setco automotive ltd share price Management discussions

Economic Overview:

GDP Growth: National Statistical Office ("NSO"):

The growth in the real GDP during FY 2022-23 is estimated at 7.0%, compared to 9.1% in FY 2021-22. This is driven by the accentuated headwinds from prolonged geopolitical tensions, tightening global financial conditions and slowing external demand.

Commodity prices which continued to rise since H2FY21 more or less stabilise during the H2FY23 although the future trajectories remain uncertain, given the lingering geopolitical and the likelihood of demand. The economic activity in India has witnessed a sharp recovery to pre-pandemic levels although the adverse weather shocks are becoming more frequent and there is heightened uncertainty on the south -west monsoon.

The Automotive sector on the backdrop of BSVI phase II RDE norms from 1st April 2023 wherein the vehicles will have to comply with the latest emission standards gave a boost in demand during the later half of the year as the prices are likely to go up to maintain the stricter emission norms

External headwinds caused by geopolitical tensions between Russia-Ukraine led to supply-chain disruptions. This, in turn, fuel the inflation globally.Commodity prices have shot up globally owing to supply constraints caused by the war. In order to curb the imported inflation, the RBI has been increasing the short-term lending rate by 225 bps during the year as compared to increase of 450bps by US Federal Reserve. Though the welcome softening of crude oil prices along with commodity from Nov onwards.

Commercial vehicle grew ~>20% during the year and with Scrappage Policy implementation in progress, growth envisage for coming years will be much higher and MHCV Industry may surpass the peak volumes of FY2019 in FY2025


The Companys performance was below par, though the growth in sales ~25% and almost 3.75x jump in EBITDA. Sales started with much delight and excitement however in Q2 and Q3 were subdued on account of low demand from OEM, aftermarket business and exports. The uncertainty from the Ukraine Crisis and also projections from customers didnt pan out.

The management is very positive about the overall mid-term outlook of the Company and believes that there is a huge untapped potential in the business of the Company and its Brand recognition. The management also believes that the demand in the automotive sector has already picked considerably in the last few months and will further rebound in the coming months

Operations of the company is further divided into below categories;

Original Equipment Manufacturer (OEM)

During FY23, OEM Segment contributed ~34% of the total revenue and was almost flat growth of 2% mainly on account of reduce SOB from OEMs which gradually has been increased. We have aggressively been working with our OEMs to increase nominations and market shares in their ranges of trucks.

The company is development new range of clutches for the Light Commercial Vehicle market as well.

Replacement Market

Customer connect, education, promotion and loyalty are our core tenets of increasing our business share and customer confidence.

The companys aftermarket business comprises two segments; sales of clutch assemblies and service kits through the service and spare sales network of Original Equipment Spares (OES) and sales to the Independent aftermarket (IAM) network of distributors/dealers and local garages under LIPE brand.

The company has ensured enhancing the distributor network its connect with the market. New products and services are launched with better schemes and basket of products and clutch range extentions.

Aftermarket is a vital part of Companys plan. As a strategy, the aftermarket, being a more profitable segment, was carefully developed and nurtured over the years. In FY 23, the aftermarket segment constituted almost 63% of the revenue. The segment ensures not only sustainable growth but also decreases the vulnerable nature of the industry due to cyclical OEM demand. The already-peaked OEM cycle in the past is expected now to boost the aftermarket replacements, coming up from FY24 onwards.

Bigger dia sizes clutches post migration to BSVI since April 2020 are going to come for replacement and hence realization will be higher.

Farm Tractor Market: An Agriculture-driven Economy:

India is the biggest producer of tractors and are producing more tractors than commercial vehicles if you take only the medium and heavy vehicles into account. Interestingly, tractors that are being manufactured today have a powerful engine with high horsepower and accordingly, they need new types of clutches. Thus, there is a shift or even a vacuum in the market and we are entering that space and expect to reap a good growth, from both OE and aftermarkets.

At Setco, extension on this important agriculture segment which is the backbone to the Indian economy is part of the growth story at Setco. Continuous R&D efforts have resulted in the development of advanced farm tractor products within a short span of time with the focus on efficiency and productivity to drive business growth. We expect business to kick-in during FY24 onwards

International Business

The company has always laid special emphasis on its international markets through its overseas subsidiaries as it considers international business opportunities as an important growth driver for the company. The three strategically located overseas subsidiaries which cover the European, North American and Middle Eastern market are an integral part of Setco Group, and the Company believe that its presence will help to achieve its growth vision.

Despite the challenges and uncertainty in the current economic environment; the Company remain very optimistic about the growth and future.

Setco Automotive (UK) Ltd - SAUL

While SAUL has been an integral part of the Setco Group as a Research & Development hub for the company it has also served as a marketing face in the European Continent. SAUL has been promoting Companys LIPE brand of clutches across Europe. Sales grew by ~40% over last year. EBITDA was still negative, however, proactive steps to reduce costs and set up some new distributors to be able to capitalize on this in the coming years. Companys European presence remains one of the key growth drivers for Setco Group.

Setco Automotive (NA) Inc. - SANAI

The North American market is a lucrative growth driver and the Company has always had a dedicated focus on the North American operations. Launch of new range of ASD clutches towards the 4th quarter of the financial year has started the traction and will result in good demand going forward. Sales grew by ~18% over last year with EBITDA margins at 12.5%.

Our new range of clutches will be ready soon for this market, allowing us to augment existing business. Also a new range of products will be developed to augment the clutch business.

Lava Cast Private Limited

The management is confident of the business potential for Lavacast and we have started the turnaround process. As the maintenance activity is completed in the current year and with right resources in terms of people and reduction in the raw material costs and rejections (down from level of ~17-18% to single digit) and substantial improvements in yield. Since the cashflows are still very low on account of continuous losses due to lower capacity utilization we have approached bank for restructuring the account which is under positive discussion though the bank has filed an application in the IBC, which we are confident of getting withdrawed basis the restructuring implementation.


Financial Analysis

Rs. In Crs

Particulars FY 2023 FY 2022* YOY Change (in %)*
Operating revenue 1.14 156.74
EBIDTA 0.09 -6.36
EBIT (Operating) Margin 0.09 -31.52
Profit/Loss Before Tax 1.46 -170.72
Profit/Loss After Tax -8.82 -174.82

*Clutch Business was transferred through Business Transfer Agreement dated 31st August, 2021 w.e.f 7th September, 2021 to its subsidiary i.e. Setco Auto Systems Pvt. Ltd.

Key financial Ratios

Particulars FY 2023* FY 2022 YOY Change* (in %) Reasons for Change
EBIDTA Margin - -4.1% *Clutch Business was transferred through Business Transfer Agreement dated 31st August 2021 w.e.f 7th September, 2021 to its subsidiary i.e. Setco Auto Systems Pvt. Ltd.
EBIT (operating) margin - -20.1%
PBT Margin - -108.9%
PAT Margin - -111.5%
Debtors Turnover - 0.02
Inventory Turnover - 0
Interest coverage ratio - -
Current Ratio - 0.69
Debt Equity Ratio - -
Return on net worth - -


Rs. In Crs
Particulars FY 2023 FY 2022*
Sales 474.80 261.97
EBIDTA 52.71 22.00
Profit/Loss After Tax -210.38 -173.47

*Clutch Business was acquired through Business Transfer Agreement dated 31st August, 2021 w.e.f 7th September, 2021 from holding Company i.e. Setco Automotive Ltd.

Lava Cast Pvt Ltd

Rs. In Crs
Particulars FY 2023 FY 2022
Sales 35.55 43.59
EBIDTA -14.16 -17.59
Profit/Loss After Tax -31.61 -36.73


Particulars FY 2023 FY 2022 FY 2023 FY 2022
In GBP mn In GBP mn In INR Crs In INR Crs
Sales 3.12 2.81 30.36 28.54
EBIDTA -0.36 -0.62 -3.53 -6.29
Profit/Loss After Tax -0.38 2.71 -3.66 27.56


Particulars FY 2023 FY 2022 FY 2023 FY 2022
In USD mn In USD mn In INR Crs In INR Crs
Sales 7.13 6.98 57.42 51.95
EBIDTA 0.89 0.43 7.13 3.18
Profit/Loss After Tax 0.40 1.85 3.25 13.81