Setco Automotive Ltd, the largest manufacturer of clutches for Medium and Heavy Commercial Vehicles (MHCV) in India, announced its financial result for the first quarter (Q1 FY20) ended June 30, 2019.
Setco Automotive reported a sustained performance with sales at Rs 128 crore in Q1 FY20; marginally down by ~7 per cent YoY compared to 17.7 per cent decline in volumes in the MHCV industry, according to the SIAM data.
The company has posted a resilient performance on the back of a strong position with 85 per cent market share in the OEM market and growth in the more profitable aftermarket segment.
Additionally, the company's operational profitability has improved owing to better cost management, segment mix, and pricing management. Highest ever contribution at 30.4 per cent up by 330 bps, EBITDA stood at 15.8 per cent up by 70 bps and operating PBT up by 60 bps.
Setco has witnessed an increase in market share of its more profitable aftermarket segment driven by both OES (Original Equipment Spare Parts) and IAM (Independent Aftermarket) channels.
The segment, which has been contributing consistently greater than 50 per cent of top-line (58 per cent in Q1 FY20), continues to be Setco's growth segment. Additionally, the aftermarket segment has been growing for the organized players post GST.
With the BS-VI approvals in place, Setco is well placed to supply next-generation clutches to all the MHCV manufacturers in the country. The company, poised to strengthen its competitive positioning in the BS-VI era, expects production to start from the fourth quarter of FY20.
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The products are a crucial part of the company's multi-pronged growth strategy which has been achieved with intense design and development focus while leveraging in-house capabilities.
On a consolidated basis, the company has posted a top-line of Rs 143 crore in Q1 FY20, marginally down by ~7 per cent mainly due to the slowdown in domestic OEM sector (affecting both Setco and Lava Cast). The company has sustained its EBITDA margins at 16.1 per cent, while it's subsidiary Lava Cast has improved margins by 300 bps.
"Our strong market position in the OEM segment coupled with greater than 60 per cent revenue from the more profitable aftermarket segment has resulted in us delivering a resilient performance in Q1 FY20, despite significant macro headwinds and 15 per cent de-growth in OEM segment. Our proactive steps in reducing cost as well as expanding business in the newer segment of farm tractors and exports would further strengthen our ability to manage OEM's cyclical downturns, which typically last four quarters. Our aftermarket continues to be the growth driver and our dominant market share in OEM underlines the sustainability of aftermarket business. We expect recovery from H2 in the OEM segment also", said Harish Sheth, Chairman and Managing Director at Setco Automotive.
"We are geared up for seamless migration to BS-VI which would improve revenue per vehicle as well as EBITDA margins. The proposed scrappage policy of commercial vehicle is likely to get implemented from April 2020 and would further give impetus to our growth momentum", he added.
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