Till
few years back Mayur Uniquoters was the darling of investors and one of the biggest
wealth creators in the history of Indian equity market . Later, colour of this artificial leather manufacturer faded due to reasons like muted growth in business
and some family feud. It seems, after a gap of few years , now
situation again turning in favour of the company .
Mayur is the largest player in the artificial (synthetic) leather market
in India .Company’s products are mainly used in Automotive and Footwear
industries. As a testimony to their product quality , this is the only Indian
company supplying products to US and EU based marquee OEM’s like Chrysler ,Ford, .etc .Its Indian client list includes who is who in the automobile and
footwear industries like Maruti Suzuki, Hyundai motors (recent addition) ,Honda
,Mahindra, Tata Motors,Yamaha, MG,Bata,Relaxo,Paragon,Action, Khadim’s ,VKC..etc
. Share of exports to total turnover
increased more than 150% in last 10 years . Strong R&D , fully integrated
operations , concentration in supply to quality conscious OEM’s helping the company to
keep its margin at higher level and a strong balance sheet.
Global
synthetic leather market is expected to reach $31 bn by next year .If we take the top five (on the
basis of capacity) players in this industry , three out of five players are
from China and Mayur is at second place only behind China based Anhui Anli Material Technology Co. Because of its successful effort to
concentrate in high margin products, Mayur is one of
the most profitable companies operating in this sector in the entire world. Synthetic leather are mainly two types- PVC based and PU based . Till now
Mayur was present only in PVC based products with an 11 % market share in local
market in an industry where lot of small players are competing . Even if the pricing
power is limited in this Industry ,Mayur
generating good margin due to their
success in client selection who are willing to pay premium for quality .
Mayur started
its initiative to diversify into PU based artificial leather in 2014 . Rs.3500
Cr is the estimated market size of this product in India as of now and this demand is mainly met
through imports . Out of this figure 90% is imported from China alone. This is
a huge opportunity Mayur is looking to tap. After facing many hurdles in
project implementation and deadline changes , Mayur just started the production
of this product now . This is high margin and low competition product compared with PVC
based artificial leather .Considering company’s already established good
relation with customers ,Mayur is expected to capture sizable market share of
PU product in coming years . Other than Mayur , there are only three small manufacturers
in India for PU based products whose capacity all together is less than half of
the capacity of Mayur.Anti China wave in many countries due to various
reasons are also expected to act as a catalyst for a faster transformation.In last few
years company lost few of its south based big customers mainly due to logistic
related and other competitive disadvantages as its plant is located in Rajasthan. This is
one reason for muted top line growth in past few years . In order to overcome
this situation and increase the efficiency of service to south based customers
, now company is planning to start a plant in Anantapur, AP
Major Headwinds :
· Though the company reported
better than expected performance in March quarter, there might be some negative impact on business in recent
times due to Covid Pandemic related production and demand disruption.
· Family feud is an issue
and one of the major reason for under performance of this stock. Son ( holding
15% stake ) of the major promoter resigned from the company in 2017 and now son-in-law
is acting as next to Suresh Kumar Poddar ( Chairman) . Any truce among
family members will surely re-rate this stock.
Major Tailwinds
· Integrated, R&D
driven company in a growing Industry
· Strong balance sheet with
cash /Cash equivalents on book
· There
is lot of unorganized small players in PV based synthetic leather segment, pandemic related issues will surely
affect them most compared with companies like Mayur with strong balance sheet.
If this situation prevail for a long time , it may result in consolidation in
this industry and ultimately help the organised players in the longer term.
· PU
leather segment is a big opportunity and it may change the fortunes of the company
going forward. Though the ramp – up may bit slow due to Covid issue,after many extensions , now they started the
commercial production of this product
· New
customer addition – many major players in auto sector in India are customers of Mayur, but not Hero Motocorp . Company is in discussions with
Hero and expecting positive outcome in a couple of quarters. In the export
market, for the past five years or more they are trying for first shipment to Mercedes. It got delayed due to various formalities like
plant inspection. Approval..etc . As per latest con-call, this will happen by last quarter of ongoing FY and it
will be another feather in the cap of this company. Company is also in discussions with BMW and expecting positive outcome in near future
· Government recently hiked the import duty of artificial
leather from 10 % to 20 % ( 22% including surcharge) , this will surely help
Indian companies to compete in a better way with Chinese counter parts .
· Cost of major raw materials are related with the price of
Crude . Due to various reasons, crude price is expected to move in a range which
will result in stability of RM cost.
· In case of raw material, to avoid import dependency, company
planning to start own production of P U resins in another one year.
CMP Rs.221
Link to company website HERE
This
is my few thoughts on Mayur Uniquoters and the decision is your’s
