Udit Sheth, Vice Chairman, Setco Automotive Limited,
started his career at Setco in 2002. A strategist by nature, he has been responsible for Strategy and Business Development for Group Information Technology and the Joint Ventures of the Company. A key member within the M&A team, he has contributed to the Company’s U.K. and USA acquisitions.
In an interaction with Shweta Papriwal, Editor, IIFL, Udit Sheth, Vice Chairman, Setco Automotive Limited, said, “
Being a listed company we can share only what is in the public domain. We aspire to be a Rs1,000cr company by 2020 with an EBITDA in higher teens. We are planning a regular CAPEX of about Rs40 crores.”
Kindly brief us about your business, segments and products.
Setco Automotive is the largest manufacturer of clutches for medium and heavy commercial vehicles (M&HCV) and is a single source supplier to all OEMs in India. It supplies clutches under the Lipe brand. Setco has all the required global quality certifications such as TS 16949, ISO 14001, OSHAS 18001 and VDA 6.3. Setco is present across the lifecycle of M&HCV – OEM, OES & Aftermarket. Setco draws its competitive advantage from its vertically integrated manufacturing set up that has its own Diaphragm Spring Production, Heat Treatment, Machine Shop & Press Shop. All the products that Setco supplies are proprietary in nature – where Setco has its own R&D centres, one in the UK and the other in India. The company has a global manufacturing footprint with the mother unit in Kalol, Gujarat, India and another in Uttarakhand, India – and overseas facilities in Manchester UK and TN, USA.
The company has recently forayed into the farm sector. The product range of M&HCV and farm tractor comprises of Clutch Cover assembly and Clutch Disc Assembly. The Clutch Cover Assembly includes Push Type and Pull Type, both of which are available in Diaphragm and Coil type. The Clutch Disc Assembly includes Organic Lining and Ceramic Lining. Setco also manufactures clutches for hydraulic products for the construction equipment industry and precision engineering components like complex and deep drawn pressings forgings and castings that are machined, and heat treated.
The company has recently set up its own fully automated foundry with a machine shop for high-pressure castings for grey and sg iron.
Setco Automotive has always believed in giving back to society and has taken various initiatives through its Setco Foundation and worked towards healthcare, women's empowerment and child development in under-developed areas of Gujarat. 5% of its net profits are ploughed into CSR.
What is your market share in MHCV Clutch? Who are your competitors in this segment?
Currently, Setco has a market share of approximately 90% or more in India and is the major supplier to M&HCV manufacturers like Tata Motors, Bharat Benz, Volvo- Eicher, Ashok Leyland, Man India, Mahindra Trucks & Buses, Sonalika Tractors etc. Globally, we are among the top three manufacturers by volume, with more than 1600 employees across our global operations. Other clutch manufacturers in India who cater to the automotive and farm tractor OEM segment are Valeo, Exedy & LuK.
What is the segment wise revenue contribution from domestic as well as international business?
Today international business is less than 10% of the total sales. There is a tremendous growth from Indian MHCV and Farm Tractor Business hence this will continue to lead our efforts. However, with LavaCast being in production, we believe export of castings will be a new growth area along with exports of clutches (especially in North America, MENA and Russia).
How are you placed in the tractor segment, considering that rural is the current theme?
The company has recently entered the farm equipment (tractors) segment, as it is a strong fit to the M&HCV segment. The farm equipment segment has a massive potential in the OEM and aftermarket segments. We expect this sector to contribute about Rs100cr of our top line in the next 2 years. We will soon be launching new products in the domestic market. The farm tractor business is going to be a significant portion of our growth story in the near future, the aim is to achieve nearly 20% share in the tractor clutch market across the globe over the next 5 years.
How are the company's OEM and aftermarket segments performing?
To reduce OEM dependency, Setco has diversified into the aftermarket segment which now contributes to almost 60% of its total revenue. The aftermarket business and the OES sectors will ensure that the cyclical nature of the MHCV sector will not affect business. Add to that the Farm Tractor and Int’l business and we see a strong and robust growth-oriented company.
Where are your manufacturing facilities located? Do you have any expansion plans - domestic and international?
Setco has a strategic global footprint for manufacturing. Setco has two manufacturing facilities in India, one in Kalol, near Vadodara, and another in Sitarganj, Uttarakhand. To cater to the international demand, Setco has also established two international plants, one each in the UK and the US. The company at present has no further plans to put up new units as the cost are currently best managed at these locations. However, if there is a requirement to put up more capacity in different locations, the company can do so.
How strong is your distributor network? What are the services that you provide to your clients?
Over the years, Setco has developed a strong relationship with various distributors and suppliers who have been working with us since inception. We have more than 45 distributors in India and many many more retailer networks. This is over and above the strong OE distributor set up. We work very closely with our customers to not just sell the product but also provide service and training. We train close to about 1000 mechanics year on year, and we respond to the customer with immediacy. We help our customers with charts, posters, videos and much more marketing collateral so that they can do their job better.
How is the aftermarket performing post the GST and the E-way bill? Do you think unorganized players are moving off on the spare parts side and you are getting an opportunity?
With the implementation of GST and E-way bill, the material movement in India has smoothened out substantially. Also, with this manufacturers cannot classify products in different categories and get away with lower rates of tax as they did earlier. We are seeing a strong shift towards using the right quality OE product as the price is no longer the major differentiator. Changing a clutch is a 10-hour job and thus one does not want unnecessary problems.
What is your projected revenue and profitability for FY19 and CAPEX for FY20?
Being a listed company we can share only what is in the public domain. We aspire to be a Rs1000cr company by 2020 with an EBITDA in higher teens. We are planning a regular CAPEX of about Rs40cr.
Can you highlight the performance of the Lava Cast foundry business?
Lava Cast Private Limited is a subsidiary established as a backward integration project to augment the supply of critical casting components; it is focused on manufacturing machines with ferrous casting products for automotive. Earlier Setco invested in import substitution, which is now produced in the Lava Cast foundry itself. We have enhanced capacity utilisation by 100% and added external customers, apart from Setco, enabling them to ramp up volumes. We plan to invest more than Rs.120 crores in the foundry business, to meet the local demands and international exports along with rationalising inventory and working capital. Currently, we pour about 30000 MTPA. All castings supplied are fully machined in our state-of-the-art machine shop.