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We had released a Management Interaction Note on Mayur Uniquoters on 31st March 2011 at the then CMP of Rs 249.30 and
had advised investors to buy the scrip at the then CMP and add on dips to Rs 222 and Rs 227 band for targets of Rs 280 and
Rs 308 in 1 - 2 quarters. The stock had achieved our first target of Rs 280 on 27th April 2011 and achieved our second
target of Rs 308 on 20th May 2011. Post the report it made a low of Rs 251.65 on 11th April 2011 and a high of Rs 467
on 21st July 2011. Currently the stock is trading at Rs 415.05. We hereby present an update on the stock.
Company Background
Mayur Uniquoters Ltd (MUL), a PU and PVC synthetic leather (artificial leather) manufacturer, was established in 1992 by S.K.
Poddar, an industry veteran trader in PVC Leather line. Synthetic leather finds application in footwear, automobile seats,
upholstery, furnishings, sports goods, apparel, women bags, and a host of fashion accessories and it is used as a substitute
for natural leather. The products are customized to suit various applications. Synthetic leather is available in a very wide price
range depending on application, inputs that goes into it, order size, etc.
Key Developments & Updates:
Recent Financial Performance – Q3FY12
MUL came out with decent Q3FY12 results. The company reported net sales of Rs 81.09 crs in Q3FY12 as against Rs 68.84
crs in Q3FY11 and Rs 76.19 crs in Q2FY12. The company has been witnessing consistent growth in its sales over the past 3
quarters. The operating profit of the company stood at Rs 13.76 crs in Q3FY12 as against Rs 11.79 crs in Q3FY11 and Rs
12.17 crs in Q2FY12. The Profit Before Tax of the company stood at Rs 12.45 crs in Q3FY12 as against Rs 10.88 crs in
Q3FY11 and Rs 11.10 crs in Q2FY12. The PAT of the company for Q3FY12 stood at Rs 8.65 crs as against Rs 7.32 crs and
Rs 7.45 crs in Q2FY12. The EPS of the company stood at Rs 15.77 in Q3FY12 as against Rs 13.53 in Q3FY11 and Rs 13.77
in Q2FY12. During the quarter the company earned a duty drawback on part of exports of Rs 0.47 crs, which was reported
under the other operating income and interest on FD was reflected under other income for a total amount of Rs 0.58 crs.
Depreciation and interest costs rose as a consequence of the capitalization of expansion plans. MUL reported a forex loss of
Rs.1.52 crs in Q3FY12 vs. a gain of Rs.0.36 crs in Q3FY11.
Capacity expansions to help MUL in growing its business
Exactly a year ago, MUL had overall capacity of 1.4 mn mtrs with 3 lines installed at a plant near Jaipur. The company
installed the 4th line, which has enhanced the overall capacity to 1.9 mn mtrs. The 4th line started its production from December
2011 onwards and started functioning full fledged from the 1st week of February 2012. The company is also planning to start a
5th line of production and for the same purpose it has purchased land about 15 kms away from the current location. Post the
completion of this line (which is expected to be completed by December 2012), the company expects its capacity to be
enhanced to 2.5 mn mtrs per month.
The 5th line is expected to be completed at a capex of Rs.22 crs while the 4th line was completed at a capex of 10-12 crs. The
higher cost of the 5th line is mainly due to the fact that the line is being implemented at a new site.
With the demand for synthetic leather rising consistently, capacity expansion of the company could be handy and could augur
well for the smooth growth of its business in the coming years.
Backward integration through production of fabrics
As mentioned earlier, the company has purchased a new plot of land, about 15 kms away from the current plant near Jaipur.
The company along with planning a 5th line of production is also in the process of starting a fabric production unit which will
manufacture raw material for the synthetic leather unit of MUL and hence is a backward integration initiative. The company
has already started work and could start trial runs from Sept 2012. The capex incurred for this is about Rs.25 crs for
production of Rs.45 crs worth fabric (at full capacity). The fabric plant will go into production in two phases (in terms of
processes). This will help the company to register an increase in its margins and also help in reducing the rejection rate of its
final products in export markets as it will have total control over the quality of a key raw material.
To finance these two initiatives, MUL could borrow about Rs.20 crs worth loans (including a large portion from Textile up
gradation fund which is available with 5% interest subsidy). The rest could be raised from internal accruals.
However the management has indicated that it could take a couple of years, before the company enjoys full benefit of the
backward integration plans. This could mean that the company could see the full effect of fabric production into its financials by
FY14 and FY15.
Diverse and Recession Proof User Industries to ensure smooth flow of business
Over the recent past, the demand of artificial leather has increased due to different reasons. One of the prime reasons being
the low availability of natural leather around the globe and high cost of natural leather. One of the key benefits of having a
product like artificial leather in the basket is that it serves to a lot of user industries.
Artificial leather finds its application in many industries such as footwear, automobile seats, upholstery, furnishings, sports
goods, apparel, ladies bags, and a host of fashion accessories and is used as a substitute for natural leather. One of the
benefit due to this is that the demand for the product never goes down as the wide application of the product enables the
company to have a natural hedge against possible slowdown in any of the user industry and therefore helps the company
have a consistent growth in its sales and profits.
MUL has a marquee list of clients like Bata, Liberty, Action, Maruti, Hero Honda, Honda Motors, Eicher Motors, M&M, and also
Chrysler & Ford in export markets. Shortly, it expects to start supply to GM, BMW and Mercedes Benz. This surely is an
indicator of quality of its products and sustainability of its revenues, as these clients are large names with foreseeable
revenues streams.
The footwear industry is a major source of revenue for the company. With the demographics of the country changing rapidly
for good a lot of growth is expected in all the user industries, especially the footwear and auto industries. Car sales are also
expected to grow at a healthy rate in the coming years. This will enable the company register healthy growth in its topline and
bottomline.
Another key advantage that MUL enjoys here is that most of the user industries are recession proof especially the ones that
contribute most to the company’s sales. At the moment, 56% of the sales are contributed by the footwear industry, while Auto
and OEM together contribute ~33% and rest is by other Industries. Even in economic slowdown, the footwear industry does
not see an alarming fall in the demand and that indirectly helps MUL in getting orders consistently from these user industries.
This ensures smooth flow of the business and consistent growth in the revenues for the company.
One of the few Asian companies to supply in the US
MUL enjoys the benefit of being one of the very few Asian companies that has got the authorization to enter the American
continent to supply to Auto OEM / Tier 1 vendors in the USA. The company has taken full advantage of this and is already
supplying to big names in the US. For a competitor, to get the authorization to supply in the US, it could take time, as the
process for doing so is tedious and time consuming. MUL is awaiting certain formalities from big names like General Motors,
BMW and Mercedes and is expected to start supplying to those companies soon. It is already supplying to the companies like
Ford and Chrysler on a regular basis.
Conservative management and Strong Dividend Payout – Standout Features of MUL
MUL has a decent dividend policy and the company believes in paying out dividends every quarter. So far for FY12 it has
declared interim dividends totaling Rs.8.50 and we expect another Rs.4.50 as final dividend. This works out to a 3% dividend
yield at the CMP. The management of the company is conservative in terms of expansion plans; accounting practices,
leverage ratios etc. As of now the plan of the company is to roll out the 5th line and the fabric production. If the situation
demands, then the company is even focused and prepared for the 6th line and would start the process for the same as and
when required.
The confidence of the management, clubbed with decent performance of the company over the past few quarters reflects a
promising future for MUL going ahead.
Key Risks:
· One of the main concerns of the company is the competition it faces from both local and international players and from both
organized and unorganized sectors. It also faces stiff competition from China (mainly into PU) who is the key exporter of
artificial leather across the globe. However superior technology and consistent quality of the company’s products clubbed
with large capacity in the country helps the company tackle this concern to a certain extent.
· Another key risk is the raw material price fluctuation (Key raw material – PVC Resin, Plasticizer, Polyster yarn). With the
prices of raw materials consistently increasing, MUL could have a tough time passing it on to the end customers. However
the planned backward integration could help MUL reduce its overall cost to some extent.
· The company is involved in exports. Exports are bound to increase in the coming years with more demand arising out of
other auto companies and with more approvals expected from some other auto companies. This exposes the company forex
risk. MUL has also availed of Buyers Credit. This also leads to forex risks.
· Due to the proposed capacity expansions, the debt levels of the company could rise going ahead leading a rise in the debt
equity ratio. The interest and depreciation costs could also rise post the capex commissioning. The full benefits of the
proposed capex could take time to be enjoyed by the company and meanwhile, the NPMs could get impacted negatively.
· Due to sharp rise in the capacity from 1.4 mn mtrs to 2.5 mn mtrs in the next 2 years, the company could end up accepting
low margin orders to ensure capacity utilization thus impacting margins.
· In case of another economic slowdown, the per-capita income or the purchasing power of individuals could come down. This
will impact the spending pattern of consumer and despite the fact that MUL is insulated from slowdown due to its wide user
industry base, it could get hit temporarily.
· The company needs to get approvals from new and large customers to use its expanding capacity. Any delay/rejection could
impact the growth revenue growth of MUL.
· The promoters have 75% holding in the company, which results in only 25% of the shares with the public. Hence liquidity is
a matter of concern for the investors as the number of shares available through open market at a given point of time may not
be as much as desired by the investors.
· Currently, the company is paying strong dividends, however going ahead consistency in the same could be questioned and
dividends could be lower in the coming years due to higher capex.
Conclusion:
MUL is the leading producer of artificial leather in the country. It currently has a capacity of 1.9 mn meters per month and is
expanding the same to 2.5 mn meters per month through addition of a 5th line which is expected to start from December 2012.
The company is at the moment running 4 lines, of which the 4th line started its production from December 2011 and saw fullfledged
operations from the first week of February 2012.
With the demand of artificial leather increasing with every passing day, the company has already started its work on starting a
5th line which would enhance its overall capacity to 2.5 mn mtrs per month. For this purpose, land has been purchased
situated 15 km away from the current site where the company expects to install this 5th line at a capex of Rs 22 crs. The
company also intends to start fabric production at the same site as a step towards backward integration at a capex of Rs 25
crs and the production is expected to start by September 2012. The company expects to produce Rs 45 crs worth of fabrics
from the set up unit at full capacity after a couple of years. With the prices of raw materials increasing, this step could come as
a respite and the margins could improve going ahead. However it could take a couple of years, before the company actually
starts to enjoy the full benefit of this backward integration project. The company meanwhile is looking to increase the price of
its final products during March 2012. MUL could register volume growth in Q4FY12 and Q1FY13 due to the 4th line running at
full capacity from Feb 2012.
The company caters to the needs of various industries. The products of the company find application in industries such as
footwear, auto, handbags and other miscellaneous industries that use leather in their final products. Artificial leather is fast
replacing natural leather due to the cheapness of the former and also due to save animals campaign which discourages killing
of animals for leather. This combined with the ability of artificial leather to replicate natural leather has sparked demand for the
same and is expected to continue in the coming years.
The company has a large capacity of producing artificial leather in the country and hence stands to gain from the existing
opportunities in the industry. MUL has a marquee list of clients like Bata, Liberty, Action, Maruti, Hero Honda, Honda Motors,
Eicher Motors, M&M, and Chrysler & Ford in export markets. Shortly, it expects to start supply to GM, BMW and Mercedes
Benz. This surely is an indicator of quality of its products and sustainability of its revenues, as these clients are large names
with foreseeable revenues streams.
With consistent growth expected in the user industries, capacity expansions in place and the demand for artificial leather
growing rapidly, we feel that MUL could perform well in the coming years and hence record better sales and profits in the
coming years. Capacity expansion and better management of expenses could further help the company report decent growth
in margins. Further in Q4FY12, going by the current Rupee dollar rate, MUL could register forex gains.
PE rating is possible due to capacity expansions and backward integration. We feel investors could buy the stock in the
Rs.382-400 band (5.75-6xFY13E EPS) for a target of Rs 465 (7xFY13E EPS) over the next 1-2 quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We had released a Management Interaction Note on Mayur Uniquoters on 31st March 2011 at the then CMP of Rs 249.30 and
had advised investors to buy the scrip at the then CMP and add on dips to Rs 222 and Rs 227 band for targets of Rs 280 and
Rs 308 in 1 - 2 quarters. The stock had achieved our first target of Rs 280 on 27th April 2011 and achieved our second
target of Rs 308 on 20th May 2011. Post the report it made a low of Rs 251.65 on 11th April 2011 and a high of Rs 467
on 21st July 2011. Currently the stock is trading at Rs 415.05. We hereby present an update on the stock.
Company Background
Mayur Uniquoters Ltd (MUL), a PU and PVC synthetic leather (artificial leather) manufacturer, was established in 1992 by S.K.
Poddar, an industry veteran trader in PVC Leather line. Synthetic leather finds application in footwear, automobile seats,
upholstery, furnishings, sports goods, apparel, women bags, and a host of fashion accessories and it is used as a substitute
for natural leather. The products are customized to suit various applications. Synthetic leather is available in a very wide price
range depending on application, inputs that goes into it, order size, etc.
Key Developments & Updates:
Recent Financial Performance – Q3FY12
MUL came out with decent Q3FY12 results. The company reported net sales of Rs 81.09 crs in Q3FY12 as against Rs 68.84
crs in Q3FY11 and Rs 76.19 crs in Q2FY12. The company has been witnessing consistent growth in its sales over the past 3
quarters. The operating profit of the company stood at Rs 13.76 crs in Q3FY12 as against Rs 11.79 crs in Q3FY11 and Rs
12.17 crs in Q2FY12. The Profit Before Tax of the company stood at Rs 12.45 crs in Q3FY12 as against Rs 10.88 crs in
Q3FY11 and Rs 11.10 crs in Q2FY12. The PAT of the company for Q3FY12 stood at Rs 8.65 crs as against Rs 7.32 crs and
Rs 7.45 crs in Q2FY12. The EPS of the company stood at Rs 15.77 in Q3FY12 as against Rs 13.53 in Q3FY11 and Rs 13.77
in Q2FY12. During the quarter the company earned a duty drawback on part of exports of Rs 0.47 crs, which was reported
under the other operating income and interest on FD was reflected under other income for a total amount of Rs 0.58 crs.
Depreciation and interest costs rose as a consequence of the capitalization of expansion plans. MUL reported a forex loss of
Rs.1.52 crs in Q3FY12 vs. a gain of Rs.0.36 crs in Q3FY11.
Capacity expansions to help MUL in growing its business
Exactly a year ago, MUL had overall capacity of 1.4 mn mtrs with 3 lines installed at a plant near Jaipur. The company
installed the 4th line, which has enhanced the overall capacity to 1.9 mn mtrs. The 4th line started its production from December
2011 onwards and started functioning full fledged from the 1st week of February 2012. The company is also planning to start a
5th line of production and for the same purpose it has purchased land about 15 kms away from the current location. Post the
completion of this line (which is expected to be completed by December 2012), the company expects its capacity to be
enhanced to 2.5 mn mtrs per month.
The 5th line is expected to be completed at a capex of Rs.22 crs while the 4th line was completed at a capex of 10-12 crs. The
higher cost of the 5th line is mainly due to the fact that the line is being implemented at a new site.
With the demand for synthetic leather rising consistently, capacity expansion of the company could be handy and could augur
well for the smooth growth of its business in the coming years.
Backward integration through production of fabrics
As mentioned earlier, the company has purchased a new plot of land, about 15 kms away from the current plant near Jaipur.
The company along with planning a 5th line of production is also in the process of starting a fabric production unit which will
manufacture raw material for the synthetic leather unit of MUL and hence is a backward integration initiative. The company
has already started work and could start trial runs from Sept 2012. The capex incurred for this is about Rs.25 crs for
production of Rs.45 crs worth fabric (at full capacity). The fabric plant will go into production in two phases (in terms of
processes). This will help the company to register an increase in its margins and also help in reducing the rejection rate of its
final products in export markets as it will have total control over the quality of a key raw material.
To finance these two initiatives, MUL could borrow about Rs.20 crs worth loans (including a large portion from Textile up
gradation fund which is available with 5% interest subsidy). The rest could be raised from internal accruals.
However the management has indicated that it could take a couple of years, before the company enjoys full benefit of the
backward integration plans. This could mean that the company could see the full effect of fabric production into its financials by
FY14 and FY15.
Diverse and Recession Proof User Industries to ensure smooth flow of business
Over the recent past, the demand of artificial leather has increased due to different reasons. One of the prime reasons being
the low availability of natural leather around the globe and high cost of natural leather. One of the key benefits of having a
product like artificial leather in the basket is that it serves to a lot of user industries.
Artificial leather finds its application in many industries such as footwear, automobile seats, upholstery, furnishings, sports
goods, apparel, ladies bags, and a host of fashion accessories and is used as a substitute for natural leather. One of the
benefit due to this is that the demand for the product never goes down as the wide application of the product enables the
company to have a natural hedge against possible slowdown in any of the user industry and therefore helps the company
have a consistent growth in its sales and profits.
MUL has a marquee list of clients like Bata, Liberty, Action, Maruti, Hero Honda, Honda Motors, Eicher Motors, M&M, and also
Chrysler & Ford in export markets. Shortly, it expects to start supply to GM, BMW and Mercedes Benz. This surely is an
indicator of quality of its products and sustainability of its revenues, as these clients are large names with foreseeable
revenues streams.
The footwear industry is a major source of revenue for the company. With the demographics of the country changing rapidly
for good a lot of growth is expected in all the user industries, especially the footwear and auto industries. Car sales are also
expected to grow at a healthy rate in the coming years. This will enable the company register healthy growth in its topline and
bottomline.
Another key advantage that MUL enjoys here is that most of the user industries are recession proof especially the ones that
contribute most to the company’s sales. At the moment, 56% of the sales are contributed by the footwear industry, while Auto
and OEM together contribute ~33% and rest is by other Industries. Even in economic slowdown, the footwear industry does
not see an alarming fall in the demand and that indirectly helps MUL in getting orders consistently from these user industries.
This ensures smooth flow of the business and consistent growth in the revenues for the company.
One of the few Asian companies to supply in the US
MUL enjoys the benefit of being one of the very few Asian companies that has got the authorization to enter the American
continent to supply to Auto OEM / Tier 1 vendors in the USA. The company has taken full advantage of this and is already
supplying to big names in the US. For a competitor, to get the authorization to supply in the US, it could take time, as the
process for doing so is tedious and time consuming. MUL is awaiting certain formalities from big names like General Motors,
BMW and Mercedes and is expected to start supplying to those companies soon. It is already supplying to the companies like
Ford and Chrysler on a regular basis.
Conservative management and Strong Dividend Payout – Standout Features of MUL
MUL has a decent dividend policy and the company believes in paying out dividends every quarter. So far for FY12 it has
declared interim dividends totaling Rs.8.50 and we expect another Rs.4.50 as final dividend. This works out to a 3% dividend
yield at the CMP. The management of the company is conservative in terms of expansion plans; accounting practices,
leverage ratios etc. As of now the plan of the company is to roll out the 5th line and the fabric production. If the situation
demands, then the company is even focused and prepared for the 6th line and would start the process for the same as and
when required.
The confidence of the management, clubbed with decent performance of the company over the past few quarters reflects a
promising future for MUL going ahead.
Key Risks:
· One of the main concerns of the company is the competition it faces from both local and international players and from both
organized and unorganized sectors. It also faces stiff competition from China (mainly into PU) who is the key exporter of
artificial leather across the globe. However superior technology and consistent quality of the company’s products clubbed
with large capacity in the country helps the company tackle this concern to a certain extent.
· Another key risk is the raw material price fluctuation (Key raw material – PVC Resin, Plasticizer, Polyster yarn). With the
prices of raw materials consistently increasing, MUL could have a tough time passing it on to the end customers. However
the planned backward integration could help MUL reduce its overall cost to some extent.
· The company is involved in exports. Exports are bound to increase in the coming years with more demand arising out of
other auto companies and with more approvals expected from some other auto companies. This exposes the company forex
risk. MUL has also availed of Buyers Credit. This also leads to forex risks.
· Due to the proposed capacity expansions, the debt levels of the company could rise going ahead leading a rise in the debt
equity ratio. The interest and depreciation costs could also rise post the capex commissioning. The full benefits of the
proposed capex could take time to be enjoyed by the company and meanwhile, the NPMs could get impacted negatively.
· Due to sharp rise in the capacity from 1.4 mn mtrs to 2.5 mn mtrs in the next 2 years, the company could end up accepting
low margin orders to ensure capacity utilization thus impacting margins.
· In case of another economic slowdown, the per-capita income or the purchasing power of individuals could come down. This
will impact the spending pattern of consumer and despite the fact that MUL is insulated from slowdown due to its wide user
industry base, it could get hit temporarily.
· The company needs to get approvals from new and large customers to use its expanding capacity. Any delay/rejection could
impact the growth revenue growth of MUL.
· The promoters have 75% holding in the company, which results in only 25% of the shares with the public. Hence liquidity is
a matter of concern for the investors as the number of shares available through open market at a given point of time may not
be as much as desired by the investors.
· Currently, the company is paying strong dividends, however going ahead consistency in the same could be questioned and
dividends could be lower in the coming years due to higher capex.
Conclusion:
MUL is the leading producer of artificial leather in the country. It currently has a capacity of 1.9 mn meters per month and is
expanding the same to 2.5 mn meters per month through addition of a 5th line which is expected to start from December 2012.
The company is at the moment running 4 lines, of which the 4th line started its production from December 2011 and saw fullfledged
operations from the first week of February 2012.
With the demand of artificial leather increasing with every passing day, the company has already started its work on starting a
5th line which would enhance its overall capacity to 2.5 mn mtrs per month. For this purpose, land has been purchased
situated 15 km away from the current site where the company expects to install this 5th line at a capex of Rs 22 crs. The
company also intends to start fabric production at the same site as a step towards backward integration at a capex of Rs 25
crs and the production is expected to start by September 2012. The company expects to produce Rs 45 crs worth of fabrics
from the set up unit at full capacity after a couple of years. With the prices of raw materials increasing, this step could come as
a respite and the margins could improve going ahead. However it could take a couple of years, before the company actually
starts to enjoy the full benefit of this backward integration project. The company meanwhile is looking to increase the price of
its final products during March 2012. MUL could register volume growth in Q4FY12 and Q1FY13 due to the 4th line running at
full capacity from Feb 2012.
The company caters to the needs of various industries. The products of the company find application in industries such as
footwear, auto, handbags and other miscellaneous industries that use leather in their final products. Artificial leather is fast
replacing natural leather due to the cheapness of the former and also due to save animals campaign which discourages killing
of animals for leather. This combined with the ability of artificial leather to replicate natural leather has sparked demand for the
same and is expected to continue in the coming years.
The company has a large capacity of producing artificial leather in the country and hence stands to gain from the existing
opportunities in the industry. MUL has a marquee list of clients like Bata, Liberty, Action, Maruti, Hero Honda, Honda Motors,
Eicher Motors, M&M, and Chrysler & Ford in export markets. Shortly, it expects to start supply to GM, BMW and Mercedes
Benz. This surely is an indicator of quality of its products and sustainability of its revenues, as these clients are large names
with foreseeable revenues streams.
With consistent growth expected in the user industries, capacity expansions in place and the demand for artificial leather
growing rapidly, we feel that MUL could perform well in the coming years and hence record better sales and profits in the
coming years. Capacity expansion and better management of expenses could further help the company report decent growth
in margins. Further in Q4FY12, going by the current Rupee dollar rate, MUL could register forex gains.
PE rating is possible due to capacity expansions and backward integration. We feel investors could buy the stock in the
Rs.382-400 band (5.75-6xFY13E EPS) for a target of Rs 465 (7xFY13E EPS) over the next 1-2 quarters.
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