Setco Automotive Ltd. Initiating Coverage-SIHL ... - all-mail-archive

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Setco Automotive Ltd. Initiating Coverage-SIHL ... - all-mail-archive

Key Concerns Slowdown in OEM salesSetco Automotive Ltd.13 April 2012The revenue from OEM segment comprises around 45-47% of total sales. Any slowdown in OEMsales would have a direct impact on Setco’s revenues. OEM slowdown in a particular year alsohas a cascading effect on OES segment after two years or so as less number of units is availablein replacement market. Currency RiskSetco has around 23-25% import dependence on it raw materials, which accounts for 14% oftotal sales. However exports are 6-7% of total sales. Currently it enjoys around 50% of naturalhedge in forex and remaining is kept open which may impose currency risk. However, Setco isworking on it and expects this to be in place shortly. Overall margin dilution due to diversification into lower margin, lower realisation LCVsegment.Despite maximum market share in domestic OEM M&HCV clutch segment, Setco expects togrow revenue at 20-25% on back of incremental business coming in from LCV segment. Thecompany might able to garner 20-25% revenue growth but there could be some dilution inoperating margin as LCV Clutches is low margin business compared to M&HCV segment. Also,intense competition in LCV clutch segment makes it difficult to command premium overcompetition.Peer Group Comparison (Domestic Players)Setco Automotive Clutch Auto Exedy IndiaParticulars FY09 FY10 FY11 FY12E FY13E FY14E FY09 FY10 FY11 FY09 FY10 FY11BV (Rs.) 27.6 35.9 49.9 66.7 85.3 105.5 75.3 82.6 89.3 19.0 37.6 26.8EPS (Rs.) 6.5 10.1 18.6 21.4 23.2 26.0 2.4 4.5 4.7 (12.5) (1.8) (10.8)P/BV, x 7.4 5.7 4.1 3.1 2.4 1.9 0.4 0.3 0.3 18.1 9.1 12.8P/E, x 31.6 20.3 11.0 9.6 8.8 7.9 12.0 6.4 6.1 (27.5) (192.3) (31.8)ROE 23.5% 28.1% 37.3% 32.1% 27.2% 24.7% 3.2% 5.4% 5.2% -65.7% -4.7% -40.2%ROCE 15.8% 22.2% 28.1% 22.7% 23.8% 22.4% 7.5% 7.2% 7.2% -6.3% -3.1% -11.1%EBITDA Margins 13.7% 17.8% 19.0% 19.5% 20.7% 20.3% 14.1% 16.4% 17.0% 0.7% 3.1% -1.1%D/E, x 1.5 1.3 1.1 1.0 0.8 0.8 0.9 1.1 1.2 6.0 2.8 4.8EV/EBITDA 8.7 6.2 5.3 7.3 5.9 4.9 5.0 7.2 6.5 98.0 32.8 (63.3)Source: Ace Equity, SIHL ResearchSetco operates largely in M&HCV clutch segment only and have recently diversified in LCV segment; thiswill lead to a marginal decline in realisations. While Clutch Auto caters to MCV, LCV and Passenger carsegments and Exedy India caters to only LCV and Passenger Car segment.8 | P a g e

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