CMP: Rs. 424.15; Market Cap:
Rs. 1,962.86 Cr; 52 Week High/Low: Rs. 515.00 / Rs. 378.40. Total Shares: 4,62,77,600 shares;
Promoters : 2,82,84,916 shares – 61.12 %; Total Public holding : 1,79,92,684 shares – 38.88 %; Book Value: Rs. 48.56; Face
Value: Rs. 5.00; EPS: Rs. 15.20; Dividend: 61.00 %; P/E: 27.98 times; Ind. P/E: 28.94;
EV/EBITDA: 17.24.
Total Debt: Rs. 44.82 Cr; Enterprise Value: Rs. 1,987.19 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, Jasch Industries, Responsive Industries, Fenoplast, Prabhat
Industries, Polynova, Manish Vinyl and Veekay Polycoat globally compared with Daiichi Kasei Company Ltd of Japan, Chanco
International Group Ltd of Hong Kong.
Investment Rationale:
Mayur
Uniquoters Ltd. (MUL), 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. Mayur Uniquoters Limited was incorporated
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. Artifical leathers are economical and are in demand more 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. Mayur
Uniquoters is India’s largest organised polyvinyl chloride (PVC) based
synthetic-artificial leather-maker, with an annual installed capacity of 36.6
linear mn metres. The company’s products are used in footwear, automobile,
furnishing and lifestyle products. Around half of its revenue comes from
footwear followed by high-margin auto OEMs which is around 39 %. India’s present
synthetic leather industry size is around Rs. 45 to 50 billion and is expected
to double in the next five years on the back of increasing demand form automotive,
expansion of furniture-interior furnishing industry and lastly, rising
consumption and purchasing power of consumers. Of the 160 coating lines
operating in India, 60 are in the organised sector and remaining in unorganised.
The industry is non-cyclical in nature and proxy on India’s consumption growth
story. As a substitute for leather which is 70 % cheaper, PVC or Synthetic
leather applications are vast and are rapidly replacing leather in many
industries. Due to its diversified presence across industries, Mayur will play
a dominant role being the largest organised player in synthetic leather
industry’s expansion. The potential to scale up a footwear business is less as organised
makers which are around 30 % source around 60 % of their needs from unorganised
PVC leather suppliers and 70% of unorganised footwear makers rely on
unorganised supplies due to cost factor. As the footwear business is mainly a
volume play with lower realisations, Mayur is focusing more on the automobile
and furnishing segments, where realisations are high with limited competition.
It is also entering B2C furnishing with a pan India distribution network. Mayur
being India’s only player, among Asia’s few, to enter the US auto OEM market for
seating fabric and supply for the last four years. Its four-year ties with
Chrysler and Ford earned the status of a dependable fabric supplier. Mayur
plans to leverage this experience with GM, Mercedes among others. To strengthen
its US presence, Mayur has set up a warehouse in Mexico and formed a
fully-owned subsidiary in the US. That export OEM will clock in revenue CAGR of
25 % during FY15-18e. Due to the absence
of credible suppliers, India imports 5mn metres of polyurethane (PU) every year
from China where the concerns like quality, consistency, reliability exist. Mayur
has raised funds to set up the largest PU capacity in India of Rs. 700 to
800mn. Two PU coating lines of 300,000 metres each will be on stream by FY18
and the company expects to clock revenue of Rs. 1 billion in the first year of
operation. Mayur, being a well-known PVC supplier, will capture a larger share
of the unorganised and imported PU market. Around half of the PVC or synthetic
leather produced in India is consumed by the footwear industry for use in the
upper part and inner sole. Major customers for the industry are Bata India,
Liberty Shoes, Relaxo Footwear, VKS Footwear, Paragon, Lunar Footwear and
Action. Mayur caters to more than 50 % of the requirements of Bata, VKC and
Paragon. As many unorganised players to meet the demands of organised footwear
makers, it is mainly volume play with realisations being moderate. The
second-largest client with around 30 % for PVC-synthetic leather is the
automobile industry, with applications in seat cover, head-arm rest, door panel
pad, sun visors, roof pad, steering, gear cover and dash board. The requirement
of PVC or synthetic leather varies 3-7 meters depending on the automobile
models. The third-largest requirement comes from the furnishing and lifestyle
industry and includes sofa-makers, jacket, hand bags, apparel-garments, and
luggage and sports goods. PVC-synthetic leather appears and feels like natural
leather and is rapidly finding replacement in many industries. As a cheap
substitute of leather almost 70 % cheaper, its applications are limitless. This
industry is a perfect competitive market with many players and no entry
barriers; however, the challenge is to achieve scale and remain financially
sound. A new player can enter the footwear or furnishing market where realisations
are lower, but it will take years to penetrate the auto OEM market, where
quality, timeliness and consistency are utmost priority. Mayur hence enjoys 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. The broader industry
is not cyclical and is driven by the underlying consumption growth story. Mayur
also supplies to footwear makers where the given average realisation is of Rs. 225
to 250 per metres, Mayur supplies PVC/synthetic fabric to automakers such as
Maruti Suzuki, Tata Motors, Isuzu, Mahindra & Mahindra, GM India, Ford
India, Hero Honda and HMSI, with an average realisation of Rs. 166 per metre.
Buyers’ willingness to pay a premium for better interiors prompted domestic
OEMs to use better quality PVC/synthetic fabric. Mayur recently finalised a
higher price point of Rs. 350 per metre with M&M, Ford India and GM India.
Its global presence has earned clients like Ford India and GM India. Going
forward, Mayur should be able to leverage this by adding more clientele and
supplies to export OEMs (for seat-making) give a realisation of Rs. 450-480 per
metre. Higher revenue contribution from automobile and other segments is expected
to be higher, going forward. Recently, Mayur has raised funds from West Bridge
to set up a Polyurethane (PU) plant in Dodsar (Jaipur) and has acquired more than
half of the land needed. As PU is technology-driven, to make the process smooth
and world class, the company will hire a team of technicians from China.
Currently, it is solving water related issues (usage of waste water), as
certain regions in Rajasthan come under the “dark zone” where it is illegal to
use underground water. The issue is expected to be resolved in two to three
months and the project would need 12-15 months to start post approvals, by
4QFY17. Going forward, Mayur plans to manufacture chemicals domestically, which
are being imported and used by domestic players. The company expects Rs. 1.5bn
revenue in the first year of operation, with two coating lines of 300,000
metres per month each and an estimated investment of Rs. 700 to 800 million.
With an additional cost of 20 % to 25 %, PU scores over PVC in terms of better
quality and finishing and wider applications. PU trades at a premium of 20 to 25
% to PVC fabric, with average realisation of more than Rs. 250 per metres. World
over, PU is widely used due to its flexibility in usage, applications and
further processing like to make fire retardant fabrics, water proof, denim
fabric and many more variations which would be difficult with a PVC fabric. India’s
PU market is 80 % unorganised. Mayur being a credible player in the PVC segment
shall significantly influence the market dynamics.
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. India annually consumes around 17mn per meters of PU, of which 5mn
per metres are imported mainly from China. World over, the split between PU or PVC
is 80 % to 20 %, while in India it is reverse. India’s per capita PU consumption
is 300gms, while China’s is 2kgs. Under-penetration exists in both demand and
supply side mainly due to inefficient infrastructure, non-availability of
trained human resources, lack of product awareness and fluctuating raw material
prices.
Mayur is the market leader in India’s PVC synthetic leather industry and also
caters to US auto OEMs – a market which no other domestic company has been able
to penetrate. With increased penetration of organised players in the synthetic
leather user industries, Mayur Uniquoters will stand to gain from its
ability to deliver quality products consistently in an otherwise fragmented
market. Given Mayur’s strong balance sheet, consistent quality and foray into
polyurethane (PU), Mayur has its potential to scale up operations. There
are not many listed companies which have a similar business as Mayur Uniquoters.
However, its closest peer set would be footwear-related and auto ancillary
companies. 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 is the world’s second-largest
footwear maker after China. India produces more than 2.5 billion pairs of
footwear per annum which is 12 % of global footware production and 70 % of this
market are unorganised. Organised players like Bata, Relaxo, Liberty, VKC,
Paragon, Lunar and Action on an average have 35 % to 40 % of their
PVC/synthetic leather requirement met by organised players like Mayur and the
rest by unorganised players. However, Mayur has limited scope to scale up as 60
% to 65 % of organised players’ demand is met from unorganised PVC or Synthetic
leather makers at highly competitive rates. Also, 70 % of the unorganised
footwear makers may not afford to source from Mayur due to lesser credit days
and or pricing premium over others. 70-75% of the footwear makers are situated
in northern India, and the company’s 70% (of footwear segment) supply goes to
southern India. This reflects in Mayur’s revenue from the footwear segment;
volumes were flat and realisation declined and we expect this trend to continue
going forward. 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. Mayur can clock in revenue CAGR of 22 %
during FY15-18e on the back of increasing demand and faster replacement of
PVC/synthetic leather, shifting focus to high margin automobile and furnishing
segments from footwear, well positioned to penetrate deeper among US auto OEMs
and lastly expansion into polyurethane (PU) by setting up India’s largest
capacity in Rajasthan. The premium valuation is justified looking at the
valuation of its peers like the average PE of its peers is 29.4 for FY16E &
22.70 for FY17E whereas Mayur is trading at 26.02 for FY16E and at 21.64 for
FY17E with average revenue CAGR for FY15 to 17E of its peers at 18 % and average
PAT CAGR of 36 % where Mayur can have revenue CAGR for the FY15 to FY17E at 19
% and PAT CAGR of 22 %. 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 huge 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 CMP of Rs. 424.15, the stock is
trading at its all-time high P/E of 26.02x FY16E, 21.64x FY17E. The Company can
post EPS of Rs. 16.30 for FY16E & Rs. 19.60 for FY17E. Given the attractive valuations with the pan India
presence, robust growth prospects, one can buy this stock with expectations that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
| KEY FINANCIALS | FY14 | FY15 | FY16E | FY17E |
|---|
| SALES (₹ Crs) | 469.60 | 506.30 | 564.60 | 660.50 |
| NET PROFIT (₹ Cr) | 57.80 | 62.50 | 75.60 | 90.50 |
| EPS (₹) | 12.50 | 13.50 | 16.30 | 19.60 |
| PE (x) | 33.20 | 30.80 | 25.40 | 21.20 |
| P/BV (x) | 11.90 | 6.80 | 5.70 | 4.80 |
| EV/EBITDA (x) | 20.40 | 19.60 | 15.90 | 13.20 |
| ROE (%) | 41.40 | 28.20 | 24.40 | 24.60 |
| ROCE (%) | 34.40 | 22.80 | 20.80 | 21.90 |
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*As the author of this blog I disclose that I do not hold MAYUR UNIQUOTERS LTD in my any of the portfolios.
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