Mayur Uniquoters: Good Business, Better Fundamentals, Great Value

Mayur Uniquoters Limited, one the largest player of PU/PVC leather in India, was established in 1992 by Mr. S.K.Poddar. PU/PVC leather, popularly known as synthetic leather finds applications in variety of industries including footwear, automobile seats,upholstery, furnishings, sports goods, apparels, leather bags and hosts of fashion accessories. Moreover synthetic leather is fast replacing natural leather in most of the industries due to limited availability and high cost of natural leather, increased awareness towards animal rights/cruelty and high polluting production process of tannery. In contrast, synthetic leather offers a great alternative as it is cost effective, less polluting and made from the fabric base.

Quality of Business and Economics:

Market Leader: Mayur Uniquoter is undisputed leader in synthetic leather market in India. It has current installed capacity of 1.4 million meters/month (expansion by 2012 to 1.9 million meters/month), more than twice that of its nearest competitor!

Preferred Supplier: Mayur has built enviable list of customers due to high quality of its product, system oriented approach and its ability to develop customized and high value products due to its in house R&D facility. Following is the client list.

Footwear: Bata, Liberty, Paragon, Khadim's, Action, Carbon

Automotive: Ford, Chrysler, MAruti, Honda, Tata, Nissan, Hyundai, Mahindra,

They are in the process of getting approved vendor list from BMW, Mecedez and GM.

Focus on high value/high margin products: Company has maintained continued focus on developing and marketing high value products by leveraging its strength of quality and R&D. This strategy has paid off well and company has improved its NPM from 4% to 10.13% in last 5 years
.Mayur has increased ROCE from 16% to 56% in 5 years while RONW has increased from 13.6% to 41%. This clearly indicates that Mayur has created a strong brand equity amongst its customers by differentiated and value added products.

Financial Matrix:

If one were to look at quantitative matrix for evaluating the company, let me tell you, it can't get better than this!

P &L Statement:

Mayur has increased its revenue from around 69 crores in 2007 to 270 crores in 2011 while increasing its net profit from 2.66 Crores to 25.27 crores in the same period. This translates into CAGR of 31 % and 57% for top line and bottom line respectively. However what is eye catching is the consistency!

Mayur has consistently grown its top line and bottom line through up/down business cycle. A case in point is FY 2008-09. FY 2008-09 was one of the worst years for most of the companies around the globe as well as India, however Mayur managed to grow its top line by 23% and bottom line by 19%!

Balance Sheet:

I am big fan of a companies that manage their growth without losing sight of tight balance sheet management. My bias is based on rationale that it provides enormous flexibility to the company in terms of financial manoeuvring while transcending from existing level to higher orbit. Mayur comes out here with flying colours. Company while growing its top line and bottom line at breakneck speed, has managed to reduce its long term debt to equity ratio from 0.28 to 0.1. Management has done excellent work in terms of managing its current assets as well. Mayur's inventory grew by only 60% while its sales grew 4 times. similarly receivables grew by only 100% in 5 years. This deft management led to reduced working capital days from 72 to 48.

Cash Flow & Dividend:

Mayur has managed to generate free cash flow in each of last 5 years, a huge plus for a company on growth trajectory! As company was generating substantial free cash flow in each of the last 5 years, which helped company in reducing debt and increase its dividend pay out. Mayur has increased dividend payout from 15% to 100% in last 5 years.

Ratios:

Whatever matrix you choose,you will find consistent improvement for Mayur. In my view, ROE and ROCE are two most critical parameters. Mayur has grown its ROCE from 14% to 56% in last 5 years while it has grown its ROE From 13 % to 42%. Higher trajectory of ROE/ROCE validates earlier points of strong brand equity and differentiated products. Mayur has increased its inventory turns, asset turns and debtors turns substantially in last 5 years. This reflects positively on management's ability and focus in streamlining its operations.

Valuations: 

As it is said in value investing "price is what you pay, value is what you get". So let's see what value we are getting for Mayur? 

Mayur currently trades at market cap of around 183 crores with P/E ratio of 7 and P/B ratio of 3. Based on FY 11 balance sheet, company has 23 Crores in cash and fixed deposits and 8 crores of debt leaving 15 crores of cash and cash equivalent net of debt.

Thus if you were an private investor you are getting  a debt free business at 168 crores (183-15). Company's FY11 NP is around 25 Crores and net cash flow is 22 crores.  If we consider CAGR of 15% for 10 years in FCF ( almost 1/4 of last 5 year average growth) and terminal growth rate of 3% and discount rate of 12%, NPV of future FCF is 592 crores.

Thus, we have huge Margin of Safety of 70%. In other sense, even if we consider doomsday scenario where company grows its earnings at only 5% CAGR we end up with valuation of 330 crores, margin of safety of 45%. Thus even if the worst case scenario pans out, in all likelihood, investor can expect to double its money!

Icing On the Cake:

Not only the cake is very delicious, but also the icing on the cake is equally enticing.

- Mayur has been able to penetrate into major international automobile OEM's approved vendor list. It has started supplying its product to Ford and Chrysler in last year and its products are under approval from BMW, GM and Dailmer. This is going to be a huge plus as it can prove to be high barrier to entry and higher value added product.

- Mayur has recently appointed two industry renowned professional to manage their R&D and quality management process. Management has clearly indicated that it wants to promote professional management, which can provide further streamline operations and processes.

In all, I feel Mayur is a good business with great financial and economics available at substantial discount from its intrinsic value...