CMP: Rs. 418.80; Buy at current levels and at every dipps. Medium to Long Term Target: Rs. 600 and can go to Rs. 800 in two years time; STOP LOSS – Rs. 385.30; Market Cap: Rs. 1,813.39 Cr; 52 Week High/Low: Rs. 485.00 / Rs. 125.00. Total Shares: 4,33,05,600 shares; Promoters : 3,06,61,904 shares –70.80 %; Total Public holding : 1,26,43,696 shares – 29.19 %; Book Value: Rs. 27.36; Face Value: Rs. 5.00; EPS: Rs. 13.92; Dividend: 95.00 %; P/E: 30.56 times; Ind. P/E: 30.08; EV/EBITDA: 18.40.
Total Debt: Rs. 21.00 Cr; Enterprise Value: Rs. 1,828.84 Cr.
MAYUR UNIQUOTERS LIMITED: Mayur Uniquoters Limited was founded in 1992 and is based in Jaipur, India. Mayur Uniquoters Limited manufactures and sells coated textile fabrics in India. The company’s products include artificial leather, synthetic leather, and PVC vinyl. Its products are used in footwear, furnishings, automotive OEM, automotive replacement, and automotive exports markets. The company sells products directly to OEMs, as well as to other manufacturers and wholesalers. It also exports its products to the Middle East, Cyprus, the United Kingdom, Russia, Sri Lanka, Nepal, the United Arab Emirates, Mexico, Italy, and the United States. The company had declared splits in face value of its shares from Rs. 10 to Rs. 5 in July 2013 and gave bonus of 1:1 in June 2012 and again 1:1 bonus in February 2014. Mayur Uniquoters Ltd has an installed capacity of 400,000 Linear Meters per month & it has a full range of machinery to full-fill Printing, Embossing, Lacquering, Sue ding and laminating needs. The company possesses fully equipped Physical, Chemical and Product Development Laboratories capable of testing nearly all the properties of Artificial Leather for different segments and applications. Company also manufactures and exports PVC Vinyl also referred to as Artificial Leather or Synthetic Leather; they are also termed as PVC Leather Cloth, PU/PVC Leather Cloth. The company has its own inline testing lab, physical testing lab, raw material testing lab, Colour testing lab and product development lab. Company carters to major automobile brands in India to name the few are BMW, General Motors, Daimler, Maruti Suzuki, Tata Motors, Honda, Ford, Hyundai, Nissan, LML. Mayur Uniquoters Ltd is locally compared with Superhouse Ltd, Lawreshwar Polymers Ltd, Super Tannery ltd, Super House Ltd, Crew BOS products Ltd, Mideast India Ltd, Mirza International Ltd, Fenoplast ltd, Zenith Exports Ltd, Mayur Leather Products Ltd, Relaxo Footware ltd globally compared with Daiichi Kasei Company Ltd of Japan, Chanco International Group Ltd of Hong Kong.
Investment Rationale:
Mayur Uniquoters Ltd is the largest manufacturer of artificial leather and PVC Vinyl in India and was established by Mr. Poddar in 1994. Mayur Uniquoters is a market leader with installed capacity of 2.5 million linear meters per month. The company is operating at 100 % capacity utilisation, and has planned to expand its capacity further to 3.05 million linear meters per month by 2015. Company’s nearest competitor is just 50 % of the company’s current capacity. The company derives more than 50 % of its revenues through organised footwear industry and some of its prestigious clients include all top names such as Bata, Action, Liberty, Relaxo, etc. and the Automobile industry contributes 35 % of revenue and some of its prestigious clients include all top names such as BMW, General Motors, Daimler, Maruti Suzuki, Tata Motors, Honda, Ford, Hyundai, Nissan, LML. This list further indicates the consistent superior quality provided by Mayur Uniquoters. On the export front, the company has managed to get entry into Ford Motors and Chrysler. In addition, orders from clients like GM, Mercedes and BMW are also in the pipeline. Due to inherent negatives of natural leather such as being derived from animal sources, tanneries causing pollution and most importantly due to its high cost, Synthetic Leather has become a better economical alternate to natural leather and Mayur Uniquoters sees an increasing trend of replacing natural leather with synthetic leather in various industries. As per the management of Mayur Uniquoters Ltd, the addressable market size is in the range of Rs. 4,000- Rs. 5,000 crores. The Indian textile industry is one of the major sectors of Indian economy largely contributing towards the growth of the country’s industrial sector. The textile sector contributes 14 % to industrial production, 4 % to National GDP, and 10.63 % to country’s export earnings. Textile sector in India provides direct employment to over 35 million people and holds the second position after the agriculture sector in providing employment. Growing at a rapid pace, the Indian Market is being flocked by foreign investors exploring investment purposes and with an increasing trend in the demand for textile products in the country, a number of new companies and joint ventures are being set up in the country to capture new opportunities in the market The most significant change in the Indian textile industry has been the advent of man-made fibres (MMF). The country has successfully placed its innovative range of Man Made Fibres textiles in almost all the countries across the globe. Lower realisations and margins in the domestic market have prompted Mayur Uniquoters to shift focus towards exports and replacement markets. Mayur Uniquoters has successfully acquired clientele in the global Auto OEM markets such as Ford (USA) and Chrysler (USA). The company is expecting to supply to other global OEM players such as BMW, Mercedes and GM. In future, the company can insulate itself from any recessionary trends in the auto industry by targeting the replacement market. Supplying to the dealers of the aftermarket segment of USA is also under consideration. Indian synthetic leather manufacturers supply mainly to the Footwear industry and to the Automotive OEMs. The market size of synthetic leather industry in India is estimated to be Rs. 4500 crores. The unorganised sector accounts for 50 % of this market, whereas the remaining 50 % is serviced by the organised sector which comprises 10-15 players including 5-6 big players. These organized players include Jasch Industries, Fenoplast, Manish Vinyl, V.K. Polycoats, HR Polycoats and Polynova Industries, among others. Synthetic leather is also used to make accessories such as bags, home furnishings etc. Synthetic leather has found acceptance in the western markets which have been traditionally natural leather markets. As cost efficiency gains importance in the global auto markets, synthetic leather, which is 4-5 times cheaper than natural leather, has become a preferred choice for Auto OEMs. Apart from the cost differential, synthetic leather has found favour over natural leather due to a variety of reasons such as reduced pollution, animal cruelty concerns etc usually associated with leather tanning. The market size of India's synthetic leather industry is expected to double in the next five years to Rs. 9,000 crore on account of improved technology, improved product quality, increasing consumption and purchasing power.
Outlook and Valuation:
Mayur Uniquoters Limited manufactures and sells coated textile fabrics in India. The company’s products include artificial leather, synthetic leather, and PVC vinyl. Its products are used in footwear, furnishings, automotive OEM, automotive replacement, and automotive exports markets. The company sells products directly to OEMs, as well as to other manufacturers and wholesalers. The company is in the process of installing a 5th coating line, which will be dedicated mainly to the exports market. This will take the coating line production from 1.85 mn linear meters per month to 2.5 mn linear meters per month. In addition, the company is planning to increase this capacity to 3.1 mn linear meters per month going forward. The capacity addition will lead to increase in volume and the export focus will lead to margin expansion. In addition, the company is doing backward integration in manufacturing synthetic knitted fabric, a key raw material post chemicals with investment of Rs. 25 crores. This will lead to quality control and reduce rejection which will also help in margin expansion. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry – by Warren Buffett) expanding moats which is a very strong sign of a future Multi-bagger stock. Footwear segment contributes 54 % to Mayur Uniquoters Ltd’s total revenues on the back of big clientele. The company’s clientele include Bata, Paragon, Liberty, Action, VKC group and Relaxo. The current market size of Indian footwear industry is estimated at Rs. 30,000 Cr to Rs. 35,000 Cr. The industry witnessed a CAGR of 18 % over FY08-12, which in turn led to growth in Mayur Uniquoters Ltd’s footwear segment. India’s average per capita footwear consumption is at 2.5 footwear pair’s p.a, which is much lower than the average per capita consumption of 5.0 pair’s in the developed countries. Thus, there is scope for improvement, which in turn offers big opportunity for players such as Mayur Uniquoters Ltd to cater to this growing market. The Auto OEM segment is the second largest segment for Mayur Uniquoters Ltd. This segment contributes 35 % to the company’s total revenues. Mayur Uniquoters Ltd caters to both domestic as well as global OEMs and replacement markets. OEM exports realisations can be as high as US$ 7 to $ 9 per metre (Rs. 427 to Rs. 550 per metre) over domestic OEM realisation of Rs. 120-135 per metre. The realisation from sale to Global OEMs with Indian presence stands at Rs. 200 per metre. Synthetic leather is produced by a process known as calendaring where PVC sheet and two distinct layers of knitted fabrics are fused together. Mayur commands 7 % to 8 % market share in Indian PVC market and has steadily increased its exposure to big Auto OEM players. Mayur Uniquoters has already received approvals and featured in the supplier list of Auto OEMs such as Ford India, GM India & Mahindra SUV500 etc. It is also part of the approval list of suppliers to Ford Worldwide along with Chrysler (USA). Mayur intends to expand its presence in the global market as a key synthetic leather supplier. Mayur Uniquoters Ltd has achieved backward integration linkage by investing Rs. 25 crores in a unit producing knitted fabrics. This could bring down the raw material costs by 5-10 % and in turn improve margins. By controlling the quality of raw material, the company would also target a lower rejection rate, thus improving quality. Also, this backward integration would significantly reduce the product development cycle from 2-3 months to 3-4 weeks. The company has consistently improved its realisation per meter from Rs. 188 per meter in FY11 to Rs. 225 per meter in FY13. The growth in high margin exports business and the backward integration in manufacturing knitted fabric will lead to further improvement in margins. The comapny has been reporting strong return ratios for the last 4 years with ROE in excess of 40 %. Due to strong cost control and better working capital management, the debt equity ratio is negligible. There has also been consistency in dividend payout. On Financial side, Mayur Uniquoters Ltd.’s has consistently grown over the last decade. Its Sales are expected to grow at a CAGR of 23 % over FY13-FY16E. The company has revenue growth of 24 % CAGR over FY11-FY13. It is expected that Mayur Uniquoters to continue recording such a strong revenue growth going ahead with its renewed focus on the Auto OEM segment and its emphasis on an exports led revenue growth. EBITDA is expected to record a growth of 17 % CAGR over FY13-16E. Company’s PAT grew at a CAGR of 31 % over FY11 to FY13 and is expected to grow at a healthy rate. Mayur Uniquoters offers a superior ROCE and ROE. It has reported an average of 61 % of RoCE since FY11 and will continue to generate healthy ROE, making it an attractive business to look at. Going forward, it is expected that the quality of ROE to remain in excess of 30 % with stable operating margins and minimal addition in leverage. Company will witness strong operating cash flows with no incremental capex; the Debt to Equity ratio is expected to be reduced further and company’s Operating cash flows are expected to remain strong on the back of robust sales and efficient working capital management. At the current market price of Rs. 418.80, the stock P/E ratio is at 13.29 x FY15E and 11.16 x FY16E respectively. Company can post Earning per share (EPS) of Rs. 31.50 for FY15E and Rs. 37.50. One can buy this stock with a target price of Rs. 600.00 for Medium to Long term investment.
| KEY FINANCIALS | FY13 | FY14 | FY15E | FY16E |
|---|
| SALES (₹ Crs) | 381.00 | 487.00 | 600.00 | 709.00 |
| NET PROFIT (₹ Cr) | 44.00 | 54.00 | 68.00 | 81.00 |
| EPS (₹) | 20.10 | 25.00 | 31.50 | 37.50 |
| PE (x) | 48.20 | 19.40 | 15.40 | 12.90 |
| P/BV (x) | 8.90 | 6.60 | 5.00 | 3.80 |
| EV/EBITDA (x) | 15.40 | 12.20 | 9.40 | 7.70 |
| ROE (%) | 42.70 | 39.10 | 36.80 | 33.30 |
| ROCE (%) | 55.60 | 48.20 | 45.80 | 42.70 |
I would buy MAYUR UNIQUOTERS LTD for Medium to Long term for target of Rs. 600.00 and stock can see Rs. 800 and for the shorter term the target would be Rs. 500.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 385.30 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
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