Mayur Uniqoters Limited – Premium stock for your portfolio

This was in our radar for a quite a long time now. We have seen this stock giving tremendous returns in terms of bonus and dividends. Felt we should have discussed this stock much earlier. Nevertheless the faster we realise that we are missing something the better it is. Hence it becomes one of our high conviction bets.

Company History

The history starts much before 1994. However we are interested only in the future than history!!. In 1994 Mr. Poddar decided to establish Mayur Uniquoters Limited as a public limited company. Mayur raised Rs 50 million by issuing shares at the rate of Rs 10 each and Rs 10 million as loan from RIICO [Rajasthan State Industrial Development and Investment Corporation].
Being the most preferred supplier of artificial leather is what was at the genesis of the formation of Mayur Uniquoters Limited in 1994. Since then Mayur has never looked back and has shown phenomenal and holistic growth with every passing year. So much so, that in 2012, Mayur made its way into the 'Forbes Asia Top 200 under $1Bn enterprises' in the Asia Pacific region.

Today under the leadership of  Mr Suresh Kumar Poddar mayur has already achieved which many did not think was possible some years before. At a ever increasing market capitalization which stands at 450cr currently, this gem is in a journey of becoming one of the most trusted, valuable company in India in its sector.


What’s more interesting was the logo and its features.

Business of Mayur

The Company is one of the largest manufacturers of synthetic leather industry in India and specialized in the automotive OEM Segment. Mayur Uniquoters Limited with 30 years’ experience has established its presence in the leading automotive OEMs across different continents. MUL is supplying to US auto major's i.e. Ford and Chrysler. The Company is in the process of developing the products for GM, Toyota, and BMW & Mercedes Benz. Supplies to these auto majors are high quality products. Besides auto OEMs, general exports would continue to grow to different region and countries like Middle East, UK, Russia, Sri Lanka, Bangladesh, Nepal, China, Mexico, and Kuwait.

Along with this Belts, shoes, wallets, jackets, handbags, sofas, motorcycle seats, steering wheel covers – leather and its substitutes. The list goes on and on. It has a long list of applications. There is a long list of clients in the footwear industry as well. Without going to much detail lets discuss the important question.

Why invest in mayur ?

Structural shift in the leather business
Leather itself, however, is expensive, in short supply, and in any case subject to some ambivalence. In India, however, one knows that there’s nevertheless plenty of leather about. It is only recently that synthetic (polyurethane) leather has been able to mimic the real thing well enough to have gained acceptance as a substitute for it in the range of consumer products listed above.
The synthetic leather industry in India is, as one would expect, largely fragmented. The so-called “informal” sector accounts for half the market and the “formal” sector consists of Jasch Industries, Fenoplast, Manish Vinyl, V.K. Polycoats, HR Polycoats, Polynova Industries, and Mayur itself.  Mayur is by some distance the largest of them all.
The quicker we identify this shift, more is the reward. And yes finding such things is a talent which comes with experience.

Business model & Execution
Mayur makes more synthetic leather, faster and cheaper than its competitors. It can undercut them on price and it can deliver in greater quantities. It has the broadest client base, the lowest cost of capital, and the cleanest balance sheet, and is therefore positioned as the most reliable supplier to the major consumer goods manufacturers up the value chain.
Big orders mean greater capacity utilization, lower average cost, a larger and more diversified customer base, faster lead times, bigger orders, even faster asset turns, even lower costs and so on -- the classic signals of scaling/growing economies.

Diversified portfolio
Mayur does not want to depend on one base and hence it has varied customers in automotive, footwear and many other stationary items as well. Half of Mayur’s revenues are derived from footwear. The Indian footwear industry is the world’s second largest and the Indian footwear market is the world’s third largest. The “formal” sector accounts for nearly 25% of the domestic market and consists of a handful of large players – Bata India, Relaxo Footwears, Liberty Shoes, Action, Paragon Footwear, and the VKC Group (all of which are Mayur customers)
We can discuss about each companies and their growth projections.But I leave that to my readers.

Past history on price movements 

That is over 500x your money in 10 years, 22x in 5 years, 6x in 3 years and 1.6x in the past one year! These were at a CAGR of 87%, 85%, 82% and 58% respectively!

In spite of this there is much left for the future. Prices follow earnings, sooner or later. If earnings go up, prices go up. If earnings go down, prices go down. While Mayur’s earnings have continued to go up in the past few quarters, its stock price has lagged behind. The price-earnings gap has widened. It is very likely that the earnings will grow at 15-20% per annum or more in the future, and the stock will be a great wealth creator for its shareholders.

Excellent promoter holding
Promoters hold almost 75% and no shares are pledged. This shows the ability of the promoters in running the business.

Shareholders heaven – Dividend + split + bonus
Mayur pays out every rupee of earnings not reinvested for growth, and its growth investments are repaid within two years. Good interim dividends, bonus and splits, a proper mix of what every shareholder ever wanted.

Future Expansion plans
The last two years has seen Mayur investing in capacity to address this future demand. It has increased its production capacity, of course, but it has also taken steps toward backward integration, allowing it to control the availability of good quality knitten fabric (from which artificial leather is manufactured), thereby reducing the rejections rate and increasing gross margins.
The 5th and 6th Italian Coating Lines would be installed and operational, from Jan 2014 and Jan 2015, increasing the monthly capacity further to 2.45 million linear meters per month and then to 3.05 million linear meters per month. The total increase in monthly production capacity finally would be approximately 65% as compared to the current capacity of 1.85 million linear meters per month.

Targeting more Export
The average realization is as high as Rs400 pm with exports. Current avg. realizations stands at around Rs200 pm. Mayur sees opportunities outside India and you can imagine what would be the market cap then.
High RoE and other ratios with no fresh debt

Threats
Fluctuations in the price of oil, rubber, leather, etc. could impact performance of the company. A couple of key drivers for the business will be acquiring new clients and establishing a strong brand name for the business. Macroeconomic slowdown can also affect company. However company has the policy of stocking the raw materials in advance hence sudden fluctuations in raw materials price might not impact much.

Conclusion
Mayur is one of the fast-growing run by an able management team. The company is increasing capacity, market share and clients, and hopefully it will not compromise the high ROE it enjoys today. Mayur’s stock has been a great wealth creator in the past, with 20x appreciation in stock price in past 2.5 years. Additionally, the dividend returns for those invested at the lows in 2009 or earlier are above 50%. That is the power of buying great companies run by able management with high growth and dividends.

Don’t forget the footwear industry by itself is a long term growth story getting unfolded. Not to mention with the recent split and last year’s bonus the liquidity has got much better than 2 years before. There might be a reason for this. We think there is a large demand for the stock from outside investors. With FII holding just starting to increase- this can be one of the greatest wealth creators of the century.

With every passing quarter, management sounds more confident in the conference calls of results discussions and we are very sure this is one stock to buy and lock it for years and we are sure you will thank us after some years!!!

CMP@ Rs ~425

Happy investing Guys!!!