Setco Automotive Ltd Management Discussions

Indian Economy

Real GDP is projected to grow by 6.3% in fiscal year 2025-26 and 6.4% in 2026-27. Private consumption will gradually strengthen, driven by rising real incomes that are helped by moderate inflation, recent tax cuts and a strengthening of the labour market. Investment will be supported by declining interest rates and substantial public capital spending, but higher US tariffs will weigh on exports. Inflation will remain contained at around 4% as economic activity grows around trend. A less benign monsoon season or higher global commodity prices could drive up food prices and inflation.

The Union Budget for the fiscal year 2025-26 foresees a moderate fiscal consolidation, aiming to reduce the headline budget deficit from 4.8% of GDP in fiscal year 2024-25 to 4.4% in 2025-26. With inflation firmly within the target range, monetary policy is gradually expected to become more accommodative. Better targeting of energy and fertiliser subsidies, and an overhaul of tax expenditures, could enhance spending efficiency and free resources for other policy priorities. Improving logistics efficiency, upgrading digital infrastructure, and enhancing policy predictability, particularly in tax administration, could bolster private investment.

Monetary conditions remain restrictive, despite policy rate cuts in February and April. Headline inflation eased to 3.2% in April 2025 and is now within the central banks target range of 4% ? 2%, largely due to a substantial moderation in food inflation, which accounts for nearly half of the CPI basket, and declining energy prices. Easing food prices reflect a strong autumn harvest, and government interventions, such as export restrictions. As a major oil importer, India has benefited from lower global crude oil prices in recent months, which reduced domestic fuel costs and helped contain input costs in energy-intensive sectors such as transport, manufacturing, and agriculture. While core inflation remains slightly above 4%, wage growth remains moderate.

Indian Automobile Industry

Indias auto retail sector grew by 6.46% in FY25. Passenger vehicles (PV) growth stood at 4.87% for FY25 and 6% in March 2025 on year. PV also performed better in rural belts with 7.93% growth, compared to 3.07% in urban markets. Commercial vehicle sales remained flat at -0.17% in FY25, but grew 2.6% in March 2025. Two-Wheelers (2W) ended the year at +7.71%, falling short of the hoped-for double-digit increase. In March 2025, sales declined 1.7%.

ADA anticipates low single-digit growth in PV and CV. New model launches, EV expansions, and improved rural incomes are key supportive factors for sector growth ahead.

LCV recorded total sales of 5,63,189 units with a flat growth of 0.21% whereas MCV recorded a total sales of 77,568 units with growth of 6.05%. HCV recorded a total sales of 3,12,892 units with a decline of -4.07% and lastly others accounted for sales of 54,974 units with a growth of 12.18%.

Indian Auto Component Industry

India has become the fastest-growing economy in the world in recent years. This fast growth, coupled with rising incomes, a boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry.

Significant demand for automobiles also led to the emergence of more original equipment and auto components manufacturers. As a result, India developed expertise in automobiles and auto components, which helped boost international demand for Indian automobiles and auto components. Hence, the Indian automobile industry has a considerable impact on the auto component industry.

Indias automotive aftermarket is witnessing a phase of sustained growth, driven by a rising vehicle parc, increasing average vehicle age, and a shift in consumer behavior toward preventive maintenance and branded spare parts. As of FY25, the total Indian automotive aftermarket is estimated to be worth ?85,000-?95,000 crore ($10-11.5 billion), with clutches representing one of the most frequently replaced components in commercial vehicles (CVs), especially in the M&HCV (Medium and Heavy Commercial Vehicle) segment.

The clutch market in India is estimated at $582.3 million in 2025, with an anticipated CAGR of 6.8% through 2031. The aftermarket segment forms a dominant share of this market due to the recurring replacement nature of clutches, particularly in fleets exposed to heavy-duty cycles such as transportation, mining, construction, and e-commerce logistics.

Sources: Linkedin, IBEF

Key Market Drivers Supporting Aftermarket Clutch Demand

• Aging Vehicle Parc: Indias M&HCV population is aging, especially in Tier II and Tier III cities where vehicle replacement cycles are longer. Vehicles older than 7-10 years make up a significant portion of the fleet and require regular clutch replacements. This demographic underpins steady aftermarket volume growth.

• Increased Load & Usage Intensity: With the rise in freight movement, road construction activity, and last-mile delivery networks, commercial vehicles are now being subjected to longer usage hours and more demanding load conditions. This leads to accelerated clutch wear, making replacements more frequent.

• Penetration Beyond Metro Cities: Demand is rising in previously underpenetrated regions. Clutch manufacturers are expanding their channel presence in semi-urban and rural areas, recognizing the growing number of independent garages and fleet operators outside metros.

• Strategic Aftermarket Focus: The Indian aftermarket, traditionally dominated by unorganized players and counterfeit products, is undergoing formalization. OEMs and Tier-1 suppliers are increasingly pushing warranty-backed, branded clutch offerings, supported by training, installation support, and digital platforms.

Operations:

During the year, the Company achieved a robust revenue growth of 12.2% year-on-year, reaching Rs. 718.63 crore, compared to Rs. 640.67 crore in the previous year. This increase was primarily driven by higher volumes in the OEM segment, addition of new high value products (Clutch Release Bearings, Central Support Bearings, etc.), aided by rising aftermarket demand. The Companys EBITDA improved by 388 bps and saw a substantial rise of 50.7%, reaching Rs. 109.18 crore, up from Rs. 72.46 crore in FY24.

The management has been highly optimistic about the Companys prospects in its products, market position and long term brand value with not just the current clientele but potential clients in the growing market. With the steps taken for not only the operational capabilities but financial opportunities the company has, management is positive for the long term prospects.

Operations of the company is further divided into below categories;

Original Equipment Manufacturer (OEM)

In FY25, the OEM segment contributed approximately 32.5% to the total revenue, reflecting a growth of 12%. This growth was mainly due to NPD and also increased share of business (SOB) from OEMs, thereby regaining pre-eminent position in the industry. Company has been actively working with OEM partners to secure more nominations and expand market share across their truck ranges. Additionally, the Company is in the process of developing a new range of clutches tailored for the Light Commercial Vehicle (LCV) market.

Replacement Market

The strategy we conducted last year in our efforts to regain our market share and gain our clients confidence was boosted through our efficient engagement, outreach and trust shown in us by everyone. The Companys aftermarket business is divided into two segments: sales of clutch assemblies and service kits through the Original Equipment Spares (OES) network, and sales through the Independent Aftermarket (IAM) network of distributors, dealers, and local garages under the LIPE brand.

The companys initiatives have successfully strengthened our presence across the product segments we operate in. The aftermarket portfolio forms a key component of our business strategy, having been a premium segment since inception and consistently contributing to margin enhancement.

In FY25, the aftermarket segment grew by 31% which accounted for nearly 15.6% of the total revenue. Indian auto component industry is expected to grow by 7- 9% in FY26, driven by increase in vehicle parc, higher average age of vehicles/used car purchases, preventive maintenance and growth in organised spare parts, among other reasons. The revival in CV demand will only increase the demand and hence boost sales for the year.

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