Setco Automotive - 4QFY2015 Result Update - Angel Broking

Standalone results miss estimates on lower top-line growth and margins; Consolidated numbers for FY2015 broadly in line on loss reduction in subsidiaries: Setco Automotive (SAL)'s 4QFY2015 standalone revenues grew 19% yoy to Rs. 130cr, led by double-digit growth in both the OEM and the aftermarket space, but were lower than our expectation of Rs. 140cr. Operating margins at 9.7% missed our estimates of 13.9%. Increase in raw material expenses due to higher inventory (inventories costs are higher in 4Q given the typically high volume of OEM sales) led to lower than anticipated margins. On yoy basis, the margins improved 90 bp. Given the miss on the operating front, the net profit at Rs. 3cr, was lower than our estimate of Rs. 7cr. However given the reduction in losses of subsidiaries due to cost control measures (subsidiaries losses came down from Rs. 5 cr in FY2014 to Rs. 2.9 cr in FY2015), SAL consolidated FY2015 Net profit at Rs. 21 cr was broadly in line with our estimate of Rs. 23 cr.

Outlook and valuation: The medium & heavy commercial vehicle (MHCV) industry is poised for a double-digit growth over the next two years (we expect 17% CAGR) on account of better economic outlook, improvement in fleet operators' profitability due to pick up in freight, and reduction in fuel cost due to decline in diesel prices. Also, SAL would benefit from growth in the clutch replacement industry with it having set up independent networks to tap the growth. The margins are also estimated to improve by 200bp over the FY2015-2017 period due to operating leverage, better product mix, and consumption of captive castings. We estimate SAL's top-line and bottom-line to grow at 22% and 57% CAGR over the next two years. We have retained our earnings assumptions and reiterate our Buy rating on the stock with a price target of Rs. 286 (based on 15x FY2017 earnings).

Shares of SETCO AUTOMOTIVE LTD. was last trading in BSE at Rs.230 as compared to the previous close of Rs. 228.4. The total number of shares traded during the day was 695 in over 26 trades.

The stock hit an intraday high of Rs. 238 and intraday low of 226. The net turnover during the day was Rs. 160700.

Source : Equity Bulls

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