Company Overview

 

Being the most preferred supplier of artificial leather is what was at the genesis of the formation of Mayur Uniquoters Limited in 1994. In 2012, the company made its way into the 'Forbes Asia Top 200 under $1Bn enterprises' in the Asia Pacific region. â€¨â€¨

 

It is the largest manufacturer of artificial leather/ PVC vinyl, using the 'Release Paper Transfer Coating Technology' in India. In the past two decades, the company has moved from a meagre production of 0.25 million linear meters per month, to an astonishing 3.05 million linear meters per month, through their 6 state of the art Italian coating lines. 

 

The company has been certified with ISO 9001:2008 (Quality Management System) 

On the back of cost effectiveness of synthetic leather (~70-80% cheaper than natural leather), environmental and ethical issues in manufacturing natural leather, synthetic leather industry is on a strong footing with Mayor on a robust growth journey ahead.

Mayur being the prominent player of the industry is driving 50 % and 35 % of its revenue respectively from footwear and automotive segments only.

Industry Overview

The Artificial Leather industry holds a prominent place in the Indian Economy. It is used in cars, trucks, motorcycles, buses, and agricultural vehicles as it is lighter than animal hide. High elasticity enables comfort and develops resistance against hot & cold temperatures, alcohol and water. It also increases the durability and eases the maintenance. Polyurethane is majorly used in automotive as it is softer and does not give a sticky feel like an animal skin provides. Thus, owing to these advantages OEM manufacturers prefer it over real leather for applications in this segment, which in turn is working in favour of the growth of your company.

Automotive and Footwear industry being the end user of Synthetic leather impacts the industry in many ways. The growing demand from these two industries is expected to drive the synthetic leather market which will results in dual growth in next 5 years. The deregulation of FDI in Automotive sector has also helped foreign companies to make large investments in India which allows 100 per cent FDI under the automatic route.

Mayur’s key customers are recession resilient and the company cater players like Maruti, Mahindra, TATA, ISUZU, Honda. LML Vespa, Suzuki, Sonalika Tractor, General Motors, Lear, Ts Tech Sun, Krishna Maruti, Bharat Seat, S.I. Interpact Group, Sharda Motors, Swaraj Auto, Polor Auto, Renault, Volkswagoan, Hero, Bajaj, Piaggio etc. among automotives and Bata, Action, Lancer, Relaxo, Paragon, VKC Group etc. among footwear segment.

 

Financial Analysis

Years	2018	2017	2016	2015	2014
Net Profit Margin	16.67%	15.67%	15.58%	11.82%	10.99%
EBITDA Margin	28.11%	26.47%	27.52%	19.31%	18.37%
ROCE	32.02%	30.57%	34.24%	31.83%	43.76%
ROE	21.55%	21.07%	22.96%	23.31%	35.26%
Current Ratio	5.21	4.29	3.46	2.43	1.75
Interest Coverage	106.63	86.32	35.33	36.93	20.47
Debt to Equity	0.00	0.02	0.06	0.13	0.22

1. Over the past 5 years, the company has experienced low sales growth of around 3% p.a. The overall revenue growth is even lower at 1.34% p.a. due to fall in other income. The increase in Net Profit has been 14.3% p.a. which shows that the company has become more cost effective.
2. The EBITDA Margin has increased substantially. The ROE and ROCE have reduced due to an almost 50% increase in capital employed in FY15.
3. The debt to equity is almost nil and the interest coverage is extremely high which proves that the company can easily pay its debt service payments.
4. The company has for the most part remained its cash flow at a healthy level.

(Rs in crores)

Years	2018	2017	2016	2015	2014
Cash from Operations	86.82	75.14	70.41	53.29	48.86
Net Profit	96.92	81.51	77.19	65.90	56.80

4. 1. As can be seen above, the company has had some trouble maintain its cash from operations above the PAT, however this is mostly due to working capital changes.
   2. The company’s inventories and trade recievables have increased at 11% and 10.32% respectively per year. This is worrying when you consider the 3% sales growth.
5. The major cash out/inflows of the past 5 years have been:

(Rs. in Crores)

Years	2018	2017	2016	2015	2014
Cash from Operating Activity	86.82	75.14	70.41	53.29	48.86
Cash from Investing Activity	-29.94	-26.45	-33.39	-94.29	-45.95
Fixed Assets Purchased	-7.15	-10.80	18.03	-34.26	-51.33
Fixed Assets Sold	-26.29	-16.15	181.13	-220.39	-59.91
Cash from Financing Activity	-46.95	-45.99	19.29	52.97	0.06
Operating Cash Flow to Sales	0.15	0.14	0.14	0.10	0.09

 

5. 1. The Operating Cash Flow to Sales seems to be lower than the Net Profit Margin.
6. Promoters hold 61.26% shareholding.
7. The total managerial remuneration equals about 4.8 crore, which is about 5% of net profit in FY18.

 

Future Prospects

 

Positive

 

1. The company’s INR 90 crore investment in PU leather manufacturing unit in Gwalior is expected to start contributing from Q1FY20 with the company having already placed orders for the machinery for its 1st line in the 4-line capacity unit. Established industry presence and lack of domestic competition will enable MUL to quickly ramp-up the unit. The project is expected to break-even with full utilisation of the 1st line and commencement of the 2nd line by FY21. Further, with its 6 lines of PVC being 80% utilised, the company has already placed the order for the 7th line to be installed by H2FY19.
2. The company has already a 3rd round of inspection from Mercedes to be due early Q3FY19. The ordersare expected to flow in FY20. Further, BMW is also expected to conduct 1st round of VDA inspection during the second half of FY19. These new relationships should bring profits for the company in a steady manner FY20 onwards.   
3. The company’s capex to depreciation ratio is also currently low, which might point towards it being a good time to invest in the company.

Years	2018	2017	2016	2015	2014
Depreciation	17	17	16	3	7
Capex	19.00	6.50	-43.82	29.81	56.80
Capex/Depreciation	1.11	0.39	-2.72	11.48	8.10

 

4. The domestic PU leather market with a size of 18 million meters/month is currently 95% import dependent due to limited technical-knowhow and high investment requirement. Buoyed by a strong R&D team, an existing footwear clientele base and sufficient funding from internal accruals, we believe the company is well placed to explore this opportunity.

Negative

1. There is high dependency on Footwear and Automotive Industry, so if any factors affect these industries, the company will automatically lose out.
2. Environmental factors also have to be considered as harmful environmental effects of the processing of PVC is a major restraint for the market.
3. The company has to ensure that there is no pile up if inventory, and that the company’s debtors are paying back on time so that the cash conversion cycle does not become challengingly long.

Conclusion - Buy

 

#1. The company has steadily established its credentials as a quality supplier to marquee automobile players in the US with the management now eyeing the European luxury car segment. Moreover, the company is foraying into Polyurethane (PU) leather by setting up a manufacturing unit in Gwalior which would entail a peak revenue potential of INR 500-600 cr.

#2. It is all set to benefit from improved utilization levels across its existing capacities with incremental investments in PU leather unit and additional PVC line to help fuel growth in the medium term.The company’s business strategies towards product expansion and client diversification backed by a strong balance sheet will mark its future