Stock Pick From The Plastics

Mayur Uniquoters (MUL) is India’s largest manufacturer of artificial leather/PVC Vinyl. The company enjoys a leading position in this segment with an installed capacity of 2.5 million linear metres per month. In the last five years, the topline and the bottomline has grown at CAGR of 33 per cent and 54 per cent respectively.

The company is now planning to expand its capacity from 2.5 million linear metres to 3.1 million linear metres per month. This expansion that the company is planning is likely to take care of the next two years’ demands. More importantly, the company is focusing on the high margin export business, which is giving revenue visibility going forward. Let us look at the other investment rationale that makes the company an attractive proposition for investors who are looking forward to earn some healthy returns in the long run.

The company has announced that it is on an expansion spree and is in the process of installing a fifth coating line. This will be dedicated primarily to the exports market. This expansion will take the coating line production from 1.85 million linear metres per month to 2.5 million linear metres per month. In addition, as mentioned above, the company is planning to increase this capacity to 3.1 million linear metres per month going forward.

With enhanced capacity, the company is expecting an expansion in volumes and margins, especially on the export front. The company has a strong clientele. On the domestic front, all the key footwear and auto OEM’s like Tata Motors, Honda, M&M, Bata, Relaxo, etc are MUL’s clients. Internationally, the company has managed to get a foothold into the global OEM’s with clients like Ford and Chrysler. In addition, BMW, GM and Mercedes are also in the pipeline.

The realisations at present stands at `392 per linear metre for Q3FY14 as against Rs367 per linear metre reported in Q2FY14. Management indicated that it has started supplying for the new model of Chrysler from January 2014. The company is targeting revenue of around USD 10 million in US after-market sales over the next 3-4 years and aims at doubling export revenues over the next three years. There has also been consistency in dividend payout.

In-line sales of the company for Q3FY14 stood at `122 crore which grew by 30 per cent on YoY basis. EBITDA margins stood at 18.4 per cent for Q3FY14, which expanded by 110 basis points on YoY basis. PAT stood at `14.2 crore, higher by 11 per cent on YoY basis due to lower interest cost and tax rate. Going forward, it can be said that global OEMs coming on board and improving realisations are likely to act as a value accretive proposition for the company. We recommend a buy in the counter at the current market price, with a price target of `550 with an investment horizon of DS one year.