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
Operations:
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.
COMPANYS OPERATING HIGHLIGHTS AND KEY FINANCIAL RATIOS FOR FY 2022-23:
| 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 |
- |
- |
|
|
SUBSIDIARIES OPERATIONAL HIGHLIGHTS Setco Auto Systems Pvt Ltd
|
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 |
SETCO AUTOMOTIVE (UK) LTD
| 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 |
SETCO AUTOMOTIVE (NA) INC
| 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 |
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