Mayur Uniquoters, a PU and PVC synthetic leather (artificial leather) manufacturer, was established in 1992 by S.K. Poddar, an industry veteran trader in PVC Leather line.

It has 3 manufacturing facilities at Jaipur with an installed capacity of about 1.2 million linear meters/month, from where the company manufactures a wide range of premium products for Footwear, Apparel, Luggage, Furniture, Leather Goods, Upholstery and Automotive Industries. 

Chemicals (~64%), Knitted Fabrics (~16%), Other fabrics (~14%), Release paper (~6% which is reusable) are the main raw materials. 

Mayur Uniquoters concentrates mainly on 3 segments. Footwear (55%), Auto (25%), Furnishing (10%). Others bring up the balance 10%. Exports (10% of Sales in FY2010) is spread among above segments. Automotive OEM exports have begun in FY11 to GM & Chrysler. Other international OEMs like BMW, Mercedes and Ford have put Mayur Uniquoters on the approved vendor list, and orders are awaited.

Major customers include Bata, Liberty and Action in Footwear and Maruti, Tata Motors, GM in Automotive segments. Recent breakthroughs include international OEM customers such as Chrysler & GM in US.

Mayur Uniquoters has made steady progress over last 5 years. The company has roughly tripled its sales to reach Rs.176 cr in FY10 and EPS has gone up roughly 6x in the same period. Sales have grown at ~30 percent CAGR while EPS on an adjusted basis has grown at over 57 percent CAGR.

Sources of Growth

1. Mayur Uniquoters dominates the PU/PVC Synthetic Leather Market. The customer list straddles all the major footwear brands and major automotive OEMs in India, the main segments the company concentrates on. At 1.2 million meters/month they enjoy some economies of scale, as the nearest competitor has only about half the capacity.

2. Special products for Automotive OEMs in Europe and USA, which satisfies world class quality standards for synthetic leather. Investments in Analytical Labs (for raw material quality inspection) and special plant & machinery enabled them to develop the artificial leather for GM, Chrysler and Ford in USA and Mercedes Benz and BMW in Europe. As per the company, this type of material has been developed for the first time in India, and no other leather cloth company has been able to develop such products.

3. Large variety of products  – Mayur Uniquoters has developed nearly 400 different varieties of synthetic leather to offer for diverse requirements, while the nearest competitor can offer only about 50 varieties.

4. Three main segments contribute to the Sales mix. Footwear (55%), Auto (25%), Furnishing (10%). Others bring up the balance 10%. Exports (10% of Sales in FY2010) is spread among above segments. The company reportedly supplies 75% of Bata India’s requirements. 

This is as pretty a picture as you can find – with a caveat. This achievement is on a very small base, and typical risks associated with small companies of this size, apply. Please see Bearish Viewpoints in our stock story section, for the overall picture.

On the margins front, Operating Profit Margin (OPM) has remained between 10-11% for the most part, in the last 5 years. Only in FY10, operating margins have seen a big jump to over 16%. This is on the back of a ~1% drop in raw material prices, and a big 3% drop in Selling, General & Administrative (SG&A) costs, and other efficiencies achieved on power & fuel costs (as a percentage of Sales, see Common size P&L statement below) in FY10.

The Net Profit Margin (NPM) record is far better, showing a somewhat steadier climb form 4.5% to ~10% in FY10. this is on the back of a steadily reducing interest burden and debtors and inventory levels. Its great to see debtor days consistently coming down from ~96 days in FY06 to ~56 days in FY10. Similarly Inventory days have halved from ~57 days in FY05 to ~28 days in FY10. This is a great record in working capital management for a company as small as Mayur Uniquoters and speaks a lot about the Management focus on operational efficiency.

It is also great to see a steady rise in Asset Turnover – rising from ~2x in FY06 to over 3.55 in FY10. Few manufacturing companies manage such a steady rise – tells me that capacity expansions have been judiciously planned and executed, in tune with rising demand. This coupled with the rising net profit margins have ensured that Return on Assets (RoA) climbed from ~9% in FY06 to over 16% in FY09. In FY10 RoA climbed to ~35% on the back of doubling of net profit margins. We can think of ROA as a measure of efficiency. Companies with high ROAs are better at translating Assets into Profits.

The rising net profit margins and asset turnover (with a gradually declining Financial Leverage) has ensured Return on Equity (RoE) has climbed from ~14% to over 20% till FY09. In FY10 RoE has jumped to ~39% on the back of almost doubling of net profit margins. RoE is a good measure of overall profitability as it measures the efficiency with which a company uses shareholders’ equity. We can think of it as measuring profits per rupee of shareholders’ capital. The Return on Capital employed record is similar going up from 18% in FY06 to ~29% in FY09, before jumping to over 57% in FY10.

The company has an even better track record in steadily increasing Operating Cash flows. Operating Cash flow/Sales more than tripled from ~4% in FY06 to over 13% in FY10. The Free Cash Flow (FCF) record is even better recording almost a 6x increase from ~2% in FY06 to ~12% in FY10. Free Cash flow at over 10% of Sales for a manufacturing company that has grown sales at a ~30% 5yr CAGR is a very rare achievement. It needs to be noted that Capital Expenditure (Capex) of some 15 Cr is slated for FY11 on a backward integration project. Further Capex of another 8-10 Cr will be needed for capacity expansions, sooner than later. If these are not exceeded, the Cash on balance sheet and the healthy cash flows are perhaps adequate to fund the upcoming capex requirements.

And when we find a company with a high RoE and high FCF combination, it is said to be in a sweet spot, and reason to track this company as a potentially excellent business to invest in, but at the right valuation.

Also one must not forget the consistent dividend payment track record. Dividend payments have been steadily rising to register a 5yr DPS CAGR of over 52%. Again a good record for a company of Mayur Uniquoters size.

For Mayur Uniquoters FY10 has been a year of stupendous achievement. We may argue that till FY09 the performance was not exemplary and one may not have taken much notice, it is only FY10 performance that has made us sit up – Will the high OPM & NPM margins be sustainable? The odds are on, to that settling down at slightly lower levels, perhaps.

An objective look back at this profitability analysis tells us that softening raw material prices played only a small part, and it is the operational efficiency improvements on most fronts that has propelled the company to greater heights.

This section has got covered mostly in the profitability analysis, as we looked for reasons behind the good performance.

Raw material prices seem to have softened over the last 4 years, when seen as a percentage of Sales. Power and Fuel costs have also come down. As per the Annual Report FY10, online embossing process improvement led to reducing 1 complete process in the chain with significant power savings. Employee productivity seems to be improving over the years as employee costs as a percentage of Sales has been gradually coming down. Selling, General & Administration expenses have also come down as a percentage of Sales.

This common size P&L statement points to a company getting more efficient over the years. We have also seen earlier in the profitability analysis consistent improvement in working capital management as the company has steadily brought down debtor days and inventory days.

is Mayur Uniquoters becoming a more efficient company, as it is growing? The track record of last 5 years certainly points to a strong management focused on improving operational efficiencies.

Mayur Uniquoters Financial Heath track record is the best testimony perhaps, for the company.

Any which way you look at it, this is a great record. Debt to Equity has steadily been decreasing over the years. From 0.64x in FY06 it is practically debt free in FY10 at 0.10x. Financial Leverage and Debt to Assets mirror the same trends. Interest Coverage has been steadily rising over the years from 4x in FY06 to ~20x in FY10, and thus its unlikely that it will run into difficulty in meeting debt liabilities if earnings should fall unexpectedly.

Liquidity measures like Current ratio and Quick ratio are comfortable, showing that the company is able to source enough cash to meet near-term liabilities. Cash to Assets has steadily risen over the years and is at a very high 42% of Assets. The company plans to utilise the cash for the announced backward integration plans of setting up a knitting fabric plant (a key raw material) in FY11. 

The only blip that shows up is a high Finance cost to Total debt of over 30% in FY10. This is a sudden rise on account of high bank charges (~35 lakhs) and other finance charges (36 lakhs) adding to the ~60 lakhs interest cost. It is possible that the Total debt was reduced (4.41 Cr in FY10 from 7.85 Cr in FY09) at the fag end of the year, leading to the higher charges. 

Overall the picture that emerges is, Mayur Uniquoters has a strong clean balance sheet and is in a very comfortable situation, on the financial front. Again the record speaks highly of Management excellence.