Management Q&A June, 2011 on Mayur Uniquoters is really informative. Well done job.
Great to see such extensive research into the company. It reinforces my faith in the management vision and company’s prospects.
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Very informative and great effort Donald. Thanks a bunch.
Some points:
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Management seems to be very cautitious while providing general outlook. What do you infer from management’s body language? Were they confident about where they are and the road forward?
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The canadian player (with a manufacturing base in China) seems to be the closest competition in auto OEM exports market. Do we know who they are?
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Anything discussedon thedelisting front?
Regards,
Rahul
Thanks everyone for the encouragement. This was a great collaborative effort. We hope we can keep up the energy and spirit in the group to keep doing more work on the companies that come out as promising!
Management is Conservative. This is a good thing in my books. Body Language is very positive. The energy within the entire company was very positive. The man who took us around the factory had spent last 5 yrs - and he was speaking about the Vision of the company - become the #1 Synthetic leather player in the industry.
This tells us that while in external communications the company is very conservative, but internally the vision is communicated pretty well!
De-listing is not an option. If it was we would have been told, such was the candor and level of our discussions…we forgot to bring this up…it was never in contention:)
We will get more details on Competition …so that we can do our own independent due diligence on market size, etc.
I think I will go with donald in the ratio of around 3:1 in favor of Mayur in comparision with balkrishna inds.
Coming to some positives:
1. Almost debt free balance sheet inspite of such stupendous growth.
2. Management vision is great. They intend to progress in such a manner that each sector of their consumers contributes no more than 25% of total revenues. This looks like a conscious effort to derisk the business from sectoral ups and downs.
3. Increasing dividend payout. For those who got in around 100-110, the dividend yield amounts to around 10%.
3. High promoter holding gives a lot of comfort to the small investor.
4. Induction of professionals who are experts in their respective fields i.e Mr Acharya and others is a good sign.
5. Backward integration into knitted fabrics looks like a welcome step.
6. Besides these the approvals granted by the biggies in OEM like Ford etc speaks volumes about the company's product quality.
To sum it all a company with top class management growing at 20-30% with clean balance sheet available at around 7 times trailing PE looks like a great investment opportunity.
I dont know if the above positives hold for balkrishna inds. Biggest negatives for me are its vulnerability to raw materials and high level of debt even though it may be at a low interest rate.
It is an excellent business to own in current circumstances. & Thanks to Donald jee & Naga Brahma jee for all the hard work.
Just looked at their website and found the foll projections for fy 12
Sales 310 crores
exports 75 cr
domestic 235 crores.
Anyone with any guesses regarding the margins?
Even conservatively I think one might safety assume the fy 12 EPS to be around 58-60 if the above growth targets are to be achieved and margins remain somewhere near 10% at net levels. If the management manages to surpass its conservative projections as they have done in fy 11 there could be delightful positive surprises.
On the basis of this the stock still has a long way to go.
Thanks Hitesh for the pointer on Sales Guidance from the company. Realised I hadn't checked their website for a long time.
I am glad to see a ~25% growth in Sales being projected by the conservative management for FY12. Here are my workings based on these projections.
|
Mayur Uniquoters |
2009 |
2010 |
2011 |
2012E |
2013E |
|
Growth |
44.60% |
48.90% |
24.72% |
30.00% |
|
|
Total Sales |
115.44 |
166.93 |
248.56 |
310.00 |
403.00 |
|
Domestic |
103.10 |
150.21 |
200.28 |
235.00 |
282.10 |
|
Exports |
12.34 |
16.72 |
48.28 |
75.00 |
120.90 |
|
Segment Contribution |
|||||
|
Domestic |
89.31% |
89.98% |
80.58% |
75.81% |
70.00% |
|
Exports |
10.69% |
10.02% |
19.42% |
24.19% |
30.00% |
|
EBITDA |
11.78 |
27.92 |
40.87 |
49.60 |
64.48 |
|
EBITDA Margins |
10.20% |
16.73% |
16.44% |
16.00% |
16.00% |
|
Depreciation |
1.59 |
2.08 |
2.67 |
4.03 |
5.24 |
|
Depreciation/Sales |
1.37% |
1.25% |
1.08% |
1.30% |
1.30% |
|
EBIT |
10.19 |
25.84 |
38.19 |
45.57 |
59.24 |
|
Interest |
0.74 |
0.60 |
0.70 |
1.12 |
1.45 |
|
Interest/Sales |
0.64% |
0.36% |
0.28% |
0.36% |
0.36% |
|
PBT |
9.46 |
25.24 |
37.50 |
44.45 |
57.79 |
|
Taxes |
3.40 |
9.02 |
12.23 |
14.67 |
19.07 |
|
Tax rate |
35.91% |
35.75% |
32.61% |
33.00% |
33.00% |
|
PAT |
6.06 |
16.22 |
25.27 |
29.78 |
38.72 |
|
Net margins |
5.25% |
9.71% |
10.17% |
9.61% |
9.61% |
|
# of Shares |
0.54132 |
0.54132 |
0.54132 |
0.54132 |
0.54132 |
|
EPS |
11.20 |
29.95 |
46.69 |
55.02 |
71.53 |
|
EPS growth |
167.47% |
55.85% |
17.86% |
30.00% |
|
|
P/E |
7.52 |
6.38 |
4.91 |
||
|
P/Sales |
0.76 |
0.61 |
0.47 |
Conservative assumptions used:
a) EBITDA margins stabilise at 16% b) Higher depreciation next 2 years because of increasing capex incurred c) Interest cost/Sales taken at median levels
With these assumptions, EPS for FY12 is around Rs.55-60 (if EBITDA moves upto say 17%).
Management had mentioned earlier to Naga that Export Sales are at 2-3x the margins of domestic sales. That hasn’t seemed to change EBITDA levels so far when Exports increased from 10% -20% of Sales. At 25% of Sales projected for FY12, Exports still may not be able to add much leverage to EBITDA levels.
We must be prepared that FY12 may not see Sales growth much higher than projected. There is a constraint on the capacity side. The new capacity 0.4 mn meters/month will take upto a year to stabilise at peak utilisation as indicated by Management. Since this will be used more for Exports, there will be even more stringent stabilisation procedures before peak capacity utilisation can be reached.(Costs of rejections are very high)
Mayur’s operating leverage comes out of economies of scale as also indicated by Management. So FY12 with 25% growth, may not see big improvements on the earnings side. We should be happy with anything between EPS 55-60 levels. FY13 should see earnings growth climbing back to 30% plus levels.
But if they manage to crank up Sales growth faster than indicated, we can see more upsides, not otherwise.
I am sure Naga will have a more optimistic scenario in mind;).Love to see his comments and reasonings (he is travelling currently) in a few days.
Meanwhile invite comments from everyone. What do you think is the likely scenario.
donald,
Regarding the exports not improving the margins I think one has to think exports might be the thing which might have maintained the margins to compensate the slight fall in margins on domestic front due to high raw material price. This is just an assumption and if this is true then with increasing exports we might see higher margins once the domestic margins stabilise/improve.
Coming to calculations, I would take the management projections of around 310 crores and put in a net profit margin of 10% which gives me projected net profit of 31 crores. This works out to an eps of around 57 which falls within range predicted by donald for fy 12. Again here if sales are higher and margins remain stable there could be upsides.
Since the management has always surprised on the upside, I would bet on that scenario unfolding again for fy 12 also. fingers crossed.
You are right Hitesh. Exports compensating on the margins front is a distinct possibility.
We should check on this.
-Donald
Hi Guys,
I had been slackening on my promise of keeping the Stock Stories up-to-date as we learnt more on each company followed. This aimed at twin benefits a) First-timers into the stock idea can grasp the essentials immediately, rather than needing to follow 100 posts from the discussion thread to get an updated picture b) Old-timers into the stock idea also have an updated, distilled information-set to re-evaluate their positions.
Happy to present the Updated Mayur Uniquoters Stock Story, with additional learnings from the latest Mayur Uniquoters Management Q&A, June 2011.
Please share your feedback on this, but essentially the stock story template. How useful is this for you? Do you refer back to this from time to time - to get the most important issues top-of-mind - as you seek to reassess opportunities across your stock universe??
Your feedback & suggestions are very important!
Thanx
-Donald
The story of Mayur uniquoters is being unfolded slowly. The functioning, prospects, scale of opportunity etc.of the company are thoroughly discussed on every angle. Now, I think it is time for Mutual Funds and FIs to enter the stock. PE expansion is on the cards shortly.
31st March, 2011 HDFC Securities report on Mayur Uniquoters. I am surprised no one had mentioned it so far.
Also surprised (pleasantly) to see some portions of ValuePickr stock story, used identically in the report. Check the starting para and you should know. To its credit, the report brings out some more on the technology, and highlights the strengths in its own way.
Nothing new there. Updated ValuePickr story has more meat! Way to go, Donald & Naga!
Hi Donald - Congratulations on such a good effort and thanks to Hitesh for finding this stock. I think the company has good fundamentals, however, would like to analyze it slightly differently - break it into export and domestic business and get individual ROE’s and ROCE’s. Will work on getting the data, not sure, if somebody has already done the analysis. Then we can figure out the impact of each of these business on the overall profitability, future growth and capex needs.
After reading the thread, couple of clarifications-
1). How does the company plan to fund the capex (30 cr). They made about 22cr in profits this year, Operating cash flow of 16cr, so either dilution or debt raise might be on the cards?
2). How does the promoter plan on increasing liquidity in the stock, without FII or DII participation would be hard to cause PE rerating. Also, interesting that there is no DII participation in the stock.
3). The management seems to be investor shy - this might be a big issue for stock rerating.
I would wait for the stock to correct (however with so little float - 60 cr), not sure what would be a trigger to sell (bad auto numbers, footwear companies correcting?). Around 250-260 is a good level to enter.
Thanks Nidhi for your encouragement. My thoughts
1). Don’t think you will get data to calculate ROE and ROCEs for domestic and separately, apart from the Sales breakups. These are not separate segments for company’s reporting purposes. When we asked Management this time, they were not very forthcoming with break-ups and tried to maintain not much difference in profitability there - a year earlier they had said to Naga ( margins in exports are 2-3x)! We may try to press on this issue in subsequent interactions with Management.
2). Not sure where you got 30 Cr capex. A new coating line costs about 10-12 Cr, that’s what they have already paid for - we saw the new coating line assembled on the shop floor. There may be additional 5-6 cr capex on de-bottlenecking, etc. Any fresh investment in new capacity or say the knitting line backward integration project will most certainly be spread over 2 years. Op Cash flow is 17.2 Cr
In any case, the BS is strong enough to fund taking a little more debt on. D/E level is 0.13x!
3). Promoters are good conservative people. They don’t play the market which is good. They actually talk down prospects! (See the CNBC interview link elsewhere in this thread) Liquidity is an issue. But most veteran investors in fundamentally strong, but illiquid stocks have educated me that this is something that has a way of sorting itself out, once a company reaches a certain size 50 cr in PAT, or 500 Cr plus in Sales!
My conversions with Fidelity Fund Manager points to the same. Meanwhile the PMS arms of Funds do get in and other big players do get in once enough exposure is there…and Mayur has started seeing some action. Stock up ~9% at this point!
If the company keeps performing, it might not be available cheaper till the next big correction.
Donald seems to have lighted a fuse to this rocket. Reaches close to the highest test score by Brian lara.
Very good timely work guys! Finally the stock is getting the due attention.
Cheers,
Ayush
Hopefully, long way to go still 
Over time, I learned that low liquidity of good business are best ingredients for best returns!
Icing on cake is investors shy management… They are focusing more on their business rather than appearing on TV interviews.
My 2 cents…
2).