Mayur Uniquoters is a conviction idea in small cap auto ancillary space for 30% upside potential: ICICI Direct

Gestation period ends, seeds righty sown for high growth trajectory, healthy B/S, trades at inexpensive valuations…

About the stock: Mayur Uniquoters (MUL) is a leading player in the technical textile domain, manufacturing synthetic leather (PVC, PU) for automotive, footwear & apparels etc.

• Automotive segment constituted bulk i.e., ~50-60% of sales while footwear segment constituted ~20-30% of sales with rest being constituted by others.

• As of FY23, it clocked ₹776 crore as consolidated sales with EBITDA & EBITDA margins placed at ₹139 crore, 17.9% and PAT at ₹104.2 crore

• In auto space, Mayur is among very few companies having capabilities and approvals to supply their produce to global luxury car players such as Mercedes, BMW, etc.

Investment Thesis

• Auto OEM exports – key enabler for growth over FY23-25E: Mayur has always been a quality franchise supplying its product to marquee brands realizing healthy margins and return ratios. Growth however was the only missing link/rising concern with sales being largely flat in the range of ₹ 500-600 crore over the six-year period i.e., FY16- 21. This is amidst company officials engaging with global marquee players to sell value added produce especially in the automotive luxury car space to OEMs such as Mercedes, BMW among others. The seeds sown have now germinated with company commencing supplies to these players and is guiding for robust growth in this domain. In the recent conference call, the company has guided for its automobile exports rising significantly from ~₹ 160 crore in FY23 to ~₹ 600 crore by FY26E. This we believe will drive superlative growth for MUL amidst healthy growth in its base business supplying PVC & PU products to players like Maruti, Hyundai, Ford, Bata & Relaxo among others

• Healthy financials-high double-digit growth, Cash positive B/S: With firm order pipeline both in domestic as well as export business, we expect sales at the company to grow at a CAGR of 17.5% over FY23-25E. With increasing share of high margin auto export business, operating leverage benefits and stable raw material pricing we expect margins to improve conservatively to 20% levels by FY25E. With improving scale of operations, core RoIC is seen improving to ~25%+ levels. With controlled working capital cycle, MUL is offering an attractive CFO yield of ~4%. On the B/S front, it has long been debt free company with present net cash on books at ~ ₹ 180 crore Rating and Target Price

• We assign BUY rating on Mayur Uniquoters amidst healthy growth prospects especially in auto OEM export space, healthy margin profile (~20%), capital efficient business model (RoIC: 20%+) & Cash positive B/S (Net cash at ~₹180 crore as of FY23)

• We value Mayur Uniquoters at ₹ 700 i.e., 20x PE on FY25E EPS of ₹35/share

• We also drive comfort from consistent positive CFO generation at MUL with present CFO yield at ~4% and Technology risk immune product profile (No EV risk)

• This is our conviction idea in small cap auto ancillary space