We read 100s of reports (annual reports, credit rating reports, presentations, concalls) in a year and make notes for our reference. Going forward, we will be positing such notes for the benefit of the readers of our website.

The purpose of reading and analyzing so many stocks is to have a bigger watch-list and come out with few good stock recommendations for our premium members.

However, do keep in mind, such notes are mostly cut, copy and paste and are in no way a research report or a recommendation on the stock.

Here are some interesting details about the company from the con-calls and the CARE's Dec'20 credit rating report:

Mayur Uniquoters (MUL) - Q1 FY 22 concall

  • Volume sold in Q1 - ~49,000 meter
  • General - the markets and the car showrooms are open, but now the automakers are facing the production problems at their plant due to semiconductor chips shortage globally. And that's why our OEM sale is also impacted in this financial year and especially in Q1. However, we are hopeful to regain the OEM sales and the demand from the market back within the next 2, 3 months
  • Expect improvement in demand from the footwear industry with the opening up of the showrooms
  • Merc and BMW - Our endeavor is to make the company preferred supplier for the leading OEMs, especially in U.S. and Europe. We are pleased to share that your company is already approved by Mercedes-Benz for supply to their South Africa plant and product supply has also started with some quantity for the new models from this quarter. The product approval from BMW is also obtained and material supply, as we already told, expected from April '22.
  • Ford and Chrysler - We are getting good percentage in Chrysler. Ford, previously also, it was very nominal. There are 3 big interior manufacturers in the world who are spread everywhere in Europe, in America, in India. So they are the people who make the interior and supply to OEM. All of them we know and everybody is satisfied with us. But the problem is, until and unless new model comes, it is difficult to scale up. And each and every model goes for 6 years, 7 years, sometimes 5 years.
  • Volkswagen - Volkswagen India business has already started, supply has already started. Q2 onwards, it will keep on increasing. By end of this year, we will be doing 100% what has been projected in the last quarter.
  • Gross margin impact - the prices of raw material are increasing. PVC prices have increased by more than 70% to 80%. Plasticizer prices have increased by 100%. And all these increases started from the end of the fourth quarter. So fourth quarter, it didn't affect because we had a lot of material in stock. Generally, we have 45 days stock of these specific materials. So that was the advantage. We have started increasing the prices. 
  • In certain areas, we have increased the price. But in certain areas, like export, the prices are increasing very slowly.
  • Freight cost - all our general export, we have passed on this freight cost to them, and they are accepting, 90%, 80% are accepting. But so far automotive is concerned, they are very strict. We have given them ultimatum that from Q3, if the things are not normal, we will increase the prices
  • FY 22 - How much better is difficult to say, but it will be better. This chip problem is affecting a lot like in India, there is not that much shortage. But in America, there is a shortage. Europe, there is a shortage. That's why the business in May and June was bad. It is being predicted that by third week of August, everything should be normal
  • Now in America, the situation is like this that they don't have a car to display in showroom. The demand is fantastic. The sales have started improving and expected to go back to normal state by the 3rd week of August
  • Automotive business - automotive business is a very long-term business. It takes time to get into it, and it takes time to get out of it also because once they approve the supplier, till that particular model is not finished, they will not change the supplier until unless there is a problem in supply or quality.
  • PU Leather - the market is very big of PU. More than 1 crore meter is being imported in India from China every month.
  • Now we have started PU also, which nobody is supplying at the moment in the automotive industry in export, and we are quite close. Maybe it takes 3 months, 6 months' time to get approval. But once we get the approval, it can be big.
  • once it is approved, then there is only 1 supplier in the whole world. So we are working on that also very seriously and hopeful that maybe in '22, we may start having this business also
  • Currently, because of low volumes, we are incurring losses in PU business. Including depreciation, interest, it is around INR 90 lakhs per month
  • Backward integration for PU - We are making knitted fabric. Now we are going to start very soon, maybe in 1 year time, this warp knit fabric, then nonwoven, then PU also.
  • All plants, we have space also, we know what kind of machines we need, everything is decided. As soon as the situation become positive, then we will immediately start ordering the machine.
  • PU Client base - 75% existing and 25% new. We can get around 25 crore sales from PU this year
  • PVC 7th line - As said, we have commissioned a line. We have taken it for our first trial production yesterday. Maybe it will take another 7 to 10 days for the line to start production. The CAPEX on the 7th line was around 10-11 crore. PVC capacity after 7th line expansion is around 3.5 million meters to 3.7 million meters per month depending on the product mix
  • Depreciation cost - Why has the depreciation cost not increased much despite increase in gross fixed assets in the last few years? it is booked on written-down value basis. So that's why as soon as we capitalize more, the depreciation on remaining assets comes down. So normally, it is remaining same in last few quarters
  • CAPEX - it will be around INR 25 crores to INR 30 crores for FY 22
  • By when can the company double the turnover - We will try our best to do it in between 3 to 4 years from now

Mayur Uniquoters (MUL) - CARE Ratings Dec'20 report

  • Basic details - MUL has the largest installed capacity for manufacturing of synthetic leather in domestic organized segment with capacity of 366 lakh linear meters per annum (LLMPA) of PVC coated fabric and 60 LLMPA of PU coated fabric; and the company is in the process to expand its PVC coated fabric capacity by adding its seventh coating line at Dhodsar plant post which its total capacity for PVC coated fabric would increase to 426 LLMPA
  • MUL manufactures more than 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).
  • MUL has a diversified clientele across various industries and caters to the synthetic leather requirements of reputed players like Maruti Suzuki, Tata Motors, Mahindra & Mahindra, MG Motors, Honda Motorcycles, Bata, Relaxo, VKC, Paragon, Baggit, etc. and shares long standing relationship with most of its clientele
  • MUL is also one of the very few approved vendors in Asia by global automotive OEMs [such as Ford (USA) and Chrysler (USA)]. MUL is also trying to enter the European and other export automotive OEM markets by targeting reputed customers and has received product approval from Mercedes Benz (Daimler) and BMW for their specific new car models
  • As articulated by the company management, MUL is expected to start supplying to Mercedes Benz by the end of Q4FY21 while supply to BMW is expected to start in FY23
  • Moreover, Volkswagen India, which used to import fabric from Germany, is expected to buy synthetic leather from MUL from Q4FY21
  • Getting product approval from major global automobile OEMs is a time consuming and costly process which takes around 2-3 years before supplies start whereas the cost involved includes expenditure towards product development, sampling, testing and payment to the representatives of such OEMs. Hence, the entry barrier is very high in such type of business as switching/ changing of supplier by OEMs is rare once product is approved.
  • Over the years, MUL has generated healthy operating profit margins in an otherwise fragmented and unorganized synthetic leather industry on account of its focus on in-house product development / innovation, adequate backward integration and focus on high margin products (both in domestic and export markets).
  • MUL has sufficient capacity to manufacture knitted fabrics used in automotive exports which results in cost efficiency, better quality control and consistency in supply.
  • During the past few years, MUL’s management has made conscious efforts to focus on high margin products catering to automotive segment, replacement market and lifestyle products (furniture & apparel) as against relatively low margin products like footwear. Contribution of footwear segment in its total sales has gradually reduced from 46% during FY16 to 36% during FY19 mainly on account of relatively lower profitability and longer credit period (5-6 months) in footwear industry; albeit the same increased to 39% during FY20 largely due to decline in sales from automobile exports and replacement market due to subdued demand in those segments
  • PU Line - MUL has forayed into manufacturing of PU coated fabric by setting up a green-field project at Morena district near Gwalior, Madhya Pradesh. Under Phase-I, MUL has installed 1 coating line (consists 1 wet and 1 dry line) with capacity to produce 60 LLMPA of PU fabric. MUL had incurred capex of Rs.96 crore as against earlier estimated cost of Rs.85 crore due to certain changes in scope of project.
  • The company has constructed building and other peripheral infrastructure for 4 coating lines considering the future expansion plans.
  • MUL has availed term loan of Rs. 20 crore as against envisaged term loan of Rs.25 crore for machineries to avail Technology Upgradation Fund Scheme (TUFS) benefit. MUL started commercial production from Phase-I of PU plant in January 2020
  • As compared to PVC coated fabric, PU coated fabric has closer resemblance to natural leather with better realizations of product
  • Presently, majority of PU coated fabric is currently being imported from China with presence of very few domestic manufacturers with limited capacity. MUL foresees this as a cross selling opportunity to its existing customers.
  • The government has increased import duty on PU material to 22%, thus reducing the price gap between imports and domestic manufacturing. During H1FY21, MUL earned very small revenue from its PU plant as operations of the plant was affected due to Covid-19 pandemic
  • Product sampling is underway at the PU plant and production is expected to gradually ramp up over the next 6 to 12 months.
  • Due to envisaged gradual ramp-up of its operations coupled with competition from Chinese imports in its PU segment where MUL is a new entrant, its blended PBILDT margin could be impacted for some time.
  • Furthermore, as informed by the management, MUL may also plan second phase of the project after stabilization of the first phase.
  • PVC expansion - MUL is also setting up seventh coating line at its existing unit (near Jaipur) for manufacturing of PVC leather with value added machineries at an estimated cost of Rs. 42 crore
  • Till November 15, 2020, MUL had incurred cost of around Rs. 6 crore and has received the PVC coating line at its plant.
  • Moreover, other value-added machines are expected to be delivered at the project site in April 2021 and the company now expects completion of this PVC fabric expansion project by June 2021. Installed capacity for production of PVC coated fabric will increase by 60 LLMPA, once this coating line becomes operational. MUL is setting up this new coating line mainly to meet supplies for Mercedes Benz.
  • Decline in performance - Total Operating Income (TOI) of MUL on a consolidated level declined by 11% during FY20 as compared to FY19 mainly on account of lower sales volume in domestic replacement market and automotive export market due to subdued demand. The automotive replacement segment of MUL which grew at CAGR of 23% over past four years ended FY19 was affected most during FY20. Moreover, automotive export which grew by about 40% during FY18 on y-o-y basis, declined by 10% and 17% during FY19 and FY20 respectively
  • Exports are, however, expected to gradually increase from FY22 as MUL starts supplying to vendors approved by Mercedes and BMW.
  • PBILDT margin declined by 219 bps during FY20 largely due to impact of operating leverage due to decline in sales coupled with lower share of automobile fabric exports which fetches relatively higher operating margin
  • Raw Material - Almost 80% of MUL’s raw materials are derivatives of crude oil; hence the prices of its raw materials vary with the fluctuation in international crude oil prices. MUL enters in to medium term contracts with its suppliers to mitigate any large volatility in raw material prices. Moreover, MUL being market leader has bargaining power to pass on increase in raw material prices to its customers resulting into relatively steady gross margin of around 40% during last 3 years ended FY20
  • Cash rich - MUL had unencumbered liquid investments and cash and bank balance aggregating Rs.185.16 crore as on March 31, 2020 significantly exceeding total debt of the company resulting in a zero net debt position for the company. As on September 30, 2020, unencumbered liquid investments and cash and bank balance stood at Rs.188.85 crore

Disclosure: This is neither a research report or a recommendation on the stock. I don’t have any investment in the stock.


Best Regards,

Ekansh Mittal
Research Analyst


Research Analyst Details

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