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Navigating uncertainty; better performance ahead

We maintain our BUY rating with a slightly revised TP of Rs610 (earlier Rs590). 1QFY22 volumes and utilisation were impacted mainly due to Covid lockdown and slight RM pressure that was only partially passed on. With the new 7th line now commissioned and better utilisation inbound, we feel that with greater vaccination and lower covid lockdowns, Mayur’s growth position remains strong. The company’s cash-rich position continues to add comfort in the face of uncertainty. The company continues to hire more professionals of good pedigree and management’s well-thought-out plan to cater to global OEMs fortify our thesis of higher ASPs and better operating performance in the long run.

Covid wave-2 lockdown impacts volumes:

The consolidated revenue came in at Rs1.18bn, a rise of 204% YoY. The top-line increase was mainly due to a ~217% YoY rise in volume sold, which came in at 4.95mn metres implying a blended realisation growth of ~5.3% YoY in 1QFY22. Mercedes volumes were primarily impacted due to the riot situation in South Africa and semiconductor shortage.

High RM cost contracts gross margin:

The consolidated gross margin reduced by 260bps to 40.8% as the RM cost grew by 218% YoY to Rs699mn. The EBITDA came in at Rs176mn vs an EBITDA loss of Rs14mn in 1QFY21. EBITDA margin stood at 15% in 1QFY22. Other income rose by 4.5% YoY and the PAT came in at Rs140mn with PAT margin of 11.9%.

Outlook:

While the RM pressure was felt in the quarter gone by, we feel that price hike and freight cost pass-on suggested by the management should ensure stable margins going forward. With its 7 th PVC line now commissioned, new orders from Mercedes, Volkswagen, and BMW (FY23 onwards) should sustainably take the company’s ASP and revenue higher, leading to positive operating leverage. Focus on furnishing and better footwear sales should also aid these segments further.

Valuation and risks:

We expect Mayur’s revenue/EBITDA/Adj PAT to grow at a CAGR of 20%/22%/23% over FY21-23E. We have marginally revised our estimates due to high RM pressure and lower PU sales given the current run rate. Owing to the operating leverage visibility, we maintain 18x P/E multiple and roll forward our estimates, thus, slightly revising our TP upwards to Rs610. Our DCF fair value base TP stands at Rs590 (Bull/Bear TP of Rs730/340). Risks include slower-than-expected recovery in global automobile production due to extended lockdowns.

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