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Centrum Broking has a buy call on Mayur Uniquoters with a target price of Rs 650.
The current market price of Mayur Uniquoters is Rs 398.80.
Time period given by the brokerage is one year when Mayur Uniquoters price can reach the defined target.
Centrum Broking's view on the company:Footwear segment stable, auto reports strong growth: The company’s revenue rose 0.2 per cent YoY to Rs1,411mn in Q1FY19, largely driven by flattish volume growth.
The footwear segment recovered well during FY18 and was flat during the quarter.
Mayur’s domestic auto as well as auto replacement businesses continued to show very strong growth.
High margin performance continues: EBITDA for Q1FY19 came in at Rs377mn with margin of 26.7 per cent during Q1FY19 as compared to 28.2 per cent margin in Q1FY18.
The yoy decline in margin was mainly due to an increase in raw material cost as a per cent of sales which was 57.5 per cent in Q1FY19 vs 56.3 per cent in Q1FY18.
The RM prices were high due to crude prices being at higher levels during the quarter as compared to last year.
Additionally, employee cost as a per cent of sales was also higher, however lower other expenses provide some cushion, limiting the contraction in EBITDA margin to 148bps.
Mayur continued with its strong margin performance, better than our estimates, however, the absolute EBITDA figure was below our estimates.
Despite a flat top-line growth, margin contraction, higher interest expense and higher effective tax rate, PAT was flat, with marginal de-growth of 0.3 per cent yoy (up 6 per cent qoq).
PAT performance was in-line with our estimates and boosted by higher other income.
The company also announced its first interim dividend of Rs0.5 per equity share of Rs5 each.
Growth outlook okay, margins peak: Based on the recovery in the footwear segment, encouraging demand from domestic auto OEM and good export visibility, management expects the sales volume to grow 10-15 per cent in FY19.
Benefits from the PU plant will start trickling in by early FY20.
Hence, the company’s growth prospects over the medium to long term are pretty sound.
With strong product profile and ability to pass on RM costs hikes in a normal demand environment, the company should be able to maintain its high margin in the coming years.
We expect margins would stabilize around 26 per cent from the ongoing business in the future.
Valuation and Risk: We remain convinced of Mayur’s medium-to-long-term growth opportunity.
Healthy growth in the automotive business along with recovery in the footwear business promises good growth in profits over the next two years.
At CMP of Rs399, we see a good upside of 63 per cent, with a TP of Rs650 (24.4x FY20E EPS) and hence maintain our Buy rating.
Key downside risk: slower-than-expected recovery in the footwear segment, steep hike in crude prices.
