Mayur Uniquoters: Robust profitability owing to attractive strategic positioning vis-à-vis industry

SECTOR: MISCELLANEOUS

Mayur Uniquoters

STOCK INFO.

BLOOMBERG

BSE Sensex:27,347

S&P CNX:8,277

MUNI:IN

REUTERS CODE

14 January 2015

Initiating Coverage

(INR CRORES)

Buy

INR450

MAYU.NS

Y/E MARCH

Revenue

EBITDA

EBITDA Margin

NP (Adj.)

EPS (Adj.)

EPS Growth

BV/share

Core ROE (%)

Core ROCE (%)

P/E (x)

P/BV (x)

FY15E

544

108

19.9%

13.9

14%

32.3

7.4

FY16E

661

143

21.6%

18.9

35%

23.9

6.1

FY17E

816

180

22.1%

110

23.9

27%

18.9

5.1

We recommend a BUY on Mayur Uniquoters with a target of

INR 600 - valuing the company at 25x FY17E EPS.

Creating multiple moats:

Over the years, Mayur has successfully

created its moat within a competitive industry and is working towards

widening it: (i) Mayur is a professionally run company investing in

R&D with a focus on value added products while the other 5-6

organized players have languished much like the unorganized sector.

Mayur's focus on quality has enabled the company to command

premium pricing (5% over peers) in the domestic market allowing the

company to command higher margins. With a view to focus on value

added products, Mayur has developed a marketing team by setting up

a subsidiary in US and hiring experienced personnel for targeting the

developed markets. (ii) Mayur is the only company from India and

among the only 2 in Asia to cater to the US auto OEM requirements

which requires adherence to stringent quality norms and a seeding

phase of over three years. (iii) Mayur enjoys economies of scale, as

its capacity is 2x that of the next largest player. (iv) Mayur possesses

strong leadership / visionary management, scalable business, above

average industry growth, core ROE of 30% and strong cash flows.

Exports to double in three years:

Over the last 4 years, Mayur

has acquired clients such as Ford and Chrysler in the US and is currently

in discussions with Mercedes, BMW, Toyota and GM. The top 6-7

auto OEMs in US purchase synthetic leather worth INR5b each

annually which translates into an addressable market of INR30b. The

auto OEM market in the US is tough to crack but rewarding. The

realization earned by Mayur from US auto OEMs is >3x than that

offered by domestic OEMs (INR470/mtr vs INR130/mtr). Similarly

Mayur is also working on expanding in US and EU for general exports

and expects over 100% growth over the next couple of years from

this segment. Overall exports are expected to double by FY17E and

constitute 28% of sales from its current contribution of 21%.

Valuations & View:

Given the robust revenue visibility with global

OEM clients coming on board, improving realizations with rise in share

of exports and visionary top management; we believe Mayur can sustain

25% CAGR in profits over FY14-17E and beyond along with core

ROE of 30%. We value the business at 25x FY17E EPS (PE/G of 1x)

and recommend a BUY rating on the stock with a target price of

INR600/share.

KEY FINANCIALS

Diluted Shares (cr)

Market Cap. (Rs cr)

Market Cap. (US$ m)

Past 3 yrs Sales Growth (%)

Past 3 yrs NP Growth (%)

4.6

2129

355

24%

31%

STOCK DATA

52-W High/Low Range (INR)

Major Shareholders (as of December 2014)

Promoter

Non Promoter Corp Holding

Public & Others

Average Daily Turnover(6 months)

Volume

Value (Rs cr)

1/6/12 Month Rel. Performance (%)

1/6/12 Month Abs. Performance (%)

485/161

66.4

14.0

19.6

48774

2.1

5/5/131

5/15/161

Maximum Buy Price :INR480

Jehan Bhadha (jehan.bhadha@MotilalOswal.com); Tel: +91 22 33124915

Mayur Uniquoters

Robust profitability owing to attractive strategic positioning vis-à-vis industry:

Although the industry

structure for synthetic leather manufacturers stands poor, Mayur has strategically differentiated itself by focusing

on higher value products/markets by investing in R&D, backward integration into manufacture of quality knitted

fabrics, establishing global marketing & distribution to cater to high end export markets. Thus, Mayur has been

able to consistently deliver ROE of >30% over the last 5 years.

Industry Value Chain

Mayur's Value Chain

Focus on value added products within the domestic market:

Over the last 6 years, Mayur has consciously

reduced its dependence on domestic auto OEMs from 21% of sales then, to 8% now as they demand low

quality leather and offer very low realizations and margins. Even within domestic OEMs, Mayur has been

focusing on clients requiring higher value products for high end vehicles viz. M&M, Ford and GM where

realisations are much higher than those offered by OEMs that cater to the mass market. Earlier Mayur was

directly involved with OEMs and wholesalers, but now the company is expanding its presence in the domestic

market through distributors as well which will help in achieving better margins. The company recently appointed

one distributor in Delhi and is planning to add 3 more distributors in Sothern, Eastern and Western parts of India.

Thus, even on the domestic side, the management is gunning for growth opportunities only in segments that

offer superior profitability.

Margin expansion to continue with rising exports, backward integration and decline in crude oil:

Realisation from OEM exports is INR470/mtr and about INR185/mtr for general exports, while the realization

from domestic OEMs is merely INR130/mtr. Thus the company has been reducing its supply to domestic OEM

customers such as Maruti. As a result, higher contribution from export market is resulting in a rise in average

realizations. Knitted fabric is the first layer of synthetic leathers on which the PVC rests, which constitutes

18% of total sales. Earlier, due to lower quality of knitted fabric the company witnessed high level of rejections

(9%) in export markets. Consequently, the company started in-house manufacturing of knitted-fabric which

helped bring down its rejection rate to just 2%. 80% of the knitting requirement is currently produced captively

and the management is targeting to increase it to 100% over the next couple of years. PVC chemicals constitute

65% of the raw material cost and are derived from crude oil. Although the company is largely in the B2B

category, we expect Mayur to retain some of the benefits of declining raw material costs which should act as

a catalyst for expansion in margins. Driven by higher export contribution, complete backward integration and

falling raw material costs, we expect Mayur's EBITDA margin to expand by 220 bps to 22.1% by FY17E.

Business Mix - Industry-wise

Domestic Footwear

Domestic Auto OEMs

Domestic Auto Replacement

Domestic Furnishing & General

Export - Auto OEMs & Replacement

Exports - General

Blended

Sales Mix

54%

17%

100%

Realisation / mtr

190

130

150

155

470

185

225

Focus

Segments

offering

high value

product

propositions

14 January 2015

Mayur Uniquoters

IVRCL: Financials and Valuation

Mayur Uniquoters Financials & Valuation

INCOME STATEMENT

Y/E MARCH

FY13

(INRCR)

FY14 FY15E FY16E FY17E

RATIOS

Y/E MARCH

FY13

FY14

FY15E FY16E FY17E

Revenues

Growth

COGS

Gross Profit

GP Margin

Employee Cost

Other Expenses

EBITDA

EBITDA Margin

Depreciation

Other Income

PBIT

E/O. Inc/(Loss)

Interest Cost

PBT

Tax

Rate

Adjusted PAT

Growth

PAT Margin

BALANCE SHEET

Y/E MARCH

381

470

544 661

816

20% 23% 16% 22% 23%

268

316

352 416

509

113

153

192 246

307

29.6% 32.6% 35.3% 37.2% 37.7%

108 143

180

18.1% 19.9% 19.9% 21.6% 22.1%

98 129

163

95 129

163

32% 32% 32% 32% 32%

110

31% 30% 14% 35% 27%

11.5% 12.1% 11.9% 13.2% 13.5%

(INRCR)

FY13

FY14

FY15E FY16E FY17E

Adjusted EPS (INR)

Book Value

Div Per Share

Dividend Payout

Net Debt / Equity

P/E

P/BV

EV/EBITDA

EV/Sales

Dividend Yield

ROCE

Core ROCE

ROE

Core ROE

Debtor days

Inventory days

Creditor days

W.Cap cycle

9.4

2.0

25%

0.0

47.7

8.4

7.3

1.3

0.4%

46%

56%

37%

12.3

2.6

25%

0.1

36.7

6.2

5.4

1.1

0.6%

43%

49%

35%

32%

13.9

3.5

29%

-0.2

32.3

7.4

4.6

0.9

0.8%

34%

42%

22%

27%

18.9

5.0

31%

-0.1

23.9

6.1

3.5

0.8

1.1%

37%

43%

25%

29%

23.9

7.0

34%

-0.1

18.9

5.1

2.8

0.6

1.5%

39%

45%

26%

30%

CASH FLOW

(INRCR)

FY13

FY14 FY15E FY16E FY17E

Y/E MARCH

Share Capital

Reserves

108

Networth

118

Loans

SOURCES OF FUNDS

143

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Inventories

Debtors

Cash & Investments

Loans & Advances

Other Curr Assets

Curr. Assets

140

Creditors and Prov.

Net Current Assets

Less Net Def. Tax Liab

APPLICATION OF FUNDS143

14 January 2015

150

161

202

130

176

202

265

288

205

160

230

133

288

325

348

266

205

102

263

116

148

348

398

421

326

246

102

128

321

142

178

421

EBITDA

Adjustments

(Inc)/Dec in W.Cap

Pre Tax OCF

Tax Paid

CF from Operations

(Inc)/Dec in FA

Invst in Bank Deposits

Interest Received

CF from Investing act.

Inc/(Dec) in Sh. Prem.

Inc/(Dec) in Debt

Interest Paid

Divd Paid (incl Tax)

CF from Financing act.

Inc/(Dec) in Cash

Add: Opening Balance

Closing Balance

(22)

(20)

(37)

(30)

(2)

(11)

(1)

-2

(18)

(25)

(51)

(46)

(4)

(14)

(4)

(2)

108

(20)

(31)

(48)

(46)

(41)

(3)

(19)

143

(18)

125

(42)

(61)

(59)

(27)

(3)

180

(23)

157

(53)

104

(61)

(59)

(38)

Disclaimer: This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies)

and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the selected

recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement

to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report

is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person

in any form. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs

of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular

circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go

down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not

guaranteed and a loss of original capital may occur.

MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have

investment banking and other business relationships with a some companies covered by our Research Department. Our research professionals may provide input

into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment

banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing

this material may educate investors on investments in such business . The research professionals responsible for the preparation of this document may interact

with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting information. Our research professionals

are paid on the profitability of MOSt which may include earnings from investment banking and other business.

MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or

derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer,

director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or

written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading

and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you

should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies),

their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or

derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation

or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may

have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no

bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the

views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed

to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamental analysis. In addition MOST has different

business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles,

investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information

specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt

or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and harmless from

all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein

is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt's

interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and

interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or

developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under

no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so.

MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent

error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind,

regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-

infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial

advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

Most and it's associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant

banking or brokerage services, may have received any compensation for products or services other than investment banking or merchant banking or brokerage

services from the subject company in the past 12 months.

Most and it's associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.

Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the

date of publication of the research in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement

in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Motilal Oswal Securities Limited is under the process of seeking registration under SEBI (Research Analyst) Regulations, 2014.

There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the

compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s)

in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon

various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues

Disclosure of Interest Statement

1.Analyst ownership of the stocks mentioned above

2.Served as an officer, director or employee

Mayur Uniquoters

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such

distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or

licensing requirements within such jurisdictions.

Motilal Oswal Securities Ltd

Motilal Oswal Tower, Level 6, Sayani Road, Prabhadevi, Mumbai 400 025

Phone: (91-22) 30894200 Fax: (91-22) 22885038. E-mail: info@motilaloswal.com