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Setco Q4FY18 Concall KTA's & Result update

Revenue from Operations remained flat at Rs. 175.79 crores in Q4 FY18 against Rs. 174.3 crores in Q4 FY17 net of excise. A muted growth of 0.85% was observed due to the issues in supply chain. However, improved EBITDA margins helped improve the PAT to Rs. 15.67 crores in Q4 FY18 v/s Rs. 10.35 crores in Q4 FY17 a growth of 51.40%.




1. Financial highlight: With over 85% market share in MHCV clutch demand of OE in India, Setco FY18 standalone sales comprised of 45% revenue from OEM, 50% from OES and aftermarket and 5% from International business. Post GST implementation in June 2018, OEM sales grew by 57% while aftermarket sales remained subdued -0.7% from Q2 – Q4 FY18. Revenue remained flat in H1 due to implementation of GST while Q4 revenue were stagnant due to tier 2 and tier 3 supply chain agents inability to cope up with the demand. Due to the surge in demand from OE and tier 1 manufacturers, it affected the ability to serve the aftermarket which affected Setco’s operating revenue to an extent of Rs. 40 Crores.


2. Lava cast update Lava cast operations have progressively improved in Q4FY18 with a capacity utilization of 50%. The company aims to increase its capacity utilization to 75% - 80% by FY19. Lava cast is at EBITDA breakeven now, reporting an EBITDA margin loss of 1% in Q4 FY18. Completing its first full year of operations, lava cast is envisaging doubling its capacity from existing 30,000 tons to 60,000 tons. From Setco being the sole customer of lava cast, they have succeeded in getting approvals from 2 major OEMs and couple of tier 1 organizations. With incumbent of outside customers now, there is a tremendous opportunity to ramp up.


3. Debt Total debt stood at Rs. 675 crores comprising of Rs. 175 crores in term loans and the remaining Rs 500 crores in working capital requirement. Management has guided about Rs. 30 crores of term loan would be repaid while Rs. 25 crores would be borrowed for the expansion plans of lava cast. Hence term loan would remain static for the year while working capital cycle would improve from the current levels of Rs. 136.26 crores (83 days) as of March 2018.


4. Capex plan Management has guided capex of Rs. 60 crores would be required in next 12 – 18 months of which Rs. 30 crores would be for annual maintenance and the remaining amount for upgradation.


5. FY19 Guidance Setco has envisaged 30% topline growth in FY19 on account of the following reasons: - Supply chain glitches to be resolved going forward - OE sales to increase due to increase in payload and increase in production numbers - Lava cast to be profitable with increasing capacity utilization levels - Tractor division to contribute to topline. Revenue from tractor division could touch Rs. 100 crores in next 3 years. While Setco’s standalone utilization stood at 75% for the year; management has guided EBITDA margins to be in higher teens in FY19 due to: - Moving from yearly pricing cycle to half yearly pricing cycle due to increase in raw material cost - Economies of scale to kick in with increasing utilization levels - Efforts to bring down variable and fixed cost in FY19.


Disclaimer This document has been prepared and compiled from reliable sources. While utmost care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the Company nor any of its Directors, Officers or Employees shall in any way be responsible for the contents. The Company, its Directors, Officers or Employees may have a position or may otherwise be interested in the investment referred in this document. This is not an offer or solicitation to buy, sell or dispose off any securities mentioned in this document. Copyright © 2017 Pankaj Mangaldas Securities pvt. ltd. , All rights reserved. Registered Office 701, PJ Tower, Dalal Street, Mumbai - 400023 Corporate Office 411 Atlantic Commercial Tower, R.B Mehta road, Ghatkopar (E), Mumbai – 400077 Get in touch: +91 (22) 2501-2333 | info@pmsec.in | www.pmsec.in


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