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Mayur Uniquoters – Next on the Vegan agenda?


Company Name – Mayur Uniquoters Ltd (Mayur)


Current Share Price – INR 423 (December 8, 2022)


Market Cap – INR 1,859 cr


 

1. What is interesting about the stock?

“You can judge a man's true character by the way he treats his fellow animals.”


― Paul McCartney


Humans have been using animal skin for clothing, footwear, and other purposes. We didn’t have a choice earlier so killing animals for their skin was necessary for survival. But, we do have a choice now!


Artificial leather, also called synthetic leather, is a material intended to substitute for leather in upholstery, clothing, footwear, and other uses where a leather-like finish is desired but the actual material is cost prohibitive or unsuitable. Artificial leather is known under many names, including leatherette, imitation leather, faux leather, vegan leather, PU leather, and pleather.


Incorporated in 1992 with the commencement of operations in 1994 at Jaipur, Rajasthan, Mayur Uniquoters is in the business of manufacturing PVC-coated fabric and PU-coated fabric, commonly known as artificial/synthetic leather. Mayur is promoted by Suresh Kumar Poddar, Chairman, Managing Director, and CEO, who has more than four decades of experience in the trading and manufacturing of artificial leather.


Mayur has two manufacturing facilities located near Jaipur (one facility each at Jaitpura and another at Dhodsar) having an aggregate of seven coating lines (four at Jaitpura and three at Dhodsar) to manufacture artificial leather along with backward integration for manufacturing of knitted fabric. Mayur has also forayed into the manufacturing of PU fabric and started commercial production at Morena (MP) in January 2020.


Mayur has the largest capacity for manufacturing synthetic leather in the domestic organized segment with a capacity of annual production of ~50 mn linear meters of PVC-coated fabric and 5 mn linear meters of PU-coated fabric, and the company is in the process to expand its PVC-coated fabric capacity by adding its seventh coating line at Dhodsar plant post. Mayur manufactures more than 400 variants of artificial leather from PVC polymer which finds application in footwear (shoes/sandals insole and uppers), automotive (seat upholstery and inner linings), furniture & fashion items (apparel).


Mayur has a diversified clientele across various industries and caters to the synthetic leather requirements of reputed players like MG Hector, Maruti, Tata, Mahindra, ISUZU, Suzuki, Honda, Renault, Volkswagon, Hero, Bajaj, Piaggio, Sonalika Tractor, Lear, TS Tech Sun, Bharat Seat, Krishna Maruti, Sharda Motors, S.I. Interpact Group, Swaraj Auto, Polar Auto, etc. among automotive and Bata, Paragon, Lancer, Action, Relaxo, VKC Group, etc. among footwear segment.


During FY16, the Company set up a wholly-owned subsidiary, Mayur Uniquoters Corp, in Texas, the US, as a marketing and trading arm to facilitate exports to Ford and Chrysler, while during FY20, Mayur set up a wholly-owned subsidiary, Mayur Uniquoters SA (Pty) Ltd, South Africa, as a marketing and trading arm to facilitate exports to Mercedes Benz’s plant in South Africa.


Mayur gets higher realization in exports vs domestic sales and exports are primarily focused on automotive. Company has been impacted by woes in global auto sales due to chip shortage in addition to the higher raw material price (due to higher crude prices) and higher freight cost.


Why invest in Mayur?

  • Market leader in artificial leather which is expected to have secular growth – cost competitiveness and increasing awareness against animal cruelty

  • Reputed clientele across a diverse end-user industry with strong entry barriers

  • Experienced management team

  • Strong balance sheet – cash balance of ~ INR 180 cr as of March 31, 2022

2. Key Historical Financials

  • Revenue de-grew in FY20 and FY21 with 28% YoY growth in FY22; poor YoY growth in Q2FY23

  • EBITDA margin was 26% in FY18 and has fallen since then – it fell to 17% Q2FY23

  • Cash flow convertibility has been poor in FY21 and FY22 – working capital level has increased due to higher raw material and finished goods inventory (partly supply chain related)

  • ROCE was 33% in FY18 and has come down to 18% in FY22

3. What is my view on company valuation?


Mayur’s share price has doubled in the last 3 years with almost flat profitability. Currently, Mayur trades at an EV/EBITDA (TTM) of 13x and P/E (TTM) of 19x. Valuation seems to be on the higher side as the growth of revenue in the last 5 years is ~6% and ~0% growth in Net Profit.


However, in the next couple of years, I expect the EBITDA margin to increase by 3-4% due to lower raw material prices, lower freight costs, and an increase in exports in the revenue mix. Also, the working capital level could come down as the supply chain normalizes after COVID.


Another overhang on the stock is succession planning issues – a lot of family-related issues boggled about this company in the last few years. The promoter’s son has joined back the Company so we would need to see if this resolves the succession planning challenges.


On an overall basis, the Company looks interesting and long-term investors can evaluate entering the stock at lower levels.


4. What are the risks to the investment analysis?


Risks to the analysis are:

  • Under-utilisation of the newly commissioned greenfield PU-coated fabric project

  • Exposure to volatility in raw material prices and foreign currency exchange rate fluctuations

  • Enlongated working capital cycle creating pressure on operating cash flow

  • Lack of clarity on succession planning

  • Low dividend – Company uses buyback for distributing excessive cash in the business. Is it tax efficient? And good for passive retail investors who forget to participate in the tender process

 

About the Author


I have over 17 years of experience in venture capital, private equity, and investment banking in India and the Middle East across a wide variety of sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.


I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).


I am an Insignificant Investor in the public market and co-founder of SocInvest.


Disclosure


I have had stock, option, or similar derivative positions in any of the companies mentioned in the last 30 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.


I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.


I have used publicly available information while writing this article.

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