Any current/future new fundraising through debt or equity?

The company has taken enabling power for QIP (Qualified Institutional Placement) last year and may utilize it as opportunities arise for fund raising through equity within the next 2 years. (Page 16) The main requirement for QIP would be potentially to fund Phase II of Lava Cast and working capital needs; specific timing and amount will be decided based on business conditions. (Page 16, 15) They plan to invest around Rs 100 crores for Phase II of Lava Cast; current CAPEX for Setco Automotive is about Rs 25-30 crores annually. (Page 15, 6) For CAPEX funding, they expect to finance through a

Any current/future capex/capital investment/strategic investment?

Setco Automotive typically invests around ₹25-30 crores annually in CAPEX for machinery upgrades, tooling, and expansions; major CAPEX expected to start next year due to renewed sales growth. Lava Cast Phase I CAPEX was about ₹175-180 crores; Phase II requires approximately ₹100 crores to double capacity. No additional CAPEX for Lava Cast unless proceeding with Phase II. Funding strategy includes bank loans where typically 75% of CAPEX is debt-funded (e.g., ₹30 crores loan for ₹40 crores CAPEX), matched by loan repayments to keep overall debt stable or reducing. QIP (Qualified Institutional Pl

Future growth expectations in sales/revenue/volumes?

The company aims to achieve a milestone of ₹1000 crores in standalone sales by FY19 or FY20, excluding Lava Cast. Growth is expected from current customers and multiple segments including commercial vehicles (CV), after-market business, tractors, and exports. The commercial vehicle sector is anticipated to grow in double digits due to government infrastructure investments, road sector growth, mining activity, and a good agricultural harvest cycle. Tractor clutch business targets 20-25% market share of a possible 300,000 units annually. LCV segment is a focus, with recent development fo

Future growth expectations in earnings/operating earnings/profits/EPS?

FY17 growth expected at 8%-12%, down from earlier 20%-25% projections due to demonetization impact but no spillover expected into FY18. (Page 16) EBITDA margin in the first half FY17 was low at around 13.1%, considered one of the lowest in five years; scope for improvement is indicated. (Page 11) Long-term goal to reach ₹1000 crores revenue by FY19 or FY20 with better margins possibly exceeding 17-18%. (Pages 12, 14) Lava Cast subsidiary expected to contribute with sustainable EBITDA margins of over 15% and ROC of 20%+ by FY19. (Page 15) Internal consumption and operational efficiencies expect

Current/ Expected Orderbook/ Pending Orders?

No specific details on the exact current or expected order book value were provided in the discussed pages. Harish Sheth mentioned continuous engagement with OEM customers, with no rescheduling of orders reported as of the conversation. Despite demonetization impact concerns, no cutback in production or order cancellations were communicated. The company expects a good pickup in orders till March-end following GST and BS-IV norms implementation. For Lava Cast, ongoing customer development and sample approvals suggest expected new orders by March-April next year. Overall, the dialogue reflects c

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Setco Automotive LtdQ3 FY16Auto Components

Setco Automotive Ltd Q3 FY16 Earnings Call Analysis

Revenue, margin, capex, fundraise and order book outlook from management commentary.

Price: ₹17.2Market Cap: ₹367 CrSector: Auto Components

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

Capex

Yes

2 of 5 growth signals are positive.

Full analysis

Revenue guidance

Category 3

→The company aims to achieve a milestone of ₹1000 crores in standalone sales by FY19 or FY20, excluding Lava Cast.
→Growth is expected from current customers and multiple segments including commercial vehicles (CV), after-market business, tractors, and exports.
→The commercial vehicle sector is anticipated to grow in double digits due to government infrastructure investments, road sector growth, mining activity, and a good agricultural harvest cycle.
→Tractor clutch business targets 20-25% market share of a possible 300,000 units annually.
→LCV segment is a focus, with recent development for ICV clutches; expected growth in this category.
→Lava Cast subsidiary will contribute additional volumes post Phase II expansion.
→New export markets like the US are expected to start supplying from Q4, though initial turnover will be limited.
→Despite demonetization impact, the company anticipates 8%-12% topline growth for FY17 and expects recovery by mid-December.

Margin guidance

Category 3

→FY17 growth expected at 8%-12%, down from earlier 20%-25% projections due to demonetization impact but no spillover expected into FY18. (Page 16)
→EBITDA margin in the first half FY17 was low at around 13.1%, considered one of the lowest in five years; scope for improvement is indicated. (Page 11)
→Long-term goal to reach ₹1000 crores revenue by FY19 or FY20 with better margins possibly exceeding 17-18%. (Pages 12, 14)
→Lava Cast subsidiary expected to contribute with sustainable EBITDA margins of over 15% and ROC of 20%+ by FY19. (Page 15)
→Internal consumption and operational efficiencies expected to expand EBITDA margins by 1.5%-2%. (Page 18)
→Interest cost currently high but expected to remain stable or decline as EBITDA grows and debt levels stabilize. (Page 12)

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Fundraise plans

Yes

→The company has taken enabling power for QIP (Qualified Institutional Placement) last year and may utilize it as opportunities arise for fund raising through equity within the next 2 years. (Page 16)
→The main requirement for QIP would be potentially to fund Phase II of Lava Cast and working capital needs; specific timing and amount will be decided based on business conditions. (Page 16, 15)
→They plan to invest around Rs 100 crores for Phase II of Lava Cast; current CAPEX for Setco Automotive is about Rs 25-30 crores annually. (Page 15, 6)
→For CAPEX funding, they expect to finance through a combination of bank loans and internal accruals. For example, for a Rs 40 crore CAPEX, about Rs 30 crore would be bank loan and Rs 10 crore from internal funds, without necessarily increasing overall debt. (Page 6)
→No significant new large equity dilution is planned immediately, and the company is waiting for better results before deciding on valuation or timing. (Page 13, 16)
→They expect some dilution within the next 2 years, but no concrete timeline or quantum discussed. (Page 15)

Order book

→No specific details on the exact current or expected order book value were provided in the discussed pages.
→Harish Sheth mentioned continuous engagement with OEM customers, with no rescheduling of orders reported as of the conversation.
→Despite demonetization impact concerns, no cutback in production or order cancellations were communicated.
→The company expects a good pickup in orders till March-end following GST and BS-IV norms implementation.
→For Lava Cast, ongoing customer development and sample approvals suggest expected new orders by March-April next year.
→Overall, the dialogue reflects confidence in order continuity and growth prospects, with potential expansion linked to capacity utilization crossing 70% before Phase II investment.

Capex plans

Yes

→Setco Automotive typically invests around ₹25-30 crores annually in CAPEX for machinery upgrades, tooling, and expansions; major CAPEX expected to start next year due to renewed sales growth.
→Lava Cast Phase I CAPEX was about ₹175-180 crores; Phase II requires approximately ₹100 crores to double capacity.
→No additional CAPEX for Lava Cast unless proceeding with Phase II.
→Funding strategy includes bank loans where typically 75% of CAPEX is debt-funded (e.g., ₹30 crores loan for ₹40 crores CAPEX), matched by loan repayments to keep overall debt stable or reducing.
→QIP (Qualified Institutional Placement) enabling resolution in place to raise funds as needed, primarily expected within next 2 years to support working capital and Phase II of Lava Cast.
→No further investment planned in TransStadia by Setco Automotive.
→Future equity dilution possible within 2 years to augment working capital and fund growth initiatives.

How does Setco Automotive Ltd rank vs peers in Auto Components?

Pro feature

1Setco Automotive Ltd

Rev 3Mar 3

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