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Setco Automotive Ltd.

BSE: 505075 Sector: Auto
NSE: SETCO ISIN Code: INE878E01021
BSE 00:00 | 24 Apr 2020 Setco Automotive Ltd
NSE 05:30 | 01 Jan 1970 Setco Automotive Ltd

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OPEN 9.50
PREVIOUS CLOSE 9.78
VOLUME 11962
52-Week high 31.75
52-Week low 5.45
P/E 6.87
Mkt Cap.(Rs cr) 129
Buy Price 9.41
Buy Qty 20.00
Sell Price 10.17
Sell Qty 1000.00
OPEN 9.50
CLOSE 9.78
VOLUME 11962
52-Week high 31.75
52-Week low 5.45
P/E 6.87
Mkt Cap.(Rs cr) 129
Buy Price 9.41
Buy Qty 20.00
Sell Price 10.17
Sell Qty 1000.00

Setco Automotive Ltd. (SETCO) - Chairman Speech


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Company chairman speech

"You are what your deep driving desire is. As your desire is so is yourwill. As your will is so is your deed. As your deed is so is yourdestiny" - Brihadaranyaka Upanishad.

Dear Shareholders

It gives us great pleasure to share with you an update on the performance of yourCompany for the year 2018-19.

The year gone by has been rewarding as well as challenging for the Company. Along withmaintaining 85 per cent market share in MHCV market we also made significant headway onthe goal we established at the beginning of the year - to emerge as a visionary andevolving Company. Towards achieving this vision we are effectively moving with thechanging times as seen through our transition from BS-IV to BS-VI-compliant clutches.Despite a challenging business environment with an ongoing threat from the automotiveindustry slowdown your Company has delivered a strong performance.

Given the clear mandate to the present government in the recent general elections thepotential fall-out of any political instability is put to rest. We expect major policyinitiatives to support both manufacturing and exports.

Looking at the last year the Commercial Vehicles segment witnessed instability interms of vehicle demand. The first half of the year saw an upscale in the performance ofcommercial vehicles' sales whereas the second half showed a downward trend. Despite thisthe Company's overall sales grew by 17 per cent. This was also supported through theadditional penetration in the Aftermarket business which constitutes almost 60 per centof our overall sales.

Additionally with the recent inroads into the farm-equipment segment the Company ispoised to grow significantly going forward. The scrappage policy which was recentlyannounced will contribute to improving vehicle demand in the coming years. With the launchof the new generation ASD clutches in the North American Aftermarket and more for theinternational markets the Company will derive success through focused-marketsegmentation.

Also the imminent merger between Lava Cast and Setco would facilitate an increase inbusiness opportunities allow operational efficiency reduce overheads and enableadministrative efficiencies.

These five pillars - OEMs Farm Segment Aftermarket & Exports and Lava Cast -will enable high growth through diversification in the coming years.

With the expiry of the 10-year-period of tax incentives in Uttarakhand our benefitsexpired in FY18. This resulted in a loss of 200 bps in our EBITDA margins in FY2019. Ourincome tax rate also increased from 20% to 35% resulting in a PAT reduction of Rs. 7 CR.Despite this due to various steps taken by the Company our EBITDA increased to 15% inFY19 from 12.8% in FY18. With all the steps taken by your Company our PBT has increasedfrom Rs. 35.93 CR in FY18 to 53.06 CR in FY19 showing a growth of 48%

We are also pleased to inform you that during the last five years the net sales of2769 companies (as tracked by Capitaline) has increased by a modest 34.5% (CAGR of ~6%)with a net profit increase of only 20.6% (CAGR of ~ 3.8% which is less than inflation)

whereas Setco has grown by ~87% (CAGR of 13.3%) in Sales and 118% (CAGR of 16.9%) inPBT.

Though the NBFC liquidity crisis has temporarily affected the growth rate of the MHCVsector the long-term fundamentals of Setco remain robust. With the liquidity crisis anddemand contraction abating the OE demand will be subdued during the year but growth inthe aftermarket business continues to remain substantial. Commodity and forex headwindshave now stabilized and the Company has implemented measures to address them throughrobust pricing and segment mix.

Our products have been accepted for BS-VI vehicles. At Setco we believe that the BS-VItransition is an inflection point for OEMs auto component makers and the entire ecosystemto move up the value chain and gain more in terms of new knowledge and value

Therefore we have focused this year on efficient and high- quality engineering. The keynarrative of efficient engineering is to find timely answers and improvements. Thisenabled us to effectively disentangle from some of our existing operational issuessustain strength in our core areas and drive growth to further improve our performance.

Research and Development is poised to play a substantial role in national and globalplans. In the last three years our R&D division has developed over 50 variants ofclutches for farm equipment and commercial vehicles. This plan of supplying new generationclutches to the farm equipment sector coincides perfectly with the greater thrust of therural sector high investment planned for infrastructure development and higher MinimumSupport Price (MSP) to ease rural distress. To meet these demands we are also focusing oncapacity augmentation. We expect to see the full benefits of these to be reflected in FY2021.

In recognition of our efforts several awards have been received in cost efficiency andcontribution to the industry from our esteemed customers. This year Setco was endorsedwith three awards:

• ‘Cost Excellence Award" at the Tata Motors Limited Annual Conference2019 for suppliers

• "Reliability Gold" and "Aftermarket Gold" at the AshokLeyland Annual Conference 2019 for suppliers

• ‘The Machinist' at Super Shopfloor Awards 2019

Furthermore Harvard Business School published a case study "Setco Automotive Ltd:Drivers of a Successful Turnaround" to highlight Setco's journey from a financial andoperational business perspective to key turnaround factors for the Company's profitability& survivability.

The welfare of our communities and human capital form one of the cornerstones of ourCompany is. As we grow so do all our people. Towards our vision of improving thesocioeconomic positions of our communities your Company spends 5 per cent of itsnet-profit annually on Corporate Social Responsibility. Additionally our CSR arm theSetco Foundation which completed a decade-long journey this year was recently honoured atthe Outlook POSHAN awards by the Vice-President of India Shri M. Venkaiah Naidu forsignificant contribution in addressing maternal and child malnutrition in our district.

In this journey the customers have been at the heart of our initiatives and our senseof responsibility has strengthened the relationships even further to the point that theyshow unstinted trust and confidence in your Company. Finally we would like to extend ourgratitude to all our employees who are our shareholders too. Our consistent growth issustained because of the clear articulation of our strategy the strong support of ourboard and the continual and dedicated commitment of the management team.

The core value of holding central the best interest of all the stakeholders has alwaysset Setco apart in the past. It is this core value that continues to drive us towardsexcellence and growth in the future.

Thanking you

Harish Sheth

Chairman & Managing Director


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