Mayur Uniquoters Limited (522249) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '21 Earnings Conference Call of Mayur Uniquoters Limited hosted by Monarch Networth Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anubhav Rawat of Monarch Networth Capital. Thank you, and over to you, sir.

Yes. Thank you, Aisha. Good afternoon, everyone. I hope everyone is safe and sound. We are pleased to host the senior management team of the company today, and we have with us Mr. Suresh Kumar Poddar, Chairman and Managing Director of the company; and Mr. Vinod Kumar Sharma, CFO of the company. Let's start this call with management's initial comment about the results. Over to you, sir.

Yes. You'll see the second quarter compared to first quarter was definitely very good. Things are looking upwards and especially in last 3 months from August onwards, the things have started coming back to the old situation. But since first quarter was not very good, very bad, and in second quarter also, July was not quite good, only from August, it has started picking up. But still, if you compare to the second quarter of this year and last year, there is hardly 10% decrease in sales. We hope that this quarter must be very good. I'm sure, because things are looking up quite well. And it all depends on how it behaves in December and January. Because so far, we can say November is also okay, October was good. September was good. So it all depends about this COVID problem. And otherwise, Indian automotive market is doing fantastically well. Footwear has not picked up as before. But of course, automotive has picked up more than 55% -- 50% to 85% before COVID. And everybody is keeping finger crossed. If things goes like this, I think we will be not that bad what was expected from first quarter. First quarter was really headwinds, stopping at what will happen. But with the grace of God, things are improving. And hopefully, if December goes good -- December and January. Then I don't see any problem. And then all over the world, countries are trying for vaccine. Once vaccine comes out, the things will be very, very clear. Because everybody is in dilemma today, nobody knows what to do and what not to do. But still, we are not stopping our expansion. We are doing what we wanted to do. We do not want to stop any further backward integration, all that. So things look hopeful. Let's keep our finger crossed for December and January. If December, January is okay, I think, here maybe 10%, 15% less than last year, should not be more than that, if things go well. The only worry is that in Europe, this COVID has started again in a big way. Because our export was good, automotive export was also good. General export was also good in the last 3 months and where it has picked up, it is showing more sales than before COVID. So we don't know whether it was because of 3 months closure people they are buying more. And today, because in India also, because it is Diwali season, Durga Puja in Western India that is also adding power to the market. And let's keep our finger crossed and let's hope -- I'm very hopeful that the things will be okay. Because previously, people they are too much worried that whether we should go out or not, whether we should do this or not. But now in the last 2, 3 months, I think if we go to the market, it's packed. If you go to the outside your house, the traffic is fully jammed and the way automotive sales is increasing, that shows that people are spending money. So I hope that things should be all right. Thank you.

Should I open the floor for question-and-answer session?

Yes. I speak -- I'll give you a speech. Thank you, Poddar sir. Thank you, Anubhav. Good afternoon, dear investors and analysts. Ladies and gentlemen, it is a great pleasure to be here to share with you the performance of Mayur. Thanks for giving your precious time to join Mayur Uniquoters Limited Q2 FY '21 Conference call. Mayur Uniquoters Limited being a market leader in the synthetic leather industry and an organized player has been able to leverage the upholstery and delivered exemplary performance in past years both in national and international business markets. We are addressing you at the time when our country is fighting challenges on multiple fronts and simultaneously trying to rebuild the economy. The industries are also continuously trying hard and working to come up from the continued downward pressures on demand, production and revenue as the COVID-19 affected the first 3, 4 months performance very badly. From September 2020, the OM industry has started doing good now. So we have done better in this quarter as compared to the first quarter. As your company has been (sic) [had] a very good track record of being an investor-friendly company as it is committed to drive value creation for all the shareholders with profit distribution in the form of dividends and now sometimes by [ debt ] also. And we will reply your queries after the brief review on financial results of the quarter under review. Since the outbreak of COVID-19 pandemic and consequent lockdown has affected the business operations of the company, therefore, results of this quarter and first half are not comparable with those for the previous quarter and last year. However, giving you a brief review of financial results for Q2 period. The company has achieved revenue from operations on a stand-alone basis, amounting to INR 110.6 crore and PBT amounting to INR 18.99 crore during the quarter. The revenue from operations on consolidated basis is INR 125.75 crore and PBT amounting to INR 26.9 crore for the quarter. Our endeavor is to make company a preferred supplier for the leading OEM in U.S. and European regions. I'm pleased to share that your company is already approved by Mercedes-Benz for the supply to their South Africa plant and product supplies is expected to start for their new model from next quarter. The product approval from BMW is also received by us. Regarding Gwalior project, most of the PU plant project [ steps ] are completed except technical commissioning of the [ MR ] section, by small supply orders and dispatch also started from these plants and expected to increase gradually in coming months. While pursuing our business interest, Mayur Uniquoters has also been endeavoring to fulfill our responses towards the social society. Under our corporate social responsible program, the company has adopted many happy schools for education of children. The company has worked on the education generally for the girls and underprivileged child education, whereas health care initiative, especially childhood development, water for all, sanitization at the school area, distribution of both bed, clothes, et cetera, and most importantly, family planning and family health care is key. The [ SA ] government has recognized these initiatives on various platforms. I'm thankful to all the investors for their valuable time to those who became the part of this conference call. With this positive note, I would like to conclude and request you all to open the return form for questions. [Operator Instructions] And volume data will not be repeated, so please avoid volume related queries.

[Operator Instructions] The first question is from the line of Chintan Sheth from Sameeksha Capital.

Congrats for a good set of numbers. Very strong recovery, sir, kudos to the management. Sir, a couple of things. One is you mentioned that auto demand has been improving. Indeed we can see in the domestic market as well. If you can throw some light on how footwear and general exports also, you mentioned that they are doing pretty well, in fact, are doing better than what we were doing pre-COVID. So any indication how things are shaping up based on what you have been doing right now, that is in October and November? As well as on the PU front, if you can provide some color on what kind of revenue we booked this quarter -- volumes this quarter? That will be helpful.

Yes. As I told you in my opening remarks that automotive is doing good at the moment. And it looks like that it should remain good. And as I told you, the December and January months are very crucial. In that time, we really, really got to know. As I told you in the beginning that general export and automotive export is also doing good. That means automotive companies are going good all around the world. Now how this is going to happen in the future, it is very difficult to say. But I hope that there should not be much difference, because automotive is doing good also. The reason is that as you see because of COVID, public transports, like buses, trains are not running. So naturally, people have got no option than to travel by scooter or motorbike or 4-wheelers like that. That is also adding to the requirement. Because whether you like it or not, you have to do it. So that's why the sale is also increasing. Now to be frankly speaking, the footwear is not picking up that much, because you know the people, of course, have started going out for the shopping in the market, but they are buying only those essential things, which they think they cannot do without that. All of you know reason well that people are not going for holidays. Marriages are taking place in a very calm and quiet manner, because in India, the marriage season is a full season. And there, people go out just to show themselves. They buy clothes, they buy footwear, they buy a lot of things, so that sale is down. Of course, it is picking up, but not at the speed it should have picked up. So I think so far as -- in general, you can say the way things are moving, as I told you from August onward, the things look bright. And if the COVID problem doesn't persist or it is in the same way what it was a month back, I don't think there's going to be much problem. So far PU plant is concerned, that unfortunately, we started in the month of, I think, March or April. And immediately after that, this COVID problem has started, so till June, there was no production at all. Now because the import was very high before COVID, and for 3 months, there was no sale at all. I mean, in footwear industry, it was hardly 15% or 20% sale. So the people who had imported material from China, they are filled up with their stocks. But still, we managed to sell something. I will not say much, but okay. We started moving to the customers. And those who has got our materials, they are happy with our quality, with our product, with our prices. They have no issue on that. Now since PU is not imported, because government has put up an extra duty of 10%. So the import will also reduce and people are not importing, but they are waiting for their stock to clear. So I think it will take another 6 months' time to fully pick on in the right direction. But I'm very hopeful because our products are accepted. And now from a price point of view, nobody will order from China.

Okay. How competitive our prices are?

The prices, naturally Chinese price are cheaper, but the government has increased 10% import duty. So first previously 10% plus 10% surcharge, 11%. Now it is 20% plus 10% surcharge, that is 22%. So 11% cost has increased, which we are importing from China and furthermore, now the prices of raw material are increasing very rapidly. In last 2 months, you can say from September 15 to now, the prices of PVC resin, plasticizer and PU is increasing like anything. So that's why the import is also less, because Chinese are also increasing their prices of their PVC leather cloth, and their PU leather cloth and these are the 2 reasons that because of this COVID, hand gloves, plastic gloves are sold like hell. So that is why PVC resin prices are going up. But fortunately, we have good stocks. So -- and we have already increased price. One price increase was done in October, October 1, 5%, and another 7%, we have increased now recently. And most probably in December, from December 1, another 5% to 7% we will be the increase. But that increased raw material effect will start coming from next month only. In this month, we didn't have that much difference. So let's see what happens. But so far as market is concerned, if the COVID problem is as soon as solved, the market I see is going forward like anything, because demand is there.

Right. Right. And sir, if you can split the revenue segment size, if you can share, the percentage will also do?

For Q2?

Yes.

Total, percentage wise you can note down, exports at 20 -- 22.41%, and domestic is 78%.

And we didn't export to OEM and general and auto replacement and footwear?

9% is export general, 13% is export OM, and in domestic auto is around the 19%, auto replacement 22%, footwear 26%, furnishing and other 7%.

Okay. Sure. And total volume, sir, if you can, only volume number?

58,44,868 meters.

58,44,868 meters.

The next question is from the line of Baidik Sarkar from Unifi Capital.

Congrats on the good set of numbers. I'm sorry if I missed this in your opening remarks. But could you just give us a sense of what has led to this gross margin expansion beat? Was it just a benign raw material environment? Was it a combination of your better sales mix tilted towards exports? And how sustainable is this GM range?

No, you are talking about exports.

I'm talking about your consolidated gross margins. I'm just trying to understand...

So gross margin all depends on the business, how much business you do. When your sales goes down, naturally, gross margin goes down drastically. This will happen in the first quarter. And in second quarter also, it is about 11% less. So if you combine both, it is quite less, because the sales is down by more than 42%, 43%, if you calculate both the quarters. So now because things are moving, and I think you will see good results in the third quarter. Because it all depends on how you increase your business. If you are increasing 10% of your business, your cost goes down and margin goes up. The business is meant to carry quantities ahead. So naturally next quarter's a better mover. It will be what I feel that this quarter should be much better than previous quarter.

Okay. So in a nutshell, given how the pricing environment is and given how our revenue mix is, you're saying these gross margin levels are sustainable?

Yes, yes. We have raw material cost is remaining almost same, not much difference.

Okay. And obviously, in the last quarter, you initiated upon the steep reduction in our operating expenses. Do you see any part of it coming back sharply in H2 as momentum revives? Or do you see the same quantum of OpEx to revenue ratio?

Can you repeat your question?

I see a reduction in your operating expenses beginning Q1. My question is, once the revenue momentum comes back, do we [Audio Gap]

Your voice is not audible.

Okay. Let me go again. My question is, there's been a steep reduction in your operating expenses beginning Q1. Given your business momentum is coming back strongly in H2, should we expect the current momentum in OpEx reduction to stay? Or will they come back very strongly? That's my question.

No, naturally, the production and things that sales increases, it will be better definitely. Because we have tried to cut a lot of expenses also. So I think if the things go in this way, they will come back to the old margin in third quarter.

The next question is from the line of Mr. Vakharia from Lucky Investments.

Since you have highlighted a couple of times that the auto industry is doing much better. Other than the BMW, Mercedes, Volkswagen, do we have any more further visibility on the PVC plant? And just to refresh our memory, what is the total order visibility we have for FY '22 as of now for the PVC plant?

PVC for the potash plant. No, no. So you see, now let's go one by one. We are talking about PVC. Now we are approved in Volkswagen. And we will start supplying them from maybe from March or April next year. And that is also in a very good quantity. We have already approved, and I think more than 30,000, 40,000 meters per month will start and that also with at least INR 500 per meter. Now Mercedes will also start by the end of the next quarter. And BMW is approved, but that will start in 2022. Although we are working very hard to get new models from America like Ford and Chrysler. We are after Ford also. And hopefully, the things, in my opinion, should be much better next year, '21, '22. I see very good market in exports. And all of this I'm saying except COVID problems, if the things are moving now, it is continuing to move in this way, I think the future is very good. And then now you see a lot of companies, who had establishment in China, they are coming to India. A lot of footwear companies are coming back to India from China. But everything takes time to get established. Now if we talk about PU. Now PU is a new thing for us. And people need a confidence. Any product -- new product comes in the market, they will first see the product. They will use the product. And if they find it okay, then they will come back. So what I'm seeing that whomever we are supplying the material, they are coming back to us. I mean they are repeating. So that means, they have full confidence on our quality and the prices. And once it is established, it will take another 6 months to 1-year time to establish. And once the product is available in the market, all types of product if -- are available, nobody will bother for importing the material. Because when you are importing, you have to keep a lot of stocks, and then sometimes material is adjusted, and then it takes a long time to come. But if you are in India, you tell me today, tomorrow or within 3 days, I will supply it. so far PU is concerned, I'm sure it will take at least 1-year time. And after 1 year, you will see the difference.

The next question is from the line of Depesh Kashyap from Equirus Securities.

Congrats for great performance this quarter. Sir, in the last call, I think you talked about the Volkswagen order to start in the month of October, but now you're talking about March. So is there any delay?

Yes, yes, yes. You see, what is happening. This is the automotive company takes very long time. What they say and what they do is different, because their process is typical. And because they had to get approved when they -- I mean, Indianize, they have to see so many things. And now that was -- it will be delayed from our embossing roll suppliers that we are buying from Germany. Now they have said that, okay, you buy from this company, that company, they are very particular and they have delayed also. There was a delay of more than 1.5 months for the embossing roll. That's why also it was delayed. And now I'm sure that within next 3 months, it must start. From an Indian point of view, everything has happened. Now the problem was new rolls. Those also have come. And I think in next 10 days, we will be able to submit them the sample again. Because you see they are the German company. So whatever is done here, everything will go to Germany. They will say, yes, then they will start. So that's why it takes a little more time.

Understood. And sir, you -- last time, you also talked about the PU sales to fully -- the first-line will be fully utilized within the next 12 to 18 months. Is there any change in the guidance now? Do you think it will take more time?

You see, it's very difficult to say at the moment. Although in PVC, our seventh line has been dispatched, which we will receive any time. And I will give you a good report, 2 days back, in our fifth line here, we have made in 1 day, 45,000 meters. Generally, you see 27,000, 28,000 meters. Now we are plugging in such a way, so that your production increases more and more. Now we are very much after introducing to you in automotive industry, also, we are working hard with Ford Motor in the U.S.A. We are working hard with Chrysler in U.S.A. for this new materials. Now if these things are approved, it is -- you'll be surprised to know it is not less than $12 -- between $12 to $15 per meter. And people are very much interested, especially in Europe and America. They want to introduce PU. And for your information, we are the second company only, who is working on PU in the world for the automotive companies. So future looks good, but the graph always don't go up. It goes up, down, up, down because of the condition, sometimes some conditions, sometime some condition, nobody expected that this kind of a thing will happen. But I'm very hopeful and very optimistic that things will be all right in the next 6 months' time, definitely.

Right. Sir, but when we set up the PU plants that we are mainly focused on the footwear segment, right? So you are mainly putting up this plant to like take the growth back in the footwear segment. So is there any disappointment from the client side that you are now looking at auto segment? Or is the extra revenue potential that you want to take?

No, you see this plant, PU plant is core aggregated plant. It's a different plant. And the PU, which I'm talking is a different type of product. This will be made in our unit here. Now we are talking with one of the very big Korean leather cloth manufacturing company, who is supplying to Hyundai with co-regulated material PU for their seats. So as you know, Koreans are very, very slow. It takes a long time. So at the moment, we are working for footwear, leather goods, and some furnishing material. We have introduced in furniture also this formulated field. So we will go in all the areas. We are not going to leave any area. Wherever we are selling PVC, we will definitely sell PU as well as [ breach ]. Because all depends on making the habits of the consumer. Now the problem was here in India that nobody was giving the right kind of products to these PU in the other areas. But we are working very hard on it. Unfortunately, because of COVID, our best technicians, which we have hired from Taiwan, who have got 20 years' experience in all the lines of PU, he cannot come to India. I think maybe in 1 or 2 months time, he will be able to come. But still, we are making all kind of products. In these last 2, 3 months, we have spent a lot of money in developing products. Now if you see, even with China, whatever products are coming, about more than 75% to 80% products, we have already developed. It is the only thing that when the market picks up. As soon as market picks up, people have everything ready in their hand. They can come and place the order. Nowadays, people are trying to avoid China. So that is also plus point for us.

Right. Right. Sir, lastly, you talked about the PVC resin prices. Now they have sharply increased by 25% in the month of October. You talked about a price hike of 5% in the October month and then 7% in November month. I just wanted to check that is it for your price hikes across all the customers or some of the customer segments?

No, no, all. Across all.

Even exports, sir?

No. Export, no.

Export, no. Okay.

The increase is for mainly domestic market kind of PVC and plasticizer kind. Because for export, automotive OEM export, we are using totally different kind of PVC and plasticizer. They are, of course, increased, but not that much at the moment.

Okay. Okay. Okay. Vinod sir, lastly, the other expenses in this quarter have been around INR 17 crores. Now before COVID, they were around INR 21 crores, INR 22 crores kind of a number per quarter. So is there any permanent cost savings that you have done? Or will this number come back to INR 21 crores or INR 22 crores?

As far as fixed overheads are concerned, we have paid around 15%. So there will be -- that will remain same in the coming months -- coming period also. But the expenses will increase in proportion to the increase.

Right. But the sales cost will be reduced by 15% for the year you are saying?

Yes, yes, yes.

The next question is from the line of Pritesh Chheda from Lucky Investments.

Yes, sir. Sir, 1 question only. So we did about 2.8 million meters or about 28 lakh meters in FY 2019. Now considering the 2 export orders that we -- let's say, the 2 incremental OEM orders that we have of Volkswagen and Mercedes, which is about 30,000 meters per month. For next year, I'm not asking for this year, but next year, should you be comfortably surpassing the 2.8 million meters that you recorded in FY '19, which was the highest volume that you recorded?

Next year, we will cross. Definitely, we will cross.

Right, we will cross that.

'21, '22, we will cross.

And the profitability, because the incremental 7 lakh meters is at a fairly high realization, which is closer to, I think, INR 500, right? The profitability would be far better than what you would have done at that 2.8 million meter in FY '19. So your per meter profitability at that time was about INR 40 to INR 42. Should we believe that it is going to be substantially higher than that number?

Profitability in FY '22 from exports. Yes, yes, yes. Definitely.

Right. Without quoting the number, I'm just looking at the direction, sir. And the seventh PVC line, right, it's the seventh PVC line which we installed, right?

Not yet installed.

Not yet installed. So we have 6 PVC lines...

Yes, we have 6 PVC lines.

So the 6th PVC line, what is the -- based on the product mix, whatever is the optimum product mix that you think, what is the maximum volume that you can generate on that 6 PVC lines?

In 6 PVC lines, we can generate about every month, 27 to 28 lakh meters per month.