Its an interesting question!
Disc: I am invested in both. And am looking to put in more post the management meets. I have big vested interests in both.
Mayur has the advantage of having an asset light model. Great profitability & returns. Strong BS -almost debt free, we havent seen any RM related vulnerability even though Rm/Sales is 70-75%. It has started seeing success on a global scale, it needs to prove that it can sustain initial gains. Good Products, Quality & Operations are expected to be strengthened by industry veteran professionals coming on board. There is lot of promise, and lot of challenges in scaling up to meet the opportunities. It is a 250 Cr company. 2012 Mayur may grow slower than 30% because of capacity coming on stream slowly, but should clock a 30% rate for the next 2-3 years.
Balkrishna is an asset-intensive model. They have to keep investing in capacities to keep growing. Margins are vulnerable to wild swings in Rubber prices -though they can pass on prices to an extent because of price differentials they enjoy. It has a great track record, enjoys 4% global market share and looks set to get to 10% market share by 2015. It is a 2000 Cr company. It has already established itself on the global scale, marketing themselves is no more a challenge - the challenge will always be capacity additions.Interesting part is BKT may be able to grow as fast as Mayur Uniquoters for the next 2-3 years, provided they dont falter on execution. Finances at very low costs are tied up.
)- it will take 2 years for Mayur to be seen differently than it is today. It needs to make a success of Auto OEM exports and Auto Replacement market exports. It needs to cross 500 cr in Sales or 50 cr in profits which may happen earlier. So current valuations for Mayur maybe considered fair till it demonstrates it can scale up successfully.
BKT is unfortunately clubbed among tyre players and gets tyre player valuations even though margins and returns are double the tyre industry. This is acknowledged by astute investors like Prashant Jain (HDFC) and Ashish Dhawan ( Chrys Capital) sitting on BKT from long. Current valuations of BKT can be considered NOT fair. By FY13 when large capacity comes on stream, there may be trigger for rerating.
My own take
I don't care so much for sector perceptions, though I have learnt to understand them better. I seem to believe at this stage (reserve the right to change as I learn more:)), if business characteristics are superior, and the company keeps performing, market has to accord higher valuations at some stage. And I would rather be in a superior business.
I am invested in both. But 3:1 Mayur:BKT. Post new investements in both this will be more like 2:1. Inherently I like Mayur's business characteristics better. I keep asking fellow investors show me another company of Mayur's size with the same characteristics - asset light model, fixed asset returns of 6-8x, debt free, ROCE in excess of 40% and growth in excess of 30%, current opportunity size of 5000 cr plus in front, and a focused Management. BKT is a more mature player, established, well-poised to keep replicating earlier year successes. Its showing aggression at the right time, and as Hitesh says - they know what they have to do and how! They have the ability and standing to secure funding for growth at very attractive terms too.
The scale is tilted 3:2 in Mayur's favour for me, as it's business characteristics seem better to me. BKT is a good enough business that must get its due sooner than later.
If someone were to force me to choose only one, it will be Mayur Uniquoters as things stand currently.
Invite views from everyone. It is an interesting capital allocation question I guess, and should interest all the veterans. Asking for help and views from all, especially senior market participants.