Mayur Uniquoters - An integrated play; initiating with Buy - Anand Rathi

The artificial leather industry in India has grown over 20% in the recent past. Mayur Uniquoters (Mayur), holding the lion's share of the industry, is bound to ride this tide. To meet greater demand from userindustries, Mayur is endeavouring to capture a larger part of the value chain. This would enable it to post revenue CAGR of 19% and also boost margin by 100bps over FY12-14e. We initiate coverage on the stock with Buy and 12-month price target of Rs.520.

- User demand to grow exponentially. Artificial leather grew a robust 20% in the past few years, auguring well for Mayur, the synthetic leather giant. Moreover, footwear and automotives - Mayur's key user industries - are recession resilient, and the company has marquee players as its clients. This renders it higher realisation and economies of scale.

- Integration to offer twin benefits. Mayur is setting up a fifth coating plant with capacity of 0.6m metres per month, to grow revenues at 19% CAGR over FY12-14e. Also, its knitted fabric unit is likely to commence production from Nov'12, which will improve margins by way of lower rejection.

- Financial health to improve further. Capacity expansions, and the ensuing economies of scale and lower fixed overheads, keep Mayur striving for consistent product improvement. It now intends to produce own knitted fabric, which will bring about even higher realisation and margin. Higher margin (up from 16.8% to 17.8% in FY12-14e), together with efficient working capital, are likely to drive better return ratios.

- Valuation: Mayur has historically traded at P/E of 3-12x. We assign 12x PE to arrive at FY14 TP of Rs.520. At CMP of Rs.402, the stock trades at PE of 11.6x /9.2x FY13e/14e EPS of Rs.35/Rs.43 respectively. Risk: Rise in input prices.

Source : Equity Bulls

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