View Full Version : Setco Automotive Limited (BSE:505075)

08-17-2015, 02:57 PM
Setco Automotive Ltd is an India-based manufacturer of Lipe brand clutches for the commercial vehicles in India. The Company also manufactures clutches for hydraulic products for the Construction Equipement industry and precision engineering components like complex and deep drawn pressings and forgings and castings that are machined and heat treated. It is the flagship Company of The Setco Group.

Official Website: www.setcoauto.com

08-17-2015, 02:59 PM
Results miss estimates on lower revenues and operating performance: Setco Automotive (SAL)’s 1QFY2016 results have come in below our estimates, due to lower than anticipated top-line and margin performance. SAL’s revenue growth moderated to 8% yoy as against four consecutive quarters of robust double digit growth. The top-line at `104cr missed our estimates of Rs112cr. Although the OEM segment grew in healthy double digits, slowdown in replacement and export demand led to lower growth. Further, increase in administrative and selling expenses impacted margins. The operating margin, at 11%, dipped 80bp yoy and was below our estimates of 12.7%. Given the weak operating performance, the net profit, at Rs4.3cr, declined 6% yoy, missing our estimates. Outlook and valuation: The MHCV OEM segment (contributing about 35% of the company’s revenues) is expected to grow in strong double digits over the next two years, which would benefit SAL. However, growth in the replacement segment (which forms about half of the revenues) has slowed considerably for SAL. Also, the castings JV with Lingotes, Spain (having revenue potential of Rs250 cr at full capacity utilization) is taking time to ramp up. As per SAL, any meaningful revenues from the JV can be expected only in FY2017 as the OEM approval process is taking time. Lower top-line growth is also likely to result into lower margins for SAL, going ahead. We have lowered our top-line as well as margin estimates for both FY2016 and FY2017. Consequently, we downgrade our recommendation on the stock from “Buy” to “Neutral”.

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