Mayur Uniquoters ~ Market Leader in Indian Synthetic Leather Market

[manoopatil]

Mayur came out with Q3’FY23 results a couple of days ago.

Footwear segment has been a bit soft during Q3.

Want to hire a CEO and COO also; Hoping that his grandson will be back after graduation in USA as a part of succession.

Revenue on YoY basis have been flat at around 170 Cr. However there is improvement in gross and EBITA margins. EBITA margins have improved from about ~17% to 20%.

Mr. Poddar, during earnings conference call, is sounding very excited and optimistic for next two years business. With quite a few orders in hands, he is talking about starting plans in US(probably Mexico) and even Europe.

They are supplying 30,000 - 35,000 meters to Mercedes

To BMW, they are supplying 3,000 - 4,000 meters in Thailand. They have not approved South Africa as well. In next 3 months, they expect to supply 15,000 meters to BMW and in 6 month, it will reach to about 30,000 meters.
To Chrysler’s Thailand plant, the company has already started 10,000 meters every month.
Mr. Poddar is optimistic about the foray in furnishing. In 2023 they plan to reach to 1,000 customers.
Mr. Poddar mentioned about a new product category within PU (which resembles more like leather), And only three companies having that product - one in Germany, Another in Japan and Third is Mayur (Need to take the excitement by Mr. Poddar with a pinch of salt)
He Categorically suggested that he is targeting to reach revenue of Rs. 1,000 Cr in FY’24 and ~1,200 in FY’25. The margins are likely to improve on account of more OEM, Export orders and PU contribution to revenue. For FY’23, I think they will make ~ Rs. 800 Cr.

Source: Earning call transcripts here

Disc - Invested.

[ranvir]

Mayur Uniquoters Q3 concall highlights -

Revenues - 178 vs 180 cr

EBITDA- 34 vs 38 cr, margins at 19 vs 21 pc yoy vs 17 pc qoq

PAT- 27 vs 26 cr

De-growth in footwear segment. Expect to see an uptick go fwd. No firm signs on ground though

Gross margin has expanded due RM correction and price hikes taken by the company (previously). Expect same trend in GM for Q4 also

PU business currently going slow. Expect to pick up next year. Have appointed a distributor in South India for the same

The distributor is already supplying speciality chemicals to Adidas, Nike, Louis Vitton etc. Initial feedback has been good

Current supply rate to Mercedes at 30-35k Mtrs. To BMW at 4-5k Mtrs. Expect BMW business to scale upto Mercedes levels by next FY

Current total sales volume at around 70-75 lakh Mtrs/Qtr

Export OEM volumes may double next yr. Should go up by another 50 pc next to next yr. Here, the profitability is also higher, selling price is also higher

Have got orders for a new variety of PU from Chrysler

Have started making 3-4 different types of PU. Have started retailing them through various retailers. Current retailer count at 270. Aim to take it to 1000 by Dec 23. Domestic furnishing was one area where company didn’t sell anything till date. Its a new focus area and big mkt

Aim to hit revenues of 1100-1200 cr by end of FY 25(that is a big claim considering a current revenue base of aprox 750 cr)

Handing over more and more responsibilities to professionals (vs family). They are doing a great job

Margins to go up for next two yrs towards historical levels as the percentage of export Auto OEM sales increase

Chip shortage was a headwind for exports in the last 2 yrs. Now, has been resolved. Export business has higher margins

Company to stick to its policy of supplying to car models priced > 10 lakhs (in domestic mkt) where margins are better

Management assured investors of good growth for next 2 yrs in its closing comments

First 9M export sales at 135 cr vs 106 cr LY

Disc: invested, biased

[harsh.beria93]

Very bullish commentary again from management, notes below

09.03.2023 (CNBC)

• Expect 750 cr. sales in FY23 and 1100 cr. by FY25
• Aims to double its exports. It has also bagged an order from BMW in South Africa
• Volumes will expand from 247 lakhs in FY22 to 278 lakhs in FY23
• Started supplies to several automotive projects to OEMs in export market
• Auto OEM export volumes: FY23: 18.5 lakhs; FY24: 36 lakhs, FY25: 45 lakhs (confirmed orders)
• Capacity utilization is 70-75%

Disclosure: Not invested (no transactions in last-30 day)

[harsh.beria93]

Concall notes below.

FY23Q4

• Volume growth: 17% in Q4 and 14.36% in FY23. 284 lakh meter PVC sold in FY23
• Export OEM: 45% growth in Q4 (18.38% in FY23)
• OEM export: 142.3 cr. and 20 lakh meter (43-44 cr. to Mercedes and will be same in FY24). This implies realizations of 712/meter which is way higher than blended average of 450-500/meter. BMW will start by end of 2023 or beginning of 2024 (30,000 – 35,000 m/month run rate)
• Have added Ford Motor as customer and added models for Stellantis
• Total export: 210 cr. in FY23
• Domestic auto OEM: Sales increased by 24% and hoping to maintain double digit growth in FY24
• PU: 2 lakh meter in Q4 (8 lakh meter and 25cr. revenues in FY23). Expect 25%+ growth in FY24
• FY24 sales growth: 5% in footwear; 60% in export; overall 17-18% growth
• Some delay in export OEM order; margins will be maintained at current level
• Under invoicing continues to be a problem in PU imports, trying to work directly with big brands to sell PU. It’s similar to auto OEMs where it takes time to get qualified with customers. Trying to break into sports shoes and leather boots
• Footwear sales increased by 10% in FY23 (vs FY22). Footwear demand was down in March-May and prices are coming down
• Retail furnishing: Have appointed 350 dealers in FY23 (increased sales by 60% in FY23 on low base in FY22) and want to add 300 dealers in FY24 (and increase sales by 30% in FY24). Have appointed 24 sales professionals. Margins are good, will take a few years to create brand name
• Capex: Don’t need further capex to reach 1100-1200 cr. of revenues, will contemplate putting a plant in Mexico after that

Disclosure: Invested with a small tracking position and no transactions in last-30 days

[harsh.beria93]

Concall notes below.

FY24Q1

• Growth guidance: 12-15% sales growth in FY24 and 20% CAGR between FY24-26 with margin improvement
• Quarterly revenue breakup (201 cr.): Domestic auto OEM (44 cr.), domestic replacement (27 cr.), footwear (48 cr.), export general (20 cr.), export auto OEM (46 cr.; 5.7 lakh m; 807/m realization) and others (6 cr.)
• Expect 225 cr. of auto OEM exports in FY24 (vs 157 cr. in FY23) and 575-600 cr. in FY26
• Newly added customers (Ford USA, Mercedes South Africa, VW India, BMW, Hyundai, Kia, etc.) should see gradual improvement in volumes
• Mercedes: 30’000 m/month
• BMW: 2-3’000 m/month through Thailand. Direct supplies to South Africa can start in March 2024. Volumes will reach same levels as Mercedes
• PU business is struggling due to Chinese dumping (sold 1.81 lakh m; 5.5 cr.)
• PU strategy: Work with footwear OEMs and position themselves as a preferred vendor for PU leather, similar to how they penetrated Korean auto OEMs through tie-up with Baiksan for supplies to Kia and Hyundai India
• Footwear is expected to revive in October 2023
• Zara and some other global brands visited their PU plant, hoping to convert them into customers and if they are successful, volumes can be huge. Most of these visits are for sports shoes
• Auto replacement demand remained subdued due to government’s airbag mandate for backseat
• B2C: Will expand retailers to 1,000 by end of FY24 from ~350 currently

Disclosure: Invested (bought shares in last-30 days)

[tarunds]

@harsh.beria93 has succintly highlighted the recent concall above.
It’s very difficult to gauge what will happen to Mayur 3 years down the line however I am trying a simple extrapolation.

Background:

Company enjoyed a very strong growth period earlier around 2009-14 when it added export oem’s and had a cagr return of over 50% for few years before the company went into consolidation. At present juncture company has tied up with Mercedes and BMW and the supplies have already started for the former and more are lined up for both however business has been quite volatile since 2014 and marred with issues and somehow has not been able to grow consistently.
Apart from external volatility in the past few years internal issues currently like china dumping PU, slow offtake to export oem’s, scaling up of furnishing business, slow progress in professionalising the company are hindering growth.

What is the company targeting in the next 3 years?

3 years down the line ie by FY26.

• exports general is 20cr this q ie 80cr per year. Considering it a 100cr business.
• Replacement was 26cr this quarter ie roughly 100 per year and considering an increase to 150cr in 3 years.
• PU/Footwear was around 48cr this q taking it as 200 for the year poddar ji expects this to increase by 50% in 2 years but ill take it in 3 ie 300cr in 3 years
• Auto domestic was 44cr this q ie around 180 for whole year; this he expects 10% -12% growth hence considering 10% this could become 240cr
• Export oem he expects 575-600 in 3 years but ill keep it 500cr.

A back of the envelope calculation indicates that this is revenues of around 1300cr in 3 years.
And if we take margins of 21% (considering a 2% increase from present due to contribution from better margin products) this shud translate to annual pat of ~190cr or eps of 45 roughly.

Valuing it at 25p/e this translates to share price around 1100.

Risks:

• All This could have been said many years to quarters ago hence the above carries very little literal value but gives a sense of direction. The only positive is that now approvals from export oem’s are in place and shipments have started already.
• Succession planning and key man risk persists
• raw materials are crude oil linked and company has always struggled to pass on prices immediately taking a hit on margins. Hence, in case of volatility and increases in crude oil prices could impact margins and deter returns.

[Disclosure : Studying, planning to take a small position]

[ranvir]

Mayur Uniquoters Q1 concall highlights -

Financial outcomes (YoY)-

Sales -201 vs 220 cr
EBITDA -39 vs 35 cr (margins @ 20 vs 17 pc)
PAT -31 vs 27 cr

Company has been selected by global OEMs and has received confirmed new orders for next 3 yrs for exports and domestic mkts

Export mkts were subdued in Q1. Expect them to pick up from Q2 onwards. Company expects automotive exports of 225 cr in FY 24 vs 157 cr LY !!

Company expects auto export sales to reach 550-600 cr by FY 26 - based on the order pipeline that the company has received

For FY 25, expect auto exports to be around 400 cr

Most orders are from - BMW, Mercedes

Auto exports to really pick up from Q3 FY 23

Have appointed over 300 dealers to sell their fabric in domestic mkt. Response is encouraging. Sales are improving MoM

Since its a B2C business, margins are much better

Footwear sales are a little soft at the moment

2-3 MNCs like Zara visited company’s polyurethane facility. They are liking company’s product quality. Hopeful of converting them into orders by next FY

Expect a topline growth of 10-12 pc this yr & then a 18-20 CAGR for the next 3 yrs on the topline. Plus the margins are also likely to expand

Q1 exports stood at 66 cr. Out of this,46 cr were for auto-OEMs

Segment wise revenue breakup-
20 cr- Export- general
24 cr- Export- OEMs

44 cr - Domestic - OEMs
26 cr - Replacement sales
48 cr - Footwear Industry
6 cr - Furnishings

Domestic auto OEM demand continues to be healthy

Disc: holding from 480 levels, looking to add more

My take - Business momentum should pick up latest by Q3

[harsh.beria93]

AR23 notes

Customers:

• Foreign: Chrysler, Ford and Mercedes Benz, BMW
• India: Honda, Maruti, MG Hector, Mahindra Tata, Nissan, Toyota, Kia, Hyundai
• Auto: BMW, Mercedes Benz, Chrysler, Ford, Hyundai, MG, KIA, Maruti Suzuki, Tata, Toyota, Mahindra & Mahindra, ISUZU, Suzuki, Honda, Renault, Skoda/Volkswagen, Stellantis, Hero, Bajaj, Royal Enfield, TVS, Piaggio, Sonalika Tractor, Lear, TS Tech Sun, Bharat Seat, Krishna Maruti, Sharda Motors, S.I. Interpact Group, Swaraj Auto, Polor Auto etc.
• Footwear: Bata, Paragon, Lancer, Action, Relaxo, VKC Group etc.
• Exports to 21 countries (US, UK, South Africa, China, European Countries)

Revenue breakup:

Miscellaneous

• Entered into furnishing business through wholly owned subsidiary Mayur Tecfab Private Limited under the brand name “TEXTURE AND HUES”
• Will expanding dealer network to 1000 dealers (vs 350 in FY23) across India
• R&D: 4.82 cr. (vs 8.5 cr. in FY22). 28.7 lakhs was capitalized (vs 2.1 cr. in FY22)
• Foreign exchange outgo: 350.35 cr.
• Permanent employees: 497
• Average increase in remuneration of all employees excluding KMP was 3.46% and average increase for KMP was (-5.57%)

• Manufactures 400+ variants of artificial leather from PVC polymer which finds application in footwear (shoes/sandals insole and uppers), automotive (seat upholstery and inner linings), furniture & fashion items (apparel) and leather goods
• Installed a solar panel with capacity of 118 Kwp at Dhodsar plant. Also working towards installing a rooftop solar system at the Dhodsar main plant, estimated to have a capacity of 445 Kwp, as well as a Flame Lamination plant with an estimated capacity of 40 Kwp.
• Large increase in other expenses: 133.67 cr. (vs 98.75 cr. in FY22). Largest increase was from power & fuel and freight costs

• Following TPM, TQM and lean management to improve efficiency
• Share price: 319.2 (low), 547.15 (high)
• Shareholders: 33’148
• Audit fee: 39.8 lakhs
• Awarded the Best Employer-2022 award by The Employer’s Association of Rajasthan

Subsidiary financials

Industry

• Market size of synthetic leather was $36.17 bn in 2022, with projected growth rate of 6.4% from 2023 to 2030
• PU synthetic leather segment account for 55% of synthetic leather market
• Footwear segment accounted for 30%+ of global synthetic leader market

Disclosure: same as before

[Ninad_Divekar]

The Promoters have sold stake recently … Don’t know why they should sell if things are going to improve hereon …

[RAJEEV_B_A]

I heard in concall, they are selling stocks and use it to fund building temple.

[RAJEEV_B_A]

[Riyansh2112]

Hello Ranvir,

I am studying about Mayur Uniquoters for about 2 weeks and can see that the management is quite confident about growth and expansion in margins.

Recently the stock has increased by a considerate percent with very high volumes.
As a retail investor we should wait for sometime before deploying money in the stock or buy at this time considering there could have been institutional buying.

I would like to know your opinion for this stock and generally as well.

Thanks

[ranvir]

I would say, buy a small amount and wait for price to cool off before adding more. If it goes up, one can’t complain. If it corrects, one can happily add more.

So… it’s a win win kind of scenario.

That’s how I generally go about such dilemmas

[harsh_A]

It’s been into a long term consolidation (I believe)
The earnings will be fire the stock and we too have a management call coming up

[harshitgoel]

Mayur Uniquoters 2023 AGM Notes.

1. Currently operating at 75-80% capacity utilization. Looking to operationalise a plant in Mexico for expansion. Currently looking for land there.
2. OEM segment is growing really fast. Have good business for FY25 & FY26.
3. Footwear segment is poised for good growth. Approaching big international brands in the footwear segment for approvals. Getting a good response from them. In the next 1-2 years we might get their business which is a high margin business.
4. Export is a little subdued. Team is working hard to revive it.
5. Import from China is a challenge. Government has imposed 10% ADD on PU from China.
6. Today we are in a position to make any kind of PU cloth. Consultants from Taiwan & Europe are working with us.
7. On senior position employees leaving the company: Attrition rate is high in India. Mayur is the leader in India and everybody wants to hire their employees.
8. In the next 2 years we will make the company 100% professional.
9. Spending a lot of money on R&D.
10. Current visibility gives us confidence for better performance in the future.
11. Believe in our core values.
12. Believe in serving customer first
13. Believe in investing in people and empowering them.
14. Believe in constantly trying out new ideas.

[Riyansh2112]

Hello,
Harshit goel.

Thankyou for your notes of the AGM,2023.

As you have mentioned that the exports are subdued.
Did they mention anything more about exports?
As they expects Automotive Exports to reach 225 crs by FY24 and 550-600 crs of automotive exports by FY26. Are the still confident in achieving the targets set?
How long do they think the export markets can pick up?

If you have an answer to this that would be helpful otherwise your opinion would be helpful.

Thanks .

[harshitgoel]

Hi Riyansh.

They did not give any number for the exports as such in the AGM. They did talk about setting up a plant in Mexico to cater to export markets. Management’s tone was positive for growth pickup in Footwear segment.

[Riyansh2112]

Okay thanks we will know more in the next concall.

Thankyou for your notes

[Piyush01]

i have been going through financials of Mayur Uniquoters. and found that FY23 Sales was 764 Cr and their closing inventory and trade receivables on that date was 339 Cr

it means, company will need more capital to expand operations

whats your view on this?