Mayur Uniquoters LimitedMayur Uniquoters is a PU and PVC synthetic leather (artificial leather) manufacturer. They concentrates mainly on 3 segments Footwear (55%), Auto (25%) & Furnishing (10%). Their major customers in India

include Bata, Liberty and Action in Footwear and Maruti, Tata Motors, GM in Automotive segments. This is the only Indian Company to develop artificial leather for GM, Ford and BMW.

HBJ Capital, IndiaWeb: www.hbjcapital.comE-Mail: info@hbjcapital.comCall: +91 98867 36791

HBJ Capital’s “10-in-3” stock for the month of Aug’11

the only Indian Company to develop artificial leather for GM, Ford and BMW.

Let us see, what we are buying?

Mayur Uniquoters LimitedMayur Uniquoters Limited

Artificial Leather….Artificial leather looks and feels like natural leather, but is made on a fabric base rather than from animal skin. The fabric, due to its leather like finish, acts as a substitute for leather and is fast replacing it in many industries such as footwear, upholstery, and automobile.

The artificial leather industry is now on a high growth trajectory. One of the reasons for this is the high-pitched campaign against cruelty meted out to animals in the leather industry. This has resulted in growing awareness for an alternative to leather. The level of pollution (both air and water) created by tanneries has also led to an increase in the popularity of alternative leather. Besides this, a huge demand–supply gap exists in the natural leather industry.

This, coupled with the high price of leather, has also been a boon in disguise for the industry. On its part, This, coupled with the high price of leather, has also been a boon in disguise for the industry. On its part, artificial leather is cheaper and has a lower manufacturing cost. Earlier inferior technology was one factor holding back the growth of the artificial leather industry. However, with technological advancements, artificial leather being produced now is much smoother, looks similar, and feels like leather. The fabric is versatile and is fast replacing leather in a number of industries.

Buying Price | Selling Price | Stop Loss Price

Best Buying Price : Between INR 320 to 230 [CMP is Rs 358, itis advisable to wait for price correction]

Best Selling Price : Above INR 1500+ [Huge scale of opportunity,hence target price can be revised upward also]

Stop Loss Price : INR 150 [It means if the share price falls below INR 150, one MUST exit without any question.]

Expect at least 400-500% return in next 730 days [ 2 years] time frame!!!

From the desk of CEO, HBJ CapitalDear Members,

We have selected one of the most promising segment which is rapidly catching the fancy of the investors, it is “ArtificialLeather” . They looks and feels like natural leather, but is made on a fabric base rather than from animal skin. The fabric,due to its leather like finish, acts as a substitute for leather and is fast replacing it in many industries such as footwear,upholstery, and automobile. The artificial leather industry is now on a high growth trajectory. One of thereasons for this is the high-pitched campaign against cruelty meted out to animals in the leather industry. This has resultedin growing awareness for an alternative to leather. The level of pollution (both air and water) created by tanneries has alsoled to an increase in the popularity of alternative leather. Besides this, a huge demand– supply gap exists in the naturalleather industry. This, coupled with the high price of leather, has also been a boon in disguise for the industry. On its part,artificial leather is cheaper and has a lower manufacturing cost.

Our selection for “10-in-3” pick of the month is Mayur Uniquoters. Mayur Uniquoters is a PU and PVC synthetic leather (artificial leather) manufacturer. They concentrates mainly on 3 segments Footwear (55%), Auto (25%) & Furnishing (10%). Their major customers in India include Bata, Liberty and Action in Footwear and Maruti, Tata Motors, GM in Automotive segments. This is the only Indian Company to develop artificial leather for GM, Ford and BMW.

Regards,

Kumar Harendra, CEO, HBJ Capital, www.hbjcapital.com

#912, 1st "F" Main Road, Girinagar 2nd Phase, BSK 3rd Stage, Bangalore – 85

Call : 098867 36791, 080 6568 1134 | E-Mail : Info@hbjcapital.com

Mayur Uniquoters Ltd – An Overview

Basic Details.. Mayur Uniquoters, a PU and PVC synthetic leather (artificial leather) manufacturer, was established in 1992. The

Company is an Only Indian Company to develop artificial leather for General Motors, Ford, Chrysler, Mercedes Benz and BMW.

The Company has 3 manufacturing facilities at Jaipur with an installed capacity of about 1.4 million meters per month which company is expanding to 1.9 million meters per month. The expanding facilities will be operational from July and the effect on the revenue would be visibly from Q3 FY12 onwards.

The end market of the company’s product includes Footwear, Apparel, Luggage, Furniture, Leather goods and Automotive sector. The Clients list of the company includes domestic players like Maruti, Tata Motors, Bata and International giants like Ford, General Motors and Chrysler.

The average realization in various product range s varies from Rs 120 to Rs 325 per linear meter which is quite high compared to its peers. The Company which employs more than 500 people at its factory and its offices has the much higher market share compared to its competitors.

The Company has a very good relation with its existing clients for e.g. It supplies 75% of Bata’s requirement.

Competition in domestic market comes from Jasch Industries, Fenoplast, Royal Vinyl Cushions and Polynova. Mayur caters only to the organised players in the market and is thus less vulnerable to competitive pressures from unorganized sector and cheap Chinese imports.

Contd.. The revenue of company comprises of 55% from Footwear, 25% Automotive , 10% Furnishing and Other brings rest

10% of the revenue.

Company has decided to increase its share in Automotive sector and is targeting US market and specifically Germany inEurope. The Company has started exporting ~40-45K meters/month to client like GM & Chrysler which should reacharound 100K meters/month soon.

The Company is not looking for expanding its capacity but also adding additional lines at the existing plant.

Close looks at the financial figures give us the indication that it is a rare small company consistently growing Free Cashflow/Shares and the company’s ROE and ROCE (38% & 57%) are not only highest amongst its peers but alsoflow/Shares and the company’s ROE and ROCE (38% & 57%) are not only highest amongst its peers but alsocompared to companies in other sector.

Another feather on the cap is the way company take care of the investors. The company pays a very good dividendwhich has shown a growth in DPS of 52% CAGR in last five years which is quite surprising for a small cap company.

The Company has a competitive edge over its peers as it has developed 400 different varieties of synthetic leather tooffer for diverse requirements while the nearest competitors can offer only about 50 varieties ; a number far belowthan the company.

Main Customer Industries Mayur concentrates mainly on 3 segments. Footwear (55%), Auto (25%), Furnishing (10%). Others bring up the

balance 10%.

Exports (~20% of Sales in FY2011) is spread among above segments. Automotive OEM exports have begun in FY11to Chrysler and Ford. Other international OEMs like GM, BMW, Toyota, and Mercedes have put Mayur Uniquoterson the approved vendor list, and orders are awaited.

Major customers in India include Bata, Liberty and Action in Footwear and Maruti, Tata Motors, GM in Automotivesegments.

Maruti Suzuki Tata Motors Ford Motors Honda Nissan

Hyundai Chrysler

Industry – Artificial Leather IndustryWith issues like animal cruelty, pollution, low supply, and high price plaguing the leather industry, the demand for

artificial leather is on the rise. The Artificial leather looks and feels like natural leather, but is made on a fabric baserather than from animal skin and is fast replacing it in many industries such as footwear, upholstery, and automobiles.

Today, the leather alternatives market in India and abroad is witnessing good growth, and the demand is expected tofurther intensify in the future. In India, the market for synthetic leather is highly unorganized, and there are only ahandful of players in the organized sector. Among the major names are MUL, Polynova, Northern India Leather,Fenoplast, Jasch Industries , etc.

Indian synthetic leather is exported to European countries and also to the US. Synthetic leather can be made fromseveral processes including direct coating process, transfer coating process, and wet process.

The Indian industry faces tough competition from Chinese synthetic leather as they are one of the major producers ofsynthetic leather, and up to 10 times the amount produced domestically in India is imported from China.

Industry – Artificial Leather Industry

According to an estimate, Footwear industry requires 26 million meters annually while Automotive sector requires 32million meters annually and Furniture Industry requirement is at 11 million meters annually which shows the scope ofcommodity in demand.commodity in demand.

The major reason due to which Chinese leather gives a tough competition in India is, demand for artificial leather ishigh in India compared to supply and we still do not produce good PU leather cloth which accounts for major imports.

The mismatch of demand and supply opens the door for growth and opportunities in the Industry. If catered properlyby government, can turn into a multi million Industry.

Another important step that needs to be taken to compete with the products of International market is to make properinvestment in R & D which adds variety of new products to fight the competition especially from Chinese players.

Growth Drivers...High Profitability and Returns - This is a rare small company consistently growing Free Cash

Flow/Sales. And then you couple this with a consistently increasing RoE and RoCE. A company with a high RoE andhigh Free Cash Flow combination is said to be in a sweet spot.

Big Opportunity size - A 4000-5000 Cr annual market size is the scale of the opportunity before MayurUniquoters. Given its Profitability, strong Balance Sheet, Free Cash Flows and dominant competitive position, MayurUniquoters is in a strong position to scale up and address the Opportunities before it.

Focus on Margins - Mayur Uniquoters operates in a very competitive market but has consciously chosen toconcentrate on segments that need to be more quality conscious such as Footwear, Automotive (upholstery), andFurnishings, ensuring better margins for the company.Furnishings, ensuring better margins for the company.

Automotive OEM exports driver for quality growth - As per the company the margins are 2-3x in OEM exports. It is steadily becoming a focus area for the company in its bid to improve margins. They aretargeting the US market, and specifically Germany in Europe.

Backward Integration - Knitted fabrics constitute ~16% of raw materials - an ingredient where consistencyin quality is key to finished product quality. In order to retain a degree of control over consistency in meeting exportquality requirements, the company is planning on investing Rs. 15-18 Cr in a knitting facility that will produce 800Kmeters/month.

Growth Drivers...[Contd.]Capacity expansion - 35,000 sq.mt land has been acquired. Land Conversion is completed and

environmental clearances have been received. The knitting facility will be started here. New capacities are being added~0.5 million linear meters/month at existing facilities, taking total capacity up to ~1.9 million linear meters/monthby Q2FY12

Automotive Replacement market is promising - According to the company during lastautomotive crisis, it got good business from the replacement market which helped it avert any significant impact ofauto sector cyclicality. With so many vehicles coming out every year and the need to replace the upholstery once in~3-4 years, the company is of the view that replacement market in India could surpass the OEM market within 2 to 3years.

Good dividend paying track record - Mayur Uniquoters has been a consistent dividend payer. Thedividends have also been steadily rising consistent with earnings growth. This Profitability Snapshot shows 5yr DPSCAGR at ~64% - big achievement for a small company.

Focus on International automotive OEM market - Many leading Automotive OEMs like GM,BMW, Daimler now have Mayur Uniquoters on their approved vendor list. Orders received from Ford & Chrysler, andthe company has started supplies in FY11 and scaled this up significantly. As per the company the margins are 2-3x inOEM exports. Ford,Toyota and GM relationships will be leveraged as Mayur puts up additional capacity.

Strong Balance Sheet.. Debt: The company has been skillfully

reducing its debt along with maintaining ahigh growth rate despite being in a capitalintensive industry.

Expansion: The company is planning forexpanding its existing capacity of 1.4million meters per month to 1.9 millionmeters per month all by internal accruals.

Cash & Debt: While the total debt stands Cash & Debt: While the total debt standsat just 4.4 crore, the company is holding 20crore cash. With free cash flows, thecompany is in a very comfortable state forexpanding it’s manufacturing facilities.

Working Capital: As can be observed,the Net current Assets (Working Capital) ofthe company has less than doubled sinceFY06, while during the same time saleshave improved by more than 200%.

Robust growth… The company is growing at a pace of 30%

CAGR annually since last five years. Duringthe same period the operating margins ofthe company have expanded from 9% to16%.

Such a significant improvement in margin isdue to it’s investment in R&D and focus onsale of high margin products to it’s client’slike Chrysler, Ford etc.

During the initial years one couldhave sighted low base effect, howeverthe company has been successful inmaintaining it’s run rate even duringFY 11 with 50% growth in sales.

With expansion of facilities, we expect thecompany to maintain the growth rate, whilethe margins look sustainable in the wake ofshift in product mix.

Cash Flows..

The Cash flow statement of the company reflects the moat with which the company operates.

The company is keeping a tight control on the debtors, while it is enjoying a leeway from it’s creditors. The same isreflective of the fact that both the suppliers and the clients are themselves willing to do the business with MayurUniquoters.

The Direct tax payments of the company have been mostly in line with it’s income statementreporting.

Satisfactory performance in Q1FY12 Company’s performance during FY11 was extraordinary; sales and net profit spurt by 51% and 56% respectively. Despite of a 52.1% rise in costs MUL was able to maintain its net profit margin Even though the net profit has improved marginally, company has been able to achieve high ROE of 41% on account of its high asset turnover.turnover. Export sales zoomed by 189% driven by sales to foreign automobile OEMs and MUL expects to increase its export sales by 55% in FY12.MUL has started supplying its products to US auto majors Ford and Chrysler and is developing new products for Mercedes and BMW.

Shareholding Pattern

The Promoters hold nearly 75% of the stake which reflects their confidence in the company.

FIIs have not been investing in the company and even the DII’s have very minimal investments. The institutions maysoon join the bandwagon to capitalize on the growth and very robust operations of the company.

CompetitionMayur Fenoplast Jasch Industries

PAT TTM (Crores) 25.27 2.49 3.02

M Cap (Crores) 165.80 18.81 15.10

ROE 38.55% 9.96% 9.2%

P/E 6.56 7.5 5.00

P/BV 3.62 0.98 0.79

Operating Margin (%) 16.24% 10.09 9.26%

The Company standouts clearly when compared to two other listed player in all the departments. The state of the other two companies also reflects the competitive and tough nature of the industry.

The Company has performed very consistently over a decade, and returned best ROE. Its ability to maintain high operating margins and ROE, hint at wide economic/operating moat which the company exploits for benefit of stakeholders.

The Company has been paying a good dividend to its shareholder who have over the years shown good faith in the company’s management.

Technical trends

Risk & Concerns One of the main concerns for the company is the competition it faces from both local and international players from

China.

Another prime risk for the company is the price fluctuation in the raw material which adds to increase the cost and alsohampers the margin. However, some backward integration could help the company to reduce the impact on theoverall expenses.

Over the years, the company has increased its international exposure due to which currency fluctuation has at timesshown negative impact .

The Company has planned an expansion, delay in functionality may hamper the projected revenues of the company.

Investment Rationale..

The Only Indian Company to develop artificial leather for General Motors, Ford, Chrysler, Mercedes Benz andBMW. Mayur Uniquoters is the market leader in the organized segment with a market share of more than 30%. Withit’s unique competitive advantage the company can further capitalize on both the organized and un-organizedsegment. There’s a burgeoning growth in demand of artificial leather over natural leather and the company is at thehelm of the same.

High Promoter Stake and nearly a zero debt makes it an attractive investment option. The stock is likely to catch eyes High Promoter Stake and nearly a zero debt makes it an attractive investment option. The stock is likely to catch eyesof Institutional Investors in near future citing the potential of this small cap company.

Strong lock-ins exist with major customers. For e.g. its supplies nearly 75% of Bata's requirements.

Its not easy to break into supply relationships and get on approved vendor lists with the majors. As an example, ittook Mayur 3-4 years of running after International Automotive OEMS before they got on to the approved vendor listrecently.

The nearest competitor has only about half the installed capacity at 0.7 million linear meters/month.

Mayur Uniquoters has developed nearly 400 different varieties of synthetic leather to offer for diverse requirements,while the nearest competitor can offer only about 50 varieties.

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