impact, rather than a longer-term issue, and that aluminium price changes themselves do not generate margin for Craftsman.

What is Craftsman’s capital plan while it restructures Sunbeam?

Craftsman is moderating near-term capital expenditure after a first-half expansion phase, while maintaining its broader manufacturing build-out. Management said consolidated capital expenditure in the third quarter would be Rs 500 crore to Rs 600 crore, but it might not spend much in the fourth quarter because longer-term projects will be phased into subsequent years. The analyst had cited capital expenditure of about Rs 1,100 crore in the first half.

Management said the group has established greenfield facilities across India in both powertrain and aluminium, including land and basic infrastructure intended to support expansion over the next three to five years. It linked the expenditure and working-capital build-up to serving a larger customer and end-market base. The company said the fourth-quarter exit rate should provide a clearer indication of how the capacity and working-capital cycle will develop in the following year.

Craftsman has not disclosed that capacity released by Sunbeam exits will be shifted to a specific product or customer. Its stated growth projects instead include expanded powertrain, aluminium casting and machining capacity, plus broader aluminium product offerings. For stationary engines, management projected revenue equivalent to 30% of the current order book by financial year 2028, 50% by financial year 2029, and the full run rate by the third or fourth quarter of financial year 2030.

Conclusion

Craftsman’s Sunbeam decision is a portfolio reset centred on absolute profitability: it will allow sales to decline where contracts are negative at the EBITDA level rather than pursue price resets that management considers impractical. The exit is largely advanced for smaller customers, while larger-account transitions will determine the final pace over the next couple of months.

The next markers are the completion of those handovers, the expected fading of the aluminium-related impact from the second quarter to marginal in the third quarter and none in the fourth quarter, and the fourth-quarter operating exit rate. Management has also outlined Rs 500 crore to Rs 600 crore of consolidated third-quarter capital expenditure and said newer plants need another two quarters for improved operating leverage.