Company has successfully launched knitting unit as part of
backward integration plan which should improve margins due to lower
rejected. Company is pursuing Mercedes
and GM accounts to add to the OEM portfolio. Company is working in installing the 5th
coating line and the production of 6 lakh linear meters is likely to commence in
Nov 2013 taking the entire capacity to 2.5M linear meters per month. Company has already bought land for 6th
coating line and the expansion is planned next year to take the capacity to
3.1M lpm. During last year company had
very good volume growth as well as value growth. The 5th coating line would cater
to the export demand.
Mayur is now the largest of the organized players in synthetic
leather industry. The revenue streams
are primarily contributed by footwear (50%) and auto (35%) and auto replacement.
They have good portfolio of clients like
Bata, Liberty, Relaxo, Paragon and VKC group in footwear and Honda, Maruti,
M&M, Tata, Ford and Chrsler in auto. Company is focusing on high margin
export and replacement market now. As per company the market size is around
4000 to 5000 cr. Raw material constitutes around 70-75% with little scope for
price setting by Mayur. Supplier sets
the prices based on demand and crude situation. Company claims that they pass
on the hike in raw material prices with a lag.
Company has improved its operating efficiencies to improve margins. R&D spend of recurring nature had a
significant jump (3.5 cr) this year which is good. Value of imported material including capital
goods was at 106.82 cr. Company imports
are more than exports and rupee depreciation would work against the company
instead of helping it. Exports increased
by 60% on value terms and currently at 82 cr.
Company remains cautiously optimistic of around 30 to 35% growth in topline
in the years to come. GM has approved
its product but they are yet to get orders.
Company is very optimistic about the replacement market and expects it
to surpass the OEM market in 2 to 3 years.
Current Export share of revenue is at 20% and the company expects that
to increase to 30 to 35%. Some of the
key risks identified by the company are Chinese competition, Exchange rate
fluctuation, Raw material price and geographic concentration. Mitigation is not clearly called out in the
AR.
Short term borrowings have increased for the expansion that
is being done. Inventory and Trade
receivables increase has been higher than the revenue growth which has led to
decrease in cash position compared to last year. Company has improved its
margins due to economy of scale. This is
despite higher depreciated and finance cost.
Cash flow growth did not track the growth in profits due to high
inventory and debtor outgo. However OCF
has been better than last year and now stands at around 46 cr before taxes.
Free cash flow has been negative this year due to the capital employed on fixed
assets which was around 36 cr. Most of
the short term borrowings are in foreign currency and the currency depreciation
will result in increased finance costs.
Advance from customers has shown increase which is positive. Most of the investments are in safe fixed
instruments. Doubtful debtor level
stayed the same as last year which is interesting. Increase in debtor position being more than
revenue growth is a bit of concern. It
could also mean supply to OEMs which could increase the payment cycle. Export
incentives contributed about 6 Cr and this could go away when the incentive is
removed which may impact bottom line growth as well as the margins. There are no related party transactions
except for salary payment.
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