Published on 18/09/2019 9:06:52 AM | Source: Equirus Securities Ltd

Add Mayur Uniquoters Ltd For The Target Rs.244 - Equirus Securities

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Headwinds from auto to persist, all eyes on PU now ― maintain ADD

Mayur Uniquoters’ (MUNI) 1QFY20 consolidated revenues declined ~9% yoy to Rs 1.27bn, falling ~15% short of our estimates. Volumes slid ~9% yoy due to a slowdown in domestic auto OEM (-10% yoy) and replacement (-26% yoy) markets. Standalone EBITDA margins stood at 19.6% (-100bps qoq, -710bps yoy) but consolidated EBITDAM came in much weaker at 13.7% amid higher stocking at the subsidiary level and increased commissions paid to US distributors. Management maintained its guidance of the PU plant becoming operational by Oct’19. We slash FY20/FY21 EPS estimates by 25%/11% to factor in a weak 1Q and continuing headwinds from the auto sector which would hurt FY20 performance. We roll over to a Sep’20 TP of Rs 244 set at a TTM P/E of 15x (Jun’20 TP of 338 at a TTM P/E of 19x earlier). Maintain ADD.


Decline in auto OEM/replacement hurts volumes, margins cave in: MUNI saw a ~9% yoy decline in volumes during 1QFY20 led by a slowdown in the auto sector. Revenues from auto OEM declined by 10% yoy and auto replacement segment by 26% yoy while footwear segment also continued to spiral down (-13%). Overall capacity utilization dropped to 65% in 1QFY20 (vs. 71% in 1QFY19). Standalone EBITDAM contracted to 19.6% (-710bps yoy, -100bps yoy) due to higher RM prices and lower capacity utilization. Overall, EBITDA per metre reduced to Rs 42 (vs Rs 58 in 1QFY19 and Rs 43 in 4QFY19).


FY20 likely another tough year, though PU plant may bring some cheer: The auto sector is unlikely to show any signs of revival in the near term even as management feels that the festive season may revive growth. In our view, 2Q and 3Q may be challenging quarters for MUNI given that demand still appears to be sluggish and the base of last year is also high (capacity utilization in 2QFY19/3QFY19 at 87%/84% vs current utilization of 65%). Only positive takeaway from the post-earnings management call was the PU plant progressing as per schedule, and would be commissioned by Oct’19. MUNI had already done a capex of Rs 600mn on the plant by June-end with another Rs 250mn of capex expected.


Roll over to Sep’20 TP of Rs 244; maintain ADD: We roll over to a Sep’20 TP of Rs 244 set at a TTM P/E of 15x (Jun’20 TP of 338 at 19x earlier). We have cut our estimates and target multiple to factor in a weak 1Q and continuing headwinds from the auto sector slowdown. Maintain ADD.


Downside risks:

(1) Further delay in PU plant.

(2) An increase in PVC prices, which may hurt margins.


Upside risks:

(1) Sooner-than-expected pick up in auto demand.

(2) Synthetic leather from new PU plant getting accepted by clients, leading to a faster ramp up. 


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