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After a performance blip, this multibagger smallcap is back in the fast lane

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Mumbai: After a few years of underperformance, this smallcap stock is back in action. Despite being hit hard by the Covid-19 pandemic, it has delivered more than 38 per cent gains year to date, taking its total gains for the past decade to nearly 900 per cent.

Attractive valuations, a rise in business share from automotive majors, stable crude oil prices, rising anti-China sentiment and commissioning of a new plant bode well for this company that counts Mercedes and BMW among its clients.

The stock is Mayur Uniquoters.

It is engaged in the manufacturing of artificial leather, foam leather and other leather substitutes. Its products are used in segments such as footwear, furnishings, automotive original equipment manufacturer (OEM), automotive replacement market and automotive exports.

The stock has delivered 883 per cent over the past decade, despite a 25 per cent decline in 2018 and a massive 46 per cent in 2019.

It is back on track ever since, and has gained more than 38 per cent for the year to date. The benchmark Sensex is still down 4 per cent for the year.

Shares of Mayur Uniquoters currently trade at Rs 288.65; they touched a 52-week high of Rs 309.90 on August 25.

As of Monday, August 31, the stock had 4 ‘strong buy’ and 1 ‘buy’ ratings on the publicly available Reuters Eikon database. There was no ‘hold’, ‘sell’ or ‘strong sell’ ratings.

Foreign institutional investors (FIIs) held 7.1 per cent stake in the company as of June end, while domestic mutual funds held 2.9 per cent, data from Marketsmojo.com showed.

Covid-19 hit the company hard in June quarter, as there were almost nil sales in April and May, which led to a 70 per cent drop in revenues. Both domestic sales and exports were hit during the June quarter, and poor sales also hurt Ebitda, but other income and lower depreciation aided net profit.

The auto segment contributes around 55 per cent of its revenues, while footwear forms around 30 per cent, with others contribute the rest.

On August 25, ICICIdirect assigned a ‘buy’ rating to the stock with a price target of Rs 350. “Increasing share of automotive business, stable crude oil prices, general focus on value addition and robust financials bode well for MUL (Mayur Uniquoters),” the brokerage said in a note.

Mayur Uniquoters counts several major automotive original equipment manufacturers (OEMs), both in India (Maruti Suzuki, M&M, Tata Motors, MG Motor, Honda), globally (VW, Ford, Chrysler) among its clients. It also serves retail shoe brands such as Bata, Relaxo, Paragon, among others.

On August 14, Anand Rathi maintained a ‘buy’ rating on the stock, and raised the target price to Rs 337 from Rs 283 earlier. Analysts said the demand in domestic auto and footwear would recover gradually and exports would do better in FY21.

“While the near-term outlook for the stock is muted, we are positive on Mayur for the long term on improving outlook: 1) good traction in the recently commissioned polyurethane (PU) plant, 2) talks of curbing imports of leather goods from China and 3) robust export opportunity through customer additions,” Anand Rathi analysts said.

Systematix Institutional Equities also has a ‘buy’ rating on the stock, and a target price of Rs 283, up from Rs 275 earlier. The stock has already breached that target. On Wednesday, September 2, the stock traded at Rs 274.

The brokerage said the company has better revenue visibility for FY22 as its South Africa plant is expected to start servicing the orders from Mercedes from FY21-end.

“The management expects monthly dispatches of 30,000 mtr at better realisations. Negotiations with BMW are entering the final lap with order flows expected to start from H2 of FY22 for its forthcoming models. The dispatches for Volkswagen India will start from FY22 – this business has an annual revenue potential of Rs 12 crore,” the brokerage said.

East India Securities, too, maintained a ‘buy’ rating on the stock, with a price target of Rs 314, citing attractive valuations. They valued the stock at 18 times FY22 expected earnings.

“The headwinds of a delay in PU business setup, Daimler approval and lower margins are now behind the company. Product approval from BMW is already in place and is progressing well. When the demand environment recovers, the company will report strong performance,” East India analysts said in an August 15 note.

“With PU capacity coming on-stream shortly, Mercedes business commencement by Q1FY22 and volume recovery in the medium term, we estimate strong earnings FY22 onwards,” they said.

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