Mayur-Uniquoters-Ltd-CMP-and-Target-Price

Mayur Uniquoters is the largest synthetic leather player, which uses the ‘Release Paper Transfer Coating Technology’ to manufacture synthetic leather. The company has a full range of machinery to fulfil knitting, processing, heat setting, coating, embossing, printing, lacquering, sueding, tumbling and laminating needs. There are two primary types of faux leather maufacturing:

(1) Polyurethane (“PU”)

(2) Polyvinyl chloride (PVC – “Vinyl”) also known as “Vegan” Leather.

PVC leather is in the highest demand in:

(1) Automotive Industry for interior applications

(2) Footwear.

(3) Ladies hand bag and accessories products in the Industry.

Replacement of Real Leather worldwide is increasing in automotive interior, bus & truck, home furnishing, footwear, hospitality industry and general purpose handbags with Imitation leather cloth.

PU leather cloth is primarily used in markets such as ladies footwear, garments, hand bags due to its soft, light weight and supple appeal to consumers.

PU leather products more environment friendly products. Such raw materials will make a major impact in reducing global warming and new products with better properties with end of life recyclability supporting reduction in use of world’s fossil fuels.

Stock Description
Market Cap. (Cr.) 1210
Book Value (Rs) 127.38
Face Value (Rs) 5
Equity 22.66
ROE (%) 14.43%
ROCE (%) 18.12%
P/E 14.85
EPS 15.47
Reserve (Cr.) 554.7
Debt to Equity 0.05
Sector PU leather

Shareholding pattern

Jun-20 Mar-20 Dec-19
Promoters 61.48 61.48 61.36
FII 7.14 7.58 12.02
DII & Ins 0.82 1.41 1.75
MF 2.87 3.25 2.94
Others 27.69 26.28 21.93
Pledge 0 0 0

Market-Movement

Market:

India

Indian manufactured leather is in demand where raw hides or semi treated hides are in demand in western countries such as USA, Middle East and far eastern countries.

Artificial Leather produced in India also has made several inroads in USA and Europe Markets.

Global

The global synthetic leather market size: 2019: USD 29.2 billion Projection by 2027: USD 52.96 billion.

It is projected to expand at a revenue-based CAGR of 7.8% during the forecast period.

Company’s products are used in

(1) Automotive

(2) Footwear

(3) Furnishing

(4) Auto replacement

(5) Bags and accessories

(6) Marine upholstery

(7) Miscellaneous applications of artificial leather.

  • Mayur has successfully started production of PU based synthetic leathers which uses less plasticizer and polymer that is inherently softer than other synthetic leathers that have greater market appeal in many segments.

  • These products are less likely to fade and crack when exposed to sun light and colder atmospheric condition.

  • At the same time, synthetic leather is advantageous over pure leather in terms of price, look and varieties, which is also driving its demand.

  • Hence, these PU based artificial leathers tend to be higher-quality than competing products, stimulating demand among the automotive, footwear and clothing industry, despite the higher price tag.

  • Now a days, PVC leather is often used as substitute for real leather because it is less expensive and does not require any real animal hide.

Mayur’s key customers among automotives: MG Hector, Maruti, Tata, Mahindra, ISUZU, Suzuki, Honda, Renualt, Volkswagoan, Hero, Bajaj, Piaggio, Sonalika Tractor, Lear, TS Tech Sun, Bharat Seat, Krishna Maruti, Sharda Motors, S.I. Interpact Group, Swaraj Auto.

Mayur’s key customers among footwear:  Bata, Paragon, Lancer, Action, Relaxo, VKC Group etc.

Plant

3 Manufacturing Units (Jaitpura, Dhodsar and Morena) and  2 Marketing Office (Bangalore and Delhi).

Mayur also exports synthetic leather for use in furnishing and fashion products to markets such as Middle East, USA, Colombia, South Africa, Australia, Russia, UK, Europe, Germany, Spain, France, Italy and Srilanka etc.

Competition:

  • Main competition is from China in the artificial leather industry, where company is aggressively going for backward integration and forward integration.

  • Company has installed 35 Circular Knitted Machines. These Knitting Machines are best of the world from Europe and Japan

Operation:

  • Very soon company will start warp knitting and non woven fabric for backing support in PU/PVC. In the next stage, they will put up a PU Resin Plant. This is done to keep the cost down, keep quality consistent and develop the new products fast.

  • So far, forward integration will soon have a foam lamination plant while Perforation Machine they have started long back.

  • Company has started production of newly setup plant located at Morena, Madhya Pradesh from January 21, 2020.

  • PU Leather is waterproof, softer, high tensile strength, lighter than real leather, turns easily, and is easy to dry clean and has high abrasion. It also remains unaffected by sunlight.

  • During FY 19-20, Company has setup new company i.e. Mayur Uniquoters SA (Pty) Ltd. Wholly owned subsidiary in the Republic of South Africa.

  • Company is mainly engage in the trading of PVC Vinyl or Artificial/ Synthetic Leather in the territory of Republic of South Africa

Wholly Owned Subsidiary:

(1) Mayur Uniquoters Corp. (Texas, USA)

(2) Mayur Uniquoters SA (Pty) Ltd (South Africa)

Step Down Subsidiary:

(1) Futura Textiles Inc. (Nevada, USA) 

1QFY21 Result Analysis:

  • Weak Q1FY21 performance as businesses are recovering well and company’s strong fundamentals remain intact.

  • Almost no sales in April and May and recovery only in Jun led to a 70% YoY decline in revenues.

  • Both domestic sales and exports were hit during Q1.

  • EBITDA was near zero due to negative operating leverage. Employee costs and other fixed costs hurt margin badly.

  • Mayur had started reporting strong margins in normal business situation and strong margins will come back with sales going back to normal levels.

  • Since the start of the PU plant (January 2020), Mayur has been working on various types of samples for customers. While the auto/footwear sector would recover gradually, talk of import curbs on leather goods from China could lead to a faster ramp-up at the PU plant and throw up huge long-term opportunities.

  • Demand in domestic auto/footwear will recover only gradually and exports would do better in FY21.

Financial:

Mayur Uniquoters  1QFY21 Result 1QFY21 1QFY20 4QFY20 QoQ% YoY%
Net Revenue 38.1 128.2 139.4 -73% -70%
Raw material 21.7 79.0 76.0 -71% -73%
Employee Cost 7.8 8.1 9.0 -13% -4%
Other Expenditure 9.0 16.0 18.6 -52% -44%
EBITDA (0.4) 25.1 35.8 -101% -102%
Depreciation & Amortisation 3.4 4.3 5.0 -32% -21%
Interest 0.5 0.2 0.8 -38% 150%
Other Income 5.5 3.7 5.7 -4% 49%
Profit before tax 1.2 24.3 35.7 -97% -95%
Tax 0.3 8.4 9.1 -95% -94%
Net Profit 0.9 15.9 26.6 -97% -96%
EBITDA Margin (%) -1.0% 19.6% 25.7%
Net Profit Margin (%) 2.3% 12.4% 19.1%

Management pointers from Q1FY21 Concall:

  • Production for Mercedes South Africa starts from Q4FY21.
  • Material: 25,000-30,000 mts/month.
  • Revenue: 1.15 cr/month approx.
  • Product approval from BMW for their new models is also expected by end of 2022.
  • 50% of company business is to Automotive Industry & increasing gradually.
  • Trying to provide services to Volkswagen India. Material: 30,000 mts per month estimate.Revenue: 12cr/year approx
  • PU is 90% imported from China. 1,00,000 meters expecting to sell PU in September 2020 & 50,000 mts in August 2020.
  • High class & Medium class PU material produced by company.
  • PVC produced by company is much better than one produced by Chinese companies.
  • PU- In 1 year will match Chinese standards.
  • Taiwanese technician with 30 years of experience given contract for R&D on PU which is similar to PVC. Will join once travel becomes possible.
  • Looking at COO with international experience. Not able to find in India.
  • 2022-2023 will see real fruits of current development.
  • Concentrating on PU & Automotive segments right now for growth

Risks

Volatile raw-material prices: Release paper, knitted fabric and chemicals (PU/PVC resin) are important raw materials for Mayur. Though any fluctuations in raw material prices are fully/partially passed on to customers, short-term margins may be hit.

Outlook:

We initiate Buy rating on Mayur Uniquoters with a target price of Rs 350. We are betting on Mayur for its leading position in synthetic leather and FCF-generation ability even in a downturn. Q1FY21 performance as businesses are recovering well and company’s strong fundamentals remain intact. Company has installed 35 Circular Knitted Machines. These Knitting Machines are best of the world from Europe and Japan. Very soon company will start warp knitting and non woven fabric for backing support in PU/PVC. In the next stage, they will put up a PU Resin Plant. This is done to keep the cost down, keep quality consistent and develop the new products fast. We will See some upside movement in coming quarters.

DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

Elite Wealth Advisors Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Advisors Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as read more


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