Mayur Uniquoters ~ Market Leader in Indian Synthetic Leather Market

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Key excerpt from concall dated August 5th:

Export OEM:

  1. Automakers are facing the production problems at their plant due to semiconductor chips shortage globally. And our – that’s why our OEM sale is also impacted in this financial year and especially in Q1. However, we are hopeful to regain the OEM sales and the demand from the market back within the next 2, 3 months.

  2. Suddenly because of the crisis, the sales has gone down, they have to close the business. Now in America, the situation is like this that they don’t have a car to have – to display in showroom. The demand is fantastic. Now it has started increasing from last week. Last week, the sales was improved. And now they say that by third week of August, we will have original sales.

  3. There are 3 big interior manufacturer in the world who are spread everywhere in Europe, in America, in India. So they – all of them knows who supply to the OEMs. So they are the people who make the interior and supply to OEM. All of them we know and everybody is satisfied with us. But the problem is, until and unless new model comes, from the old model, it is difficult.

  4. Fiat Chrysler: Previously our FCA business was hardly, say, 130,000 meters or 125,000 meters like that, which increased in January and February to 175,000 meters to 180,000 meters.
    [My take - This is one of the key monitorable. FCA was going through a rough patch, looks like things are changing for better post moving under the folds of Stellantis.]

  5. Volkswagen: So Volkswagen business has already started, supply has already started. But from this quarter, every quarter, it will keep on increasing. And I think by the end of the fourth quarter, we will be able to do the whole, whatever we have predicted, because anything which starts it goes slowly. But by end of this year, we will be doing 100% what has been projected in the last quarter. This quarter also July we have increased. So it’s already on the path of increase.
    [My take: Their initial projection is for ~40,000 meter, at Rs. 500/meter realization. Q1’ has not been very encouraging so far. May take longer than expected to reach projection.]

  6. Mercedes-Benz - your company is already approved by Mercedes-Benz for supply to their South Africa plant and product supply has also started with some quantity for the new models from this quarter.

Domestic Auto OEM:

  1. India is doing quite well. There is no issue in India. We have increased the prices also when the prices were increased, and they are giving us price increase also. So far as business is concerned in this year, I’m very much optimistic compared to last year. See, in last 2 quarters, it was fantastic sale in last year. And this April was the record highest sales in Mayur’s history. But again, that because of this pandemic, May and June were back. Now July had picked up. August is also picking up. So if there is no pandemic and I hope so, it will not be that bad what has happened, I mean the future is very good.

Polyurethane (PU):

  1. More than 1 crore meter is being imported in India from China every month. So far as market is concerned, there is not a big issue. The only issue is pertaining to the malpractices, which is done in India under invoicing and all those. For that also, we are working. Already, we have filed the anti-dumping duty on PU resin. We had first hearing 4 days back. Now we are working very seriously on that because what is happening from China. China is the biggest problem. And then the problem is our country.
    [ Must be referring to this ADD investigation. Also there was a reference to 10% interim duty during last call]
  2. Now we have started PU also, which nobody is supplying at the moment in the automotive industry in export, and we are quite close. Maybe it takes 3 months, 6 months’ time to get approval. But once it approves, it’s a big business. I mean, $25, $26 like that, and we are very close.
  3. And once it is approved, then there is only 1 supplier in the whole world. So we are working on that also very seriously and hopeful that maybe in '22, we may start having this business also
  4. PU Value/Volume Trend - ~50,000 Meter, Last month, we reached INR 1.5 crores
  5. PU Impact on PnL - Including depreciated interest, it is around INR 90 lakhs per month loss.
  6. PU Customer Profile (projection): 75% same and 25% new

RM Cost Escalation Pass-on:

  1. The prices of raw material are increasing. PVC prices have increased by more than 70% to 80%. Plasticizer prices have been increased to 100%. And all these increases started from the end of the fourth quarter. So fourth quarter, it didn’t affected because we had a lot of material in stock. Generally, we have 45 days stock of these specific materials. So that was the advantage. We have started increasing the prices.
  2. we also increased almost more than 30%. We have increased more than 30% prices with this increase. So now since the prices have started going down, we have decreased 6% in July.
  3. See, we – all our general export, we have passed on this freight cost to them, and they are accepting, 90%, 80% are accepting.
  4. But so far automotive is concerned, they are very strict. So – but we have given them ultimatum that from this quarter – I mean, third quarter, this is the second quarter, from third quarter, if the things are not normal, we will increase the price. And they have to increase because so many supply – even leather cloth supplier, they are declaring force majeure because if you are not giving the supply – prices what the supplier will do? A force majeure

CapEx/Backward Integration:

  1. We are very serious that we had to fight with China. I think with China is only 2 things that all the fabrics should be in in-house and PU chemical also we have to start manufacturing. For that also, we have started looking for an engineer, who is expert – who are expert in PU, so that in course of time, we’ll start making PU also. This is necessary for the long term.
  2. We are making knitted fabric. Now we are going to start very soon, maybe in 1 year time, this warp knit fabric, then nonwoven, then PU also.
  3. CapEx plan in '22. Clearly, it will be around INR 25 crores to INR 30 crores.

Misc.:

  1. I’m less interested in top line, I’m more interested in bottom line. That’s why you will see the bottom line has always increased. Today, so far, top line is concerned, every 2 years, I can double myself. But what is the use of selling, if I get 3%, 4%, 5% margin. I’m not interested in those businesses.
  2. FY '22 volume, the way things are moving, what we have seen in July and what we are seeing in August, already orders have started coming in a good way. I think it should be better than 2021. '21, '22 must be better.

Thanks,
Tarun
Disc: Invested

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