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CD Equisearch Pvt Ltd Dec 27, 2014

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Mayur Uniquoters Ltd.

No. of shares (crore) 4.33

Mkt cap (Rs crs) 1812

Current price (26/12/14) 418

Price target (Rs) 500

52 week H/L (Rs.) 485/88

Book Value (Rs.) 44.28

P/BV (FY15e/16e) 6.0/5.1

P/E (FY15e /16e) 27.4/22.6

BSE Code 522249

NSE Code MAYURUNIQ

Bloomberg MUNI IN

Daily volume (avg. weekly) 12665

Shareholding pattern % Promoters 67.57

MFs / Banks / FIs 3.15

Foreign 8.45

Govt. Holding 0.00

Non-Promoter Corp. 2.10

Total Public 18.73

Total 100.0

As on Sep 30, 2014

Recommendation

BUY

Analyst

VIPUL SANGHANI

Phone: + 91 (33) 4488-0055

E- mail: [email protected]

Figures in Rs crs FY12 FY13 FY14 FY15e FY16e

Income from operations* 317.48 380.54 469.61 554.14 664.97

Other income 1.70 2.74 1.75 5.82 5.82

EBITDA (other income included) 55.01 71.78 94.97 115.89 143.82

Adjusted net profit after extraordinary items 33.37 43.63 56.79

70.54 85.67

EPS- Basic Adjusted **

7.71 10.08 13.12 16.30 18.52

EPS- Diluted 7.71 10.08 13.12 15.24 18.52

EPS growth (%) 32.0 30.7 30.2 16.2 21.5

Company Brief Mayur Uniquoters Ltd. (MUL) is the largest manufacturer of artificial

leather/PVC vinyl using the 'Release paper Transfer Coating

Technology' in India, having its registered office in Jaipur, Rajasthan.

Highlights � The market size of India's synthetic leather industry is expected to

touch Rs 9000 cr by FY18 from Rs 4500 cr as of FY13 on account of

increasing consumption and purchasing power. MUL controlling

nearly one-fourth share in organized market in India would be one of

the key beneficiaries of the uptick in overall demand.

� Capacity expansion to drive future growth - MUL has expanded its

total capacity from 2.45 million meters per month to 3.05 in CY14 by

adding another coating line of 0.6 million meters per month to cater

to increasing demand.

� Export market to remain buoyant - MUL's exports have grown at a

CAGR of 54 % over the last 5 years. Currently MUL derives around

22 percent of its net sales from exports and almost 80 percent of

export revenue comes from automotive segment. We believe export

will remain buoyant on account of strong overseas customers and

increase in demand of synthetic leather. We expect company's export

revenue to grow by 25 percent in FY15e and by 25 percent in FY16e.

� MUL's net sales and profit has grown at a CAGR of 32% and 56%

respectively over FY 2009-14. We expect company's net sales to grow

by 18% and 20% in FY15e and FY16e respectively, aided by growth in

exports and margins. MUL is also backwardly integrating by

manufacturing knitted fabric which will improve margins going

ahead. We expect company’s margins to expand by 90 bps in FY16e

compared to 19.85 percent in FY14.

Currently, the stock is trading at a P/E multiple of 27.43x on FY15e and

22.57x on FY16e fully diluted EPS of Rs 15.24 and Rs 18.52, respectively.

We value the company by assigning a P/E multiple of 27x on FY16e,

which gives us a target price of Rs 500 in the ensuing 9-12 months. We

initiate coverage on the company with a buy rating.

*includes income from operations and **EPS has been taken into consideration after adjusting for split and bonus.

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CD Equisearch Pvt Ltd


Company Profile

Mayur Uniquoters Ltd (MUL) is the largest manufacturer of artificial

leather/PVC vinyl using the 'Release paper Transfer Coating Technology' in

India, having its registered office in Jaipur, Rajasthan. In 2012, the company

made way into the 'Forbes Asia Top 200 under $1Bn enterprises' in the Asia

Pacific region.

The company's products finds application in footwear, automobile seat

covers, furnishing, upholstery, apparels and accessories. The company has

come a long way in the past two decades from a meager production of 0.25

million linear meters per month to an astonishing 3.05 million linear meters

per month, through six state of the art Italian coating lines.

Currently, the company earns more than 50 percent of its revenues from footwear segment, around 35 percent

of revenues comes from the automotive segment and the rest is contributed by fashion accessories and

furnishings. Its automotive segment is again divided into three major segments that are automotive India OEM,

automotive USA OEM and replacement markets. MUL has an extensive clientele and supplies to almost all

leading footwear manufacturers like Bata, Liberty, Action, Paragon and Relaxo footwear. Also on OEM side, it

is in preferred supplier list of almost all major OEMs like Maruti, Tata Motors, Hyundai, LML, Mahindra

Tractors and names like GM, BMW and even Chrysler. In US, MUL and LG Chemicals are the only two

suppliers to Chrysler and Ford from Asia. It is also in supplier list of Mercedes, though supply has not begun.

Source: Company, IDBI Capital, CD Research

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Investment Arguments

Artificial Leather Industry To Grow At a Rapid Pace

The market size of India's synthetic leather industry is expected to touch Rs 9000 cr by FY18 from Rs 4500 cr as

of FY13 on account of increasing consumption and purchasing power. This sector is largely a fragmented sector.

Out of the total market, almost 60 percent of the capacity is held by unorganized sector while rest by organized

players. MUL is a market leader among organized players in India with approximately 8-10 percent of the total

market size and nearly one-fourth share among organized players in India. Artificial leather is a substitute for

natural leather and its fine designing and texture is attracting people's attention.

Synthetic leather is approximately five times cheaper than natural leather which makes it cost effective and it

has gained acceptance around the world specially in western markets which was earlier dominated by natural

leather. Due to reasons like animal hunting and environmental degradation the demand for natural leather has

come down over the last few years and also with significant improvement in technology and continuous thrust

in research and development (R & D), difference between natural leather and artificial leather has narrowed

over the last few years.

Synthetic leather is widely used in sectors like footwear, automotive upholstery, fashion accessories etc. India is

going to witness a huge demand for these products in coming time given the strong demographic structure

with 65 percent of our population being below the age of 35 and with the uptick in GDP growth and lowering of

inflation, much better days are poised ahead for synthetic leather industry. Footwear and automotive sector

would remain a key driver for synthetic leather industry. With strong economic outlook, we believe India's

consumption story would play its part and growth would remain closer to 15-20 percent over the next five

years. Globally, the demand for synthetic leather has also grown significantly over the past few years.

Source: Trading Economics

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Capacity Expansion To Drive Future Growth

MUL has successfully expanded its capacity from 2.45 million linear meters per month to 3.05 million linear

meters per month in FY14 by adding 6th coating line. The total capital expenditure was to the tune of Rs 35 cr

and machines were imported from Italy. The plant is likely to expand the capacity by 25 percent and the

production has already been started on trial run in December 2014. It would operate on one shift basis. It would

almost take 8-10 months to run at three shift operation due to unavailability of skilled labour. Futher, the

company is also planning to add 7th coating line adjacent to 6th coating line under the same premises. As the

infrastructure is already available, total capex requirement for the 7th coating would be to the tune of Rs 20 cr

and the company is likely to commence operations from early 2016. Looking at the buoyant demand over the

next few years, company is looking well poised to cater to it.

The company has raised Rs 70 cr by issuing 1486000 convertible participating preference shares of face value of

Rs 400 each at a price of Rs 471.06 to Westbridge Crossover Fund LLC, where each share would be converted

into two equity shares each in next financial year. The company has raised the money to set up 2 lines of PU

(Polyurethane) Plant of 0.3 million linear meters per month capacity of each. PU based material is of better

quality and is a high margin product. At present PU based material in India is mostly imported from China. The

proposal has been made to the government of Rajasthan to recycled waste water of Reengus. The confirmation

for the same is yet awaited.

Manufacturing units details

Units Starting

Year

Capacity

(million meters

per month)

Maximum

width of

fabric

(inches)

Comments

Coating line 1 1992

1.85

60

Started production, started exporting to Sri Lanka and South

Africa

Coating line 2 2004 60 Increased product line in upholstery and furnishing

Coating line 3 2008 60

Finalized supply agreement with Chrysler and Ford in US in

2009

Coating line 4 2011 60 Commissioned in same infrastructure with lower capex

Coating line 5 2014 0.6 67 New infrastructure, capex of around Rs 35 cr

Coating line 6 2014 0.6 72 Adjacent to line 5, capex of about Rs 35 cr Source: company, IDBI capital, CD Research

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Export Market To Remain Buoyant

MUL's export has grown at a CAGR of 54 % over the last 5 years. Currently MUL derives around 22 percent of

its net sales from exports and almost 80 percent of export revenues comes from automotive segment. We

believe export will remain buoyant on account of strong overseas customers and increase in demand of

synthetic leather. Export has doubled within a span of 2 years, which was primarily driven by robust export to

OEM. The company is now focusing on export for after sales and furnishing segment where the company

expects 100 percent growth over the next couple of years. We expect company's export revenue to grow by 25

percent in FY15e and by 25 percent in FY16e which would become 26 percent of net sales by FY16e. The

company is also planning to set up a subsidiary in US which would look after the sales in US and European

region. Going ahead, we believe 25 percent export growth target is quite achievable given the company’s

growth prospects. It must be noted that company’s margins in export are slightly better than those in the

domestic segment.

Source : Capitaline plus, CD Research

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Strong Financials & Healthy Revenue Visibility Going Ahead

MUL's net sales and profit has grown at a CAGR of 32% and 56% respectively over FY 2009-14. We expect

company's net sales to grow by 18% and 20% in FY15e and FY16e respectively, aided by growth in exports and

margins. Also the increase in profit after tax over the next 2 years is expected to grow by 24% and 21% in FY15e

and FY16e respectively. MUL is also backwardly integrating in manufacturing knitted fabric which will

improve margins going ahead. We expect company’s margins to expand by 90 bps in FY16e compared to 19.85

percent in FY14.

Earlier MUL’s model was completely based on B2B model where it was directly involved with the OEMs and

wholesalers. But now the company is also expanding its presence in domestic market through distributors

which will help them in gaining market share going ahead. The company recently appointed one distributor in

Delhi which increased its total sales from 5000 linear meters per month to 30000 linear meters per month within

six months. Now, the company is likely to add three more distributors in each southern, eastern and western

part of India. We believe this would help in gaining market share over the next few years.

Source: Capitaline plus, CD Research

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Risks & Concerns

Dependency on Footwear industry

Synthetic leather is used across a wide spectrum of industries. However the company's products are widely used in

footwear industry. More than 50% of company's revenue comes from footwear industry. Therefore, the fortunes of

the company are invariably interlinked with that of footwear industry. Any downward trend in footwear industry

will have significant impact on the company's top line.

Slowdown in Exports

MUL's exports have grown at rapid pace with a CAGR of 54% over the last 5 years. We expect company's exports to

grow at 25% in FY15e and FY16e. Any slowdown in US will hamper company's export growth since US is very

crucial for company's growth.

Raw Materials Cost

Raw materials constitutes significant portion of overall cost of the company. Any increase in raw materials cost may

impact MUL's margins going ahead and may affect bottom line.

Source : capitaline plus, CD Research

Source: Company, IDBI Capital

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Financials

Quarterly Results

Rs in cr

Q2FY15 Q2FY14 %chg. FY14 FY13 %chg.

Income from Operations 131.41 118.77 10.6 469.61 380.54 23.4

Other Income 1.63 0.31 425.8 1.75 2.74 -36.1

Total Income 133.04 119.08 11.7 471.36 383.28 23.0

Total Expenditure 106.80 96.14 11.1 376.39 311.49 20.8

PBIDT 26.25 22.94 14.4 94.97 71.79 32.3

Interest 0.92 1.91 -51.8 4.30 2.44 76.2

Depreciation 2.96 1.69 75.1 7.02 5.17 35.8

PBT 22.37 19.33 15.7 83.65 64.18 30.3

Tax 6.73 6.80 -1.0 26.86 20.55 30.7

PAT 15.64 12.53 24.8 56.79 43.63 30.2

Extra-ordinary Items 0.00 0.00 0.0 0.00 0.00 0.0

Adjusted Net Profit 15.64 12.53 24.8 56.79 43.63 30.2

Income Statement

Rs in cr

FY12 FY13 FY14 FY15e FY16e

Income from operations 317.48 380.54 469.61 554.14 664.97

Growth (%) 27.73 19.86 23.41 18.00 20.00

Other Income 1.70 2.74 1.75 5.82 5.82

Total Income 319.18 383.27 471.36 559.96 670.79

Total Expenditure 264.17 311.49 376.39 444.07 526.97

EBITDA 55.01 71.78 94.97 115.89 143.82

Interest 1.96 2.44 4.30 3.09 3.09

EBDT 53.05 69.35 90.67 112.80 140.73

Depreciation 3.87 5.17 7.02 9.06 14.74

Tax 15.81 20.55 26.86 33.20 40.31

Reported Profit After Tax 33.37 43.63 56.79 70.54 85.67

Extra-ordinary Items 0.00 0.00 0.00 0.00 0.00

Adjusted Net Profit 33.37 43.63 56.79 70.54 85.67

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Balance Sheet

Rs in cr

FY12 FY13 FY14 FY15e FY16e

SOURCES OF FUNDS :

Share Capital 5.41 10.83 10.83 81.09 23.14

Equity share capital 5.41 10.83 10.83 21.65 23.14

Comp Conv preference shares - - - 59.44 -

Reserves Total 80.47 107.64 150.27 219.21 359.41

Total Shareholders Funds 85.88 118.47 161.10 300.30 382.55

Total Debt 3.76 24.79 41.67 32.99 32.99

Other Liabilities 0.13 0.06 0.14 0.20 0.20

Total Liabilities 89.77 143.32 202.91 333.49 415.74

APPLICATION OF FUNDS :

Gross Block 66.07 80.64 129.80 164.80 199.80

Less : Accumulated Depreciation 20.98 25.98 32.14 41.20 55.94

Net Block 45.09 54.66 97.66 123.60 143.86

Capital Work in Progress 3.98 18.91 26.56 35.00 35.00

Investments 11.72 13.65 9.85 79.09 79.09

Current Assets, Loans & Advances

Inventories 30.71 44.23 63.77 64.58 78.77

Sundry Debtors 40.60 56.45 67.11 75.26 90.32

Cash and Bank 19.04 10.65 13.43 29.56 47.31

Other current Assets 5.18 10.18 20.05 25.05 40.05

Total CA & LA 95.53 121.51 164.36 194.45 256.45

Current Liabilities 61.74 60.65 85.77 90.00 90.00

Provisions 3.98 5.97 5.80 6.00 6.00

Total Current Liabilities 65.72 66.63 91.57 96.00 96.00

Net Current Assets 29.81 54.88 72.79 98.45 160.45

Net Deferred Tax -3.02 -3.55 -5.91 -5.91 -5.91

Other Assets 2.19 4.75 1.96 3.26 3.25

Total Assets 89.77 143.32 202.91 333.49 415.74

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Key Financial Ratios FY12 FY13 FY14 FY15e FY16e

Growth Ratios Revenue (%) 27.7 19.9 23.4 18.0 20.0

EBIDTA (%) 30.9 30.5 32.3 22.0 24.1

Net Profit (%) 32.1 30.7 30.2 24.2 21.4

EPS (%)

Margins

Operating Profit Margin

(%) 16.8 18.1 19.9 19.9 20.7

Net Profit Margin (%) 10.5 11.5 12.1 12.7 12.9

Return

ROCE (%) 57.1 46.5 43.4 32.1 31.1

RONW (%) 38.9 36.8 35.3 29.2 22.4

Valuations

Market Cap / Sales 0.7 1.07 1.37

EV/EBIDTA

P/E 7.5 10.6 13.0 27.4 22.6

P/BV 2.8 3.8 4.4 6.0 5.1

Other Ratios

Interest Coverage 26.1 27.3 20.5 34.6 41.8

Debt-Equity Ratio 0.04 0.21 0.26 0.11 0.09

Current Ratio 1.5 1.8 1.8 2.0 2.7

Turnover Ratios

Fixed Asset Turnover 5.1 6.2 4.5 4.3 4.0

Total Asset Turnover 3.5 2.7 2.3 1.7 1.6

Debtors Turnover 7.8 6.7 7.0 7.4 7.4

Inventory Turnover 10.3 8.6 7.4 8.6 8.4

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Outlook & Recommendation

MUL is operating in an artificial leather sector which is poised to see robust growth over the next few years. The

market size of India's synthetic leather industry is expected to touch Rs 9000 cr by FY18 from Rs 4500 cr as of

FY13 on account of increasing consumption and purchasing power. MUL controlling nearly one-fourth share in

organized market in India would be one of the key beneficiaries of the uptick in overall demand. We believe

India’s consumption story would play its part going ahead. Synthetic leather is approximately five times

cheaper than natural leather which makes it cost effective and it has gained acceptance around the world

specially in western markets which was earlier dominated by natural leather. Due to reasons like animal

hunting and environmental degradation the demand for natural leather has come down over the last few years

and also with significant improvement in technology and continuous thrust in research and development (R &

D), difference between natural leather and artificial leather has narrowed over the last few years.

MUL has expanded its total capacity from 2.45 million meters per month to 3.05 in CY 14 by adding another

coating line of 0.6 million meters per month to cater to increasing demand. MUL's net sales and profit has

grown at a CAGR of 32% and 56% respectively over FY 2009-14. We expect company's net sales to grow by 18%

and 20% in FY15e and FY16e respectively, aided by growth in exports and margins. MUL's exports have grown

at a CAGR of 54 % over the last 5 years. Currently MUL derives around 22 percent of its net sales from exports

and almost 80 percent of export revenue comes from automotive segment. We believe export will remain

buoyant on account of strong overseas customers and increase in demand of synthetic leather. We expect

company's export revenue to grow by 25 percent in FY15e and by 25 percent in FY16e MUL is also backwardly

integrating by manufacturing knitted fabric which will improve margins going ahead. We expect company’s

margins to expand by 90 bps in FY 16e compared to 19.85 percent in FY14.

On the financial front, for FY14 the company posted a top-line of Rs 469.61 cr and bottom-line of Rs 56.80 cr as

against Rs 380.54 cr and Rs 43.63 cr in FY13. The management is quite confident of sustaining its growth rate

and the margins. As we have mentioned that with increase in exports, the margins are likely to improve further.

Currently, the stock is trading at a P/E multiple of 27.43x on FY15e and 22.57x on FY16e fully diluted EPS of Rs

15.24 and Rs 18.52, respectively. We value the company by assigning a P/E multiple of 27x on FY16e, which

gives us a target price of Rs 500 in the ensuing 9-12 months. We initiate coverage on the company with a buy

rating.

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