MAYUR UNIQUOTERS - READY FOR A SECOND INNINGS ?

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  

   

Data source : Publicly available documents , con-calls and interviews of management.