Mayur Uniquoters - Footwear segment dragged performance; Maintain Hold - Awanish Chandra and Vikas Rajpal - Centrum

Rating: Hold; Target Price: Rs412; CMP: Rs368; Upside: 12%

We maintain our Hold rating on Mayur Uniquoters and revise our TP to Rs412. We expect growth to recover aided by i) demand recovery in the footwear segment, and ii) higher traction in exports. The company's foray into the PU business and its new plant in Mysore will also add to its growth momentum, albeit in the medium term as these projects are expected to start in July'18. Q4FY17 performance was slightly below estimates as the footwear segment continued to drag down overall performance. That said, we remain convinced of Mayur's medium-to-long-term growth opportunity. Although, despite healthy growth in the automotive business along with some recovery in the footwear business we do not expect profits to grow at a rapid pace over the next two years as the PU plant would only become operational towards the end of FY19 and margins seem to be peaking at FY17 levels.

Subdued footwear segment hit sales growth: The company's revenue fell ~5.6% YoY to Rs1.20bn in Q4FY17, largely due to the steep decline in the footwear segment. Auto replacement and export OEM businesses continued to grow and offset the pain in the footwear segment to some extent. Overall realization was down ~4% YoY.

EBITDA margin tumbles: A drop in top-line, lower gross margin and higher other expenses, led to a 626 bps YoY margin contraction. Subsequently, EBITDA slumped 25.4%. RM costs and other costs as a percentage of sales rose 371 bps and 247 bps respectively resulting in EBITDA margin contraction. Other expenses were higher due to higher transportation cost of finished products. Higher other income and lower effective tax rate supported the net profits a bit, however, net profit for the quarter was down by 20.4% YoY.

Growth outlook okay, margins peak: Based on the recovery witnessed in the first two months of FY18, the management expects the footwear segment to post single digit growth in FY18. Management expects the nearly three consecutive years of muted growth to turnaround and expects sales to grow 10%-15% in FY18. Benefits from the Mysore plant and the PU plant will start trickling in by the end of FY19. Hence, the company's growth prospects over the medium to long term are pretty sound. On the profitability front, falling crude prices have helped the company post very strong operating margins. However as RM costs have started inching up, these high margins will not sustain and would stabilize around 26% from the ongoing business in the future.

Valuation and Risk: We remain convinced of Mayur's medium-to-long-term growth opportunity. However, despite healthy growth in the automotive business along with some recovery in the footwear business we do not expect profits to grow at a rapid pace over the next two years as the PU plant has gotten delayed and margins seem to be peaking at current levels. At CMP of Rs368, we see limited upside, hence, maintain our Hold rating on the stock, with a TP of Rs412 (18.5x FY19E EPS). Key downside risk: slower-than-expected recovery in footwear segment.

Shares of MAYUR UNIQUOTERS LTD.-$ was last trading in BSE at Rs.369 as compared to the previous close of Rs. 368.95. The total number of shares traded during the day was 1259 in over 101 trades.

The stock hit an intraday high of Rs. 376.2 and intraday low of 366.05. The net turnover during the day was Rs. 467172.

Source : Equity Bulls

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