Mayur Uniquoters Limited (Mayur) is Indiaâs largest
manufacturer of Synthetic leather with an installed
capacity of 23mn metres annually (to reach 30mn by
Septâ13). The addressable market size for Mayur is
estimated at Rs.60-70bn. Given its profitability, strong
balance sheet, free cash flows and dominant competitive
position, it is in a strong position to scale up and address
the opportunities before it. Mayur has been consistently
adding capacities to meet the growing demand of user
industries and at the same time has consciously chosen
to concentrate on segments that need value addition,
ensuring better margins. We initiate coverage on the
stock with a Buy and price target of Rs564.
Synthetic Leather a Rs.60-70bn opportunity: While the domestic
market size is estimated at Rs.35bn, export opportunity is estimated
at Rs.30-40bn. Add to this another Rs.7bn of Chinese imports, the
total addressable market for Mayur stands at Rs.40-50bn. Mayur is
one of the largest players in synthetic leather with annual capacity of
23mn metres.
ï â…Operationally in a very strong position to scale up and
address opportunities: Mayur has demonstrated strong and
profitable volume growth over the years (Revenue/EBITDA/PAT CAGR
of 37%/50%/60% over FY02-FY08) by concentrating on segments
that need value addition thereby ensuring better margins. Given the
strong cash flows, the company has largely funded its capex through
internal accruals delivering healthy return rations (average ROE and
ROCE of 37%/50% over FY02-FY08).
ï Diversified client base: Mayur supplies synthetic leather to both
domestic and overseas clients. It derives more than 50% of its
revenue from the footwear industry serving clients including Bata,
Action, Liberty, Relaxo, VKC group (caters 70-80% of its requirements)
, Paragon, among others. The company also caters to the auto OEMs
(both domestic and global) as well as the replacement market. Mayur
caters to all large manufacturers in automotives including Honda,
Maruti, M&M, Tata, Eicher Motors and global OEMs, Ford and
Chrysler. Mayur largely caters to the organized players who account
for more than 90% of its revenues.
ï Export focus to ensure healthy margins: On the auto OEM export
front, each of the 5-6 big OEMs, GM, Ford, Toyota, Daimler, BMW and
Chrysler buy synthetic leather in excess of Rs.5-6bn each year for the
developed market of Europe and US. This combined adds up to Rs.30-
40bn of addressable market each year. The company added Ford and
Chrysler to its client base in the last 3 years, which led to exponential
growth in export revenues from the US.
ï Backward integration to reduce rejections: To improve availability
of good quality knitted fabric, Mayur has integrated backward into
manufacturing of knitted fabrics. The knitted plant has been
operating from Septâ12 but processing is likely to commence in
Marchâ13. Backward integration is likely to help reduce the rejection
rate and improve the overall margins by 0.75% to 1%.
ï Capacity expansion to meet growing demand: Mayur is putting up
a fifth coating line, with a capacity of 0.6mn metres/ month and is
likely to commence production from Septâ13). Post expansion, the
total capacity will be 2.5mn meters/ month raising the annual
capacity to 30mn meters in FY14E from 23mn in FY13.
ï Valuation: At the CMP of Rs. 425, the stock is currently trading at 9.6x
FY14E EPS of Rs.44.3 and 7.9x FY15E EPS of Rs.53.7. We initiate
coverage on the stock with Buy rating and a target price of Rs.564
(based on 10.5x FY15E earnings).
