Was looking at the thread and the company ! It has grown at a very good pace in Past but now finding it tough to scale the business. Though the new PU plant coming in Q1 FY19-20 may aid to growth for the company. There are some apprehensions regarding the company in my mind.
The promoter Participation in Buybacks : The promoters have participated in last 2 buybacks, In the recent one , they tendered 243800 Shares out of total 450000 shares assigned for buyback at a price of Rs 550. Then after some days , they started buying very small quantities of shares at around Rs 350-400 Levels. Latest being on 31st October 2018 at 360.
Auditor has made a Qualified Opinion in Annual Report 2017-18 about some compliance issues with respect to Payment of Wages Act, 1936. Though it does not look any major Qualification. Company has also clarified that they are exploring ways to correct it.
Uncertainty regarding the succession plan. Mr. Manav still hold around 15% stakes in the company. Would be interesting to see further developments here. The Father-Son internal feud has deteriorated the reputation of the Promoters.
Promoters holding has come down from 75% in March 2014 to 61% in September 2018. The main fund giver Westbridge who were happy to contribute for the PU plant has sell his stakes to other funds even before the PU plants comes in.
Current Investments of 38 Cr in Equity funds and 110 Cr in debt Funds. Though it makes sense to invest in debt funds or liquid funds for short term , Investments in Equity Funds is beyond my understanding.
Company spent 51 Lakh out of 2 Cr prescribed for CSR last year and they spent 1.73 Cr out of 2.24 Cr for this year. Reason for this year given is that the funds required are needed in next year for building School. However no mention of last year CSR amount unspent.
Mayur Uniquoters Ltd
Highlights of Q2 FY19 and H1 FY19 Results
Financials
Standalone Basis
o Revenue from operations grew by 7.2% to 147.72 Cr on YOY basis
o PAT stood at 20.04 Cr for the quarter
CAPEX
o PU Project :- Construction of PU project plan is under progress and company have order all the imported machine. Company target is to start the commercial production by 1st April 2019.
Key Highlights
Company is operating at 3.05 million installed capacity of meters per month
Declare interim dividend of 0.50 paise per share or 10 % in Q1 and now company declare second interim dividend same as Q1 FY19.
Three major raw material PVC Resin , Plasticizer and Yarn are petroleum products and due to increase in crude price the raw material prices increase by more than 15 %. Company is not able to increase the prices and it can be done only in October which will reflect in next 2 quarters. Prices of raw material now start declining from November and effect of this will be seen in last quarter of current year. Company is expecting good top line to increase supply in future.
Market is little volatile because of state and central election. Things will stabilize by third quarter of 2020.
Company has identified locations in remote and rural location in Jaipur for construction of school as a social responsibility.
Q&A
As company effected from crude prices and rupee depreciation so does company donāt have cost through escalation pass through model ?
o From 1st October company will be able to increase the price by 4 % . Company could not increase as much as the depreciation of rupees. From November the raw material prices has started reducing .
o Company export to USA and Mexico and there company have its warehouse there so company send material from here and from there it is sold to consumers so regularly company keep extra stock there during rainy season because it affect to produce material in rainy season in India. But from last 2 years company have maintain good quantity so that problem has now sorted out. Now whatever selling there is seen in company book . So this year company reduce the warehouse stock so the supply for this quarter for export was less and domestic was more . In export realization per meter is much higher about 450-500 rs whereas local average is not more than 180-190 rs so that is one reason. Market is much better in export compare to domestic sales.
What is the time lag company see in passing the prices to customers and how much price increase does company have taken ?
o Company have taken 4 % price increase and raw material price increase by 15 % so there for net effect is 8-9 % on total. Now crude is going down so bottom line will also do well in respect to it.
Why do company donāt take hedging with commodities ?
o Company had never seen a situation where raw material prices increased and company was not able to increase the price toward customers. Company will look forward for such strategy.
o PVR Resin and Plasticizer are 80 % imported and 20 % is domestic , yarn is all domestic. In Q1 the result was good as there was no effect of increase in price of raw material because company have stock and increased prices already and in Q2 the market is as it is down because of rainy season in all segment so that was one reason company canāt increase the price. Company top line is so far much better than competitors.
Why other operating expenses increase to 18 Cr versus trend of 12-15 Cr ?
o In other expenses up till now company was running 5 machines and in this quarter 6th machine has also started therefore the biggest consumption is power and fuel because the coal prices and power prices also start increasing so about 1 Cr company spend more in power and fuel. 50 lakh more in contract labors. Company is working with Mercedes and BMW so lot of testing is require to done which is not done here so that has cost about 30-40 lakhs. Company is seriously working on bring units in Europe and America and then company is also going to have one plant in Gwalior and another plant company is commissioning in south so to strengthened company people company had appointed two consultant to improve work so in that company had spend about 48 lakh rupees. So this conclude the other expense increase and this is one off and not going to happen next in quarter.
What is the value and volume sales this quarter segment wise ?
o On Volume Front in meters
ļ§ General export is about 4.5 lakhs
ļ§ Export OEM is about 3.24 lakhs
ļ§ Auto OEM sale has reduces considerably this quarter and thatās why it has affected topline as well as bottom line.
ļ§ Auto OEM in domestic was good to 8.53 lakhs
ļ§ Auto replacement was good to 26.94 lakhs.
ļ§ Footwear was same not much difference it was about 26.78 lakhs
ļ§ Furnishing was about 10 lakhs.
ļ§ So company has increase the sale of auto replacement in domestic market. In that per meter realization is much less than export
ļ§ The sale in exports has come down by 4 lakh meter from 12 lakh to 8 lakh meter and this will cover in next two quarters.
o On value front
ļ§ Export general is 5.85 %.
ļ§ OEM is 10.34 %,
ļ§ Auto OEM is 10.58 %
ļ§ Auto Replacement is 26.83 %
ļ§ Footwear is 40.23 %
ļ§ Furnishing is 1.34%
ļ§ Others is 5.03 %
Did inventory adjustments are over in US and Mexico ?
o It will be quite good in next few quarters and whatever quantity company has lost that should be recover.
Kindly brief on footwear sales ?
o In general the footwear sales are atleast 20 % down in the market. Company sales was not down last year it was 29 lakh meter and this year it is 34 lakh but increase in revenue is not same because per meter realization is little less.
Did company will maintain this kind of sales as sustainable without PU plant or it is not possible to increase from here ?
o Company will try to increase the sales and company is working on that in footwear market and export market also. Company focused on bottom line . Production capacity has increased but the market has not increased due to demonetization and GST. In footwear business 70 % business is with unorganized companies so it is very difficult for them to manage and payment condition is very bad in footwear industry.
Why capital work in progress is not increasing as company is reaching to completion of PU plant also ?
o In this PU project there are two things one is to buy a land and pay for the machine. Now most of the cost is for machines. In machine company open a LC and on that LC they supply the machines. Production will start in April and machines will start coming in January. Form that time company will start paying for this. From capital of 4 Cr company has paid 2 Cr for land and 2 Cr for construction.
How much is the thickness require in Footwear ?
o Footwear it is 1.2-2.2 MM and in auto OEM it is 0.8 to 1 MM.
o Company is focused on Auto segment because it has much big scope compare to footwear segment.
Why receivable days has extended by 7-8 days ?
o It is mainly because of footwear segment.
What is the update on Mercedes inspection is it done or due ?
o On 27-28-29 November company will get the final inspection. They are coming for second and final auditing and result for same will come to known in next month.
What was auto export in H1 of last year compare to 45 Cr in H1 for this year ?
o 60 Cr in last year H1 FY18 in which 30 Cr was from Q1 and same in Q2 .
Will company will able to achieve last year revenue and what is the issue ?
o Issue is whenever they introduce any model their life is 4-5 years Company is introducing few new models for which company will come in force in next quarter or 4th quarter. But ultimately at the end of the year there will be not much difference
In market as the supply increase but demand donāt increase so the supply which has increased are they able to match with the quality of customers ? How will be the supply chain reliability ?
o As quality is concerned India is a very big country there are all level people. Each footwear manufacturer are making products for all segments now the product which is made for lower price material there they use cheap material. Company is not able to compete with them for that material as company is in medium and higher grade segments.
Are the middle and high end customers are considering the extra supply that come in the market or this extra supply doesnāt meet the criteria ?
o New suppliers are majorly on lower levels some are there in medium levels and there sales are also increasing. Company is supplying only to the organized players in mainly in south and because of extra supply the organized segment sales is increasing. So thatās why company sales has increased compare to last year from 28 Cr to 34 Cr. Market is going to increase and company is working on bottom line because without sufficient margin there is no meaning of doing any business and due to high quality company expenses are also high compare to competitors. In USA even China is not supplying and they are producing at least 25-30 times more PVC and PU leather compare to India still they are not able to maintain the quality. For example company is spending lot of money to upgrade its production capacity and equipment for testing on that. So to maintain quality and increase supply one has to improve the facility and have good manpower and knowledgeable prices. Now company people are going to audit those companies from which company is buying PVC resin and Plasticizer. In last 6 month company have audited more than 4 company.
What is the total capital expenditure for the PU plant ?
o Company have only paid for land and construction but for machines no money is paid LC has been opened. Total project cost in first phase will be around 60-65 Cr.
How will slowdown in auto industry affect company ? In regarding PU did company here will also focus on Profit margin only ?
o In PU industry company will start production in April and there also company is looking for better margins but to start with company have to start with lower quality material also. There is no benefit expectation from PU segment in the first year because company have to align itself with the production and company is importing people from China. But to create a new product and introduce in the market it takes some time.
How is the PU industry scenario right now ? Does company will have pricing power ?
o Prices will increase as raw material price gets increase. In import of PU base product the import duty has increase from 10 % to 20 % so it is good for company. Company is working for antidumping duty also.
How does company see automobile industry for next 4-5 years ?
o It will keep on increasing .
Care rating says āMUL had planned to foray into manufacturing of PU coated fabric by setting-up a greenfield manufacturing capacity at Gwalior with an estimated cost of Rs.85 crore which is envisaged to be largely funded through available liquid investments and internal accruals and is expected to achieve commercial operations date (COD) by June, 2019. MUL shall also commence second phase of the project after stabilization of first phase. MUL is also in the process of setting up seventh coating line at its existing unit for manufacturing of PVC leather with estimated cost of Rs.25 crore. Installed capacity of MUL for production of PVC coated fabric will be increased by 60 LLMPA, once this coating line becomes operational which is expected by end of March, 2019. MUL is setting up this new coating line mainly to meet supplies for Mercedes Benz.ā http://www.careratings.com/upload/CompanyFiles/PR/Mayur%20Uniquoters%20Limited-01-07-2019.pdf
BMW inspection will take place in June and then it will take its own sweet time for approval and production.
No profits are expected to come from PU plant for 1.5-2 years.
Export growth was 10% this quarter Y-o-Y.
Production from PU plant will start from first week of August. Major companies would be footwear.
Footwear growth was 1-2% this quarter.
Management is quite damp on domestic OEM business.
My take is that we will have to wait for another year atleast to see some growth coming. It doesnāt make sense to pay 17-18 PE for a biz with no growth levers in place.
I usually look at all the opportunities available while looking to invest my money. Management has clearly said that it will take time for Merc. revenue to become big hence the timeline for significant revenues accruing from merc. to mayur is anyoneās guess.
So with so many variables in the picture, why should we pay anything more than 10-12 PE with almost nil growth from last 4 years?
There are companies like Ambika, nesco etc available at decent valuations with one or the other trigger is almost available in next 3 months?
Does anyone know why stock is going down? I havenāt heard any bad news about the company. So I thought of checking. I guess stock is going down because auto industry is not doing well and Mayur Uniquoters major revenue comes from auto sector. I dont have any position in the company. But I was tracking it for some time.
It is an ancillary business and more so for new vehicles if the Telcosā¦of the world are not able to sell cars it is going to hurt their suppliersā¦only positive is Mayur uniquotets is not impacted by EV twist.
Conference call:
Mr. Poddar - āThis is the best time to buy companyās sharesā.
Analyst - āSince this is the best time to buy shares in your view and you are sitting on so much cash, are you considering a buy-backā?
Mr. Poddar - āI donāt knowā
In my view, the management has lost the drive to scale and grow after many internal family conflicts. Until we see clear signs of auto recovery and addition of clients, this looks like value trap at best.
We have to see the time they are taking to complete capex which were planned long ago.
Capex in itself doesnāt give growth, its a double edge sword. If utilization level falls due to lack of growth then it can hurt the profits due to operating leverage.
Just listened to concall. Business wise there are growth triggers coming in near term (PU Plant starting from November; Mercedes starting from next year; other clients in pipeline).
But my biggest worry is the management succession. Mr Suresh Poddar is 72yrs old; are they working on succession planning? Looks like the other guy on the call wasnāt as well versed with the business as Mr Poddar was?
Anyone tracking this for long time, please throw some light on this.
True.
But to their credit, the process has ended favourably. Now they are very close to monetizing it from Q1FY21. The problem is that they havenāt guided on the timelines properly.
