"Start with the end in mind"
Stephen R. Covey thorough
The year 2020-21 started with a lockdown and undoubtedly this was the most severe testever faced by all of us including the Corporates Civil Society and the Government.
At that critical juncture as important as observing health and safety measures is toremain psychologically strong guard against cynical despair and stay united in our sharedsense of purpose. As they say the darkest hour is before dawn and we are alreadybeginning to glimpse early signs that give rise to cautious optimism. The declining trendin cases across the states as well as the prospects of the biggest vaccine rollout inIndia across the globe should help us look forward to happier times
India's Gross Domestic Product (GDP) growth for the Financial year 2020-21 contracted7.3% as compared to growth of 4% in 2019-20 and has been a difficult year for all as theglobal economic sentiment was weak and the demand in India had shrunk - while the countryhas been gunning towards a US $5 trillion economy target there is a resetting of the waywe conduct our business. This also affected working of Setco Automotive Ltd.
The introduction of the BS-VI norms resulted in increased prices and also a sharpinventory reduction that impacted the total sales of new vehicles and therefore theclutches. MHCV Industry sales dropped by ~30% in FY21 bringing down Industry volumes to adecade low.
Due to severely hit by Covid and slowdown during FY2020- 21 your company had beenfacing cashflows pressure on account of cash losses and debts repayment which had anegative impact on the supply chain as well. Though the Aftermarket demand for both theOES and IAM were there your company has been facing top-line challenges on account of inability to ramp-up production due to liquidity pressures. Your company has resulted in atop-line degrowth of almost ~25% Y-o-Y (in which the CV production was down by almost~30%). The MHCV sales drop was due to overcapacity and the GST implementation as well asthe vehicle load adjustment and BS-VI implementation.
Despite facing liquidity issues we have been able to control our production costs aswell as our fixed overheads which has been brought down by 23.5% over FY19 numbers thatwill lead to a significant contribution going forward and will have a positive impact inthe future also as business start growing further
While we were in the midst of facing so many challenges we are happy and proud toannounce of our successful foray in the farm tractor market. We have achieved abreakthrough into the OEM market for farm tractors. This would not only lead todiversification of our capacities while de-risking from the MHCV Sector's OE cyclicalconsumption but also foray into a new sector that is fast becoming the farm equipmentfactory of the world.
Lava Cast too post debt restructuring is poised to change gears towards more capacityutilization as well as better micro performance indicators as it has shown good directionin curtailing manufacturing hurdles for quality and productivity. Although some long duemaintenance activities need to be completed and is on track to finish within the timebound manner.
You would be further happy to know that the fund-raising activity and financialrestructuring on which we have been working during the whole of FY2020-21 has been finallycompleted. As part of the transaction your Company has transferred its clutchmanufacturing business to its subsidiary company Setco Auto Systems Pvt Ltd (SASPL).Schemes of the India Resurgence Fund managed by India Resurgence Asset Management BusinessPrivate Limited ("IndiaRF") have invested in your company and SASPL anaggregate amount of Rs. 615 Crores through a senior debt facility and for a 35% equity andequity link instruments in SASPL. The proceeds of the investment have been utilizedtowards refinancing existing debt growth capital and also to fund its working capitalneeds to support business growth amid an anticipated recovery in the commercial vehiclemarket meet demand in the replacement market. The capital infusion will be critical tomeet the strong order book going forward and to support Lava Cast for its maintenanceactivities.
At the heart of our journey are our customers and we have been ensuring that in thesetough and uncertain times we are able to cater to their demands timely while alsobalancing our supply chain. We are strengthening our customer connect every day with newproducts and better services. Our board has been very supportive with our actions anddecisions that reflect on the rigour that our t leadership team works with and we aregrateful for their efforts
Our team at Setco Foundation too has worked towards the betterment of our communities.We have implemented the production and supply of masks through our communities whilemaking sure everyone understands the importance of increased hygiene and protection in thevillages where 0^ .work
Your Company has its challenges; however at our central core it is the continuedsuccess of all our stake-holders that we always continue to work with towards having astrong future which is growth-oriented with a tight control towards costs. We are hopefulthat post the fund infusion the H2 of 2021-22 will look much better and we will drive ourbusiness with excellence and mindfulness. In the words of Stephen R. Covey "Startwith the end in mind'' - this adage stands tall in this time of the pandemic theliquidity crisis; as your company management we will not sit still as we are workingtogether towards a stronger future.
|ours Sincerely |
|Harish Sheth |
|Chairman & Managing Director |