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We were joined by Mr. Shvetal Vakil - Executive Director and Mr. Moshin
Virani - Senior Manager of Setco Automotive, who shared their outlook on
the industry and company.
Key highlights
n Setco is the 5th largest clutch manufacturer in the world with ~90% market share
amongst OEMs in M&HCV segment. It currently meets ~75% of Tata;s requirement,
~70% of Ashok Leyland and 100% of Eicher. Company has also been chosen as the
preferred supplier for Daimler trucks to be launched in India. Global competitors include
Eaton - USA, Sachs - Germany etc. Domestic competitors include Clutch Auto, Luk,
Valio etc.
n Replacement segment (Setco market share of ~50%) has seen a strong growth over
the last 3 years at ~60%/30%/35% in FY09/FY10/FY11. Also, replacement margins are
at ~22%-24% vs margins of ~12%-14% in the OEM segment
n Product mix: Strong growth in M&HCV sales in FY11 led to OEM-Replacement-Export
mix of 43%-49%-6% as compared to 36%-57%-6% in FY10 respectively.
n Implementation of higher emission norms to lead to significant upgradation in CV
clutches. This should lead to higher realizations per clutch. Currently, realization per
clutch is the highest for HCVs at Rs 8,000-14,000 followed by MCVs at Rs 3,000-5000,
LCVs at Rs 1,500-2,000 and cars at Rs 800-1,500.
n Setco has recently ventured into LCV segment. Strong volume growth in this segment
to lead to strong topline for the company.
n Setco expects OEM market to grow at ~14-15% CAGR and replacement market at ~17-
18% CAGR for the next 2-3 years.
n Company expects tax rate to be maintained at MAT rate due to benefits from Uttarakhand
facility and export oriented units.
n Vision 2015: Top line of Rs 10bn, out of which, domestic of Rs 6.5bn. Targets export
growth at 2x domestic CAGR of ~32-33% to Rs 1.5bn. Subsidiary revenues of Rs 2bn
(currently Rs 225mn/Rs 130mn from USA/UK respectively). EBITDA margin of ~22-
23% (targeting ~100 bps expansion every year)
n Capex target of Rs 1.2bn over the next 4 years. Currently, production is being done in
2 shifts. Can increase to 3 shifts, if required.
Valuations
At the current market price of Rs 179, it trades at 9.4x/6.4x PER/EV-EBITDA on FY11 numbers.
Given a strong ROE of ~40% and ROCE of ~28%, the stock is trading at attractive valuations.
Key stock trigger would be its ability to scale up its export revenues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr. Shvetal Vakil - Executive Director and Mr. Moshin
Virani - Senior Manager of Setco Automotive, who shared their outlook on
the industry and company.
Key highlights
n Setco is the 5th largest clutch manufacturer in the world with ~90% market share
amongst OEMs in M&HCV segment. It currently meets ~75% of Tata;s requirement,
~70% of Ashok Leyland and 100% of Eicher. Company has also been chosen as the
preferred supplier for Daimler trucks to be launched in India. Global competitors include
Eaton - USA, Sachs - Germany etc. Domestic competitors include Clutch Auto, Luk,
Valio etc.
n Replacement segment (Setco market share of ~50%) has seen a strong growth over
the last 3 years at ~60%/30%/35% in FY09/FY10/FY11. Also, replacement margins are
at ~22%-24% vs margins of ~12%-14% in the OEM segment
n Product mix: Strong growth in M&HCV sales in FY11 led to OEM-Replacement-Export
mix of 43%-49%-6% as compared to 36%-57%-6% in FY10 respectively.
n Implementation of higher emission norms to lead to significant upgradation in CV
clutches. This should lead to higher realizations per clutch. Currently, realization per
clutch is the highest for HCVs at Rs 8,000-14,000 followed by MCVs at Rs 3,000-5000,
LCVs at Rs 1,500-2,000 and cars at Rs 800-1,500.
n Setco has recently ventured into LCV segment. Strong volume growth in this segment
to lead to strong topline for the company.
n Setco expects OEM market to grow at ~14-15% CAGR and replacement market at ~17-
18% CAGR for the next 2-3 years.
n Company expects tax rate to be maintained at MAT rate due to benefits from Uttarakhand
facility and export oriented units.
n Vision 2015: Top line of Rs 10bn, out of which, domestic of Rs 6.5bn. Targets export
growth at 2x domestic CAGR of ~32-33% to Rs 1.5bn. Subsidiary revenues of Rs 2bn
(currently Rs 225mn/Rs 130mn from USA/UK respectively). EBITDA margin of ~22-
23% (targeting ~100 bps expansion every year)
n Capex target of Rs 1.2bn over the next 4 years. Currently, production is being done in
2 shifts. Can increase to 3 shifts, if required.
Valuations
At the current market price of Rs 179, it trades at 9.4x/6.4x PER/EV-EBITDA on FY11 numbers.
Given a strong ROE of ~40% and ROCE of ~28%, the stock is trading at attractive valuations.
Key stock trigger would be its ability to scale up its export revenues.
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