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Analysts bullish on this synthetic leather-maker, see over 20% upside

Mayur Uniquoters, India's largest manufacturer of synthetic leather, is poised for high growth, says Sharekhan.

February 18, 2020 / 10:37 AM IST
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Brokerage houses have remained bullish on synthetic leather-maker Mayur Uniquoters despite tepid earnings in the December quarter. The stock rallied 6 percent on February 17.

Year-on-year earnings were weak but sequential growth at operating level was strong, with the margin coming back above 20 percent.

Also, the company added new clients in the auto segment and started ramping up its polyurethane plant, which could lead to re-rating of the stock, brokerages said.

"We initiate viewpoint coverage on Mayur Uniquoters (MUL) with a positive view and expect 28-30 percent upside from current levels," Sharekhan said.

India's largest manufacturer of synthetic leather, Mayur Uniquoters (MUL) is poised for high-growth trajectory, the brokerage said.


"Addition of new clients in the auto segment and foray into PU (polyurethane) segment to be the key growth drivers," said Sharekhan, which expects a 13 percent top line CAGR over FY2020-FY2022.

MUL has a strong return ratio (over 20 percent), with cash at 20 percent of market cap. "MUL would generate strong free cash flows of Rs 200 crore over the next three years and is available at attractive P/E of 11.4x FY2021 and 9.5x its FY2022 earnings," said the brokerage.

East India Securities maintained buy rating on Mayur Uniquoters, with a target of Rs 337, implying 39.4 percent upside from current levels, as the company re-gained above 20 percent EBITDA margin despite facing higher PVC prices and subdued demand.

"This was on account of favourable product mix and high margin technical products with more value additions," East India Securities said.

The company finished the trial run of its PU plant in December 2019 and started commercial operation the next month. The management aims to use all three shifts of the first production line and as the demand picks up, it will start setting up the next line.

"This will add to its growth momentum, albeit in the medium term. With volume recovery in its footwear and auto segments, we expect good performance with margin recovery in the medium term," said East India Securities.

Mayur Uniquoters' revenue came in at Rs 124.6 crore, a decline of 22.5 percent YoY (up 0.3 percent QoQ) on account of slowdown in demand in both auto and footwear segments.

On YoY basis, domestic sales were down 24 percent, whereas exports declined around 18 percent. However, sequentially, exports were up around 10 percent, whereas domestic business witnessed a marginal decline. Volumes shrunk by around 21 percent YoY to 60,77,491 in Q3FY20.

Profit declined 16.4 percent YoY (down 9.1 percent QoQ) to Rs 18.2 crore for the December quarter.

EBITDA for Q3FY20 stood at Rs 25 crore, down 26.4 percent YoY (up 19.8 percent QoQ), with a margin of 20.1 percent compared to 21.1 percent in Q3FY19 and 16.8 percent in Q2FY20.

There was a strong margin improvement of 326 bps QoQ, purely driven by lower raw material costs (as a percentage of sales). The YoY contraction in margin was mainly due to negative operating leverage as other expenses as a percentage of sales were higher at 14.9 percent in Q3FY20 versus 11.1 percent in Q3FY19.

"The continuing weakness in domestic autos/footwear impacted Mayur’s Q3 FY20 performance. The strong revival in exports and an uptick in auto sales since December 2019, however, are good signs. Besides, the recently-commissioned PU plant will contribute from FY21," said Anand Rathi.

The brokerage broadly maintains its FY20/21 PAT estimates, introduced FY22 estimates and expects an 11 percent CAGR over FY19-22 (9 percent over FY14-19).

"At around 9x FY22 P/E, we find the valuation appealing. Thus we advise investors to accumulate the stock from a long-term perspective," it added.

The brokerage maintained a buy rating, with a target of Rs 311 (earlier Rs 283). "Considering the falling RoE (from 35 percent in FY14 to 15 percent in FY22) and initial challenges in ramping up the PU plant, we assign a lower target multiple than for the last five years (22x). The fast ramp-up at the PU plant may lead to a re-rating."

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Feb 18, 2020 10:37 am

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