Setco Automotive fails to cheer the market

When the whole auto industry is witnessing slowdown, reports of better performance by Setco Automotive seem to have grabbed attention of the Street.

The company reported net profit of Rs. 7.49 crore in Q1FY20 compared to Rs. 8.18 crore in Q1FY19 and Rs. 12.03 crore in Q4FY19. However, the country's largest clutch manufacturer for Medium and Heavy Commercial Vehicles (MHCV) has mentioned an improvement in its operational profitability as EBITDA is up by 15.8 per cent and operating PBT up by 60 bps. Setco informed that it was able to post a resilient performance due to the 85 per cent market share it has in the OEM market.

Setco reported 7 per cent fall in its sales in Q1FY20 at Rs. 128 crore, compared to the same period in FY19. On a consolidated basis also, revenue dropped by 7 per cent to Rs. 143 crore on account of slowdown in the domestic OEM sector. This is not a great sign for the market as the company is still making a loss in its topline.

Interestingly, the company has claimed that it has managed to curb the fall in sales on the back of Original Equipment Spare Parts (OES) and Independent Aftermarket (IAM) channels. The company mentioned that the IAM segment has been contributing consistently greater than 50 per cent of top line and is driving its growth.

Moreover, the company is expecting a recovery from the second half of FY20 in the OEM segment. Setco is optimistic about improvement in its revenue per vehicle and EBITDA margins, owing to its migration to BS-VI from the fourth quarter of FY20.

However, a weak revenue growth has weighed down the stock over last several months. Shares of Setco Automotive are down 69.40 per cent over the last year.

Shares of the company closed at Rs. 14.55 on Wednesday against Tuesday's close of Rs. 15.25. The stock hit an intraday high of Rs. 15.16 and intraday low was Rs. 14.41. Its 52-week high was Rs. 54.80 per share and 52-week low was Rs. 12.75 per share on the BSE.