Mayur Uniquoters Limited (522249) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Mayur Uniquoters Limited Q1 FY '22 Earnings Conference Call hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anubhav Rawat from Monarch Networth Capital. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I hope you and all your loved ones are safe and healthy. On behalf of Monarch Networth Capital, it is our pleasure to host the senior management team of Mayur Uniquoters. Today, we have with us Mr. Suresh Kumar Poddar, Chairman and Managing Director of the company; and Mr. Vinod Kumar Sharma, CFO of the company. I would now request the management to provide their initial comments about the results. Over to you, sir.

Yes. Thank you, Anubhav. Good afternoon, dear investors and analysts. Ladies and gentlemen, it's 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 Q1 FY '22 Conference Call. Mayur Uniquoters Limited being a market leader in the synthetic leather industry and an organized player has been able to leverage the emerging opportunities and delivered exemplary performance in past year, both in national and international business markets. As you are aware of the current market scenario, the markets and car showrooms are open, but now the automakers are facing the production problems at their plant due to semiconductor chips shortage globally. And our -- that's why our OEM sale is also impacted in this financial year and especially in Q1. However, we are hopeful to regain the OEM sales and the demand from the market back within the next 2, 3 months. And now I would like to start with financial highlights for Q1 FY '22 under review. We will reply your queries after our review on the financial results. The company has achieved revenue from operations on a stand-alone basis amounting to INR 127 crores and PBT INR 23.75 crores and PAT INR 18.09 crores during the quarter, which is obviously higher over the last year's quarter. But comparison is meaningless because the last year quarter was abnormally pandemic issue and wholesale was not to that level. And consolidated basis, our turnover is INR 118 crores; PBT, INR 17.6 crores; and PAT, INR 14 crores. Our endeavor is to make the company preferred supplier for the leading OEM, especially in U.S. and European regions. And we are pleased to share that your company is already approved by Mercedes-Benz for supply to their South Africa plant and product supply has also started with some quantity for the new models from this quarter. The product approval from BMW is also obtained and metal supply, as we already told, expected from April '22. Regarding project, PU plant project equities are almost completed, except some civil and development works going on at the site. The small supply orders and dispatches are also going on, and we are expecting it to increase gradually. While pursuing our business interest, Mayur Uniquoters has also been endeavoring to fulfill our responses towards the society. Under the corporate social responsibility program, the company has done 3 to 4 phases of vaccination at the plant and the nearby area for the villagers and staff members besides contribution towards food, oxygen plants and donated safety kits and oxygen concentrators to the hospitals, police stations, industries and associations like CII and ASSOCHAM. The company has also adopted many schools for education of children. The company has worked on education, especially for the girls and underprivileged child education. Various health care initiatives, especially child skill development, water for all, sanitation in the school area, distribution of books, bag, box, et cetera, and most importantly, family planning and family welfare schemes. The state government has recognized these initiatives taken by company on various platforms. And I'm thankful to all investors for their valuable time to those who became the part of this conference call. And with this positive note, I would like to conclude and request all to open the forum for questions. And kindly also note that the call time is for 45 minutes. Therefore, I request you to avoid the repeated questions during the call. And volume data, we'll not discuss in the conference, please. Thank you.

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investments.

Sir, I had a specific question on the gross margin. So if you look at the gross margin for the quarter, there's a significant difference versus what we would have reported in the preceding quarters. Anything to read there? And my second question is, we did about 27%, 28% margin over the past 2 quarters. Now with the export order getting incrementally executed and the Volkswagen order also getting incrementally executed as we go in the forthcoming quarters, do you see those type of margins sustainable?

I am Poddar here. Now your first question regarding Volkswagen. Volkswagen had just started. They have started selling. But when they are coming with a new model, it gradually increased. So Volkswagen business has already started, supply has already started. But from this quarter, every quarter, it will keep on increasing. And I think by the end of the fourth quarter, we will be able to do the whole, whatever we have predicted, because anything which starts it goes slowly. But by end of this year, we will be doing 100% what has been projected in the last quarter. This quarter also July we have increased. So it's already on the path of increase. Now so far as your profitability is concerned, as you know, everywhere, the prices of raw material are increasing. PVC prices have increased by more than 70% to 80%. Plasticizer prices have been increased to 100%. And all these increases started from the end of the fourth quarter. So fourth quarter, it didn't affected because we had a lot of material in stock. Generally, we have 45 days stock of these specific materials. So that was the advantage. We have started increasing the prices. But the way the prices were increasing, all these PVC, resin and plasticizer manufacturers are the multinational companies. And they just -- without informing they just increased the price. They said, "Okay, from tomorrow this is the price or after 3 days, this is price." So that's why you will see the profit has gone down because our raw material prices has increased substantially. So that was one of the reason that the profit has gone down. And because -- if you compare with the fourth quarter, the sale was fantastic INR 188 crores. But actually, when your sale is more, then your expenses in percentage-wise goes down. So that benefit also we had in the fourth quarter. So now we hope that from this quarter, it should do very good because what we have seen July is comparatively much better and August also we are full of hurdles. And we don't see any problem. I don't know what nature has, but so far as business is concerned, whatever filler we are getting from all our supply, that now onwards the things should be much better.

So with these price increases, do you see the gross margin erosion of 500 basis points, which has come in, should be recovered?

Yes. It has already started recovering because we have -- in certain areas, we have increased the price. But in certain areas -- I mean, in export, the prices are increasing very slowly. But even though practically, we have increased the price, whatever we need to increase that has been increased. And now that's why we feel that it should be better. And now the prices have started going down also. So in the first -- in July, we have reduced the prices also. But before that, we also increased almost more than 30%. We have increased more than 30% prices with this increase. So now since the prices have started going down, we have decreased 6% in July. But I think it is a better situation.

Okay. And my last question is, sir, what kind of volume growth or volumes do you see in FY '22, whatever you're comfortable with?

FY '22 volume, the way things are moving, what we have seen in July and what we are seeing in August, already orders have started coming in a good way. I think it should be better than 2021. '21, '22 must be better.

How much better is?

How much better is difficult to say, but it will be better. It will be definitely better because suddenly this chips problem is affecting a lot like -- in India, there is not that much shortage. But in America, there is a shortage. Europe, there is a shortage. But now that's why the business in May and June was bad. If that could have not been bad, then you would have seen much increase in the sales in top line. And now the things have started becoming normal since last 1 week, and they are saying -- predicting that by third week of August, everything should be normal. That's what feedback we have been given. Although there is not much difference in automotive industry in India, but if you have seen today also, we have seen in the newspaper that Maruti is facing problem. But so far, auto OEM domestic is concerned, we are okay. Our sales has not gone down. And from 15th August, the export sale will also increase.

[Operator Instructions] The next question is from the line of Viraj Kacharia from Securities Investment.

I just had 3 questions. First is on exports. So if you look at our auto OE exports you know over last 7, 8 year, we had some good success in catering to Ford and Chrysler, especially in Chrysler. But after a certain scale, the business kind of plateaued and kind of moderated a little bit. So since we talked about Mercedes and BMW as kind of adding those OEs and bagging new models, for existing OEs, what has been the challenge in terms of scale-up because one would think that since you're already supplying through them for so long, they would have already appreciated our quality, cost competitiveness and all other parameters. But that scale up has not really materialized in a big way for us. So we won't be -- I mean, correct me, we won't be even 5% of their sourcing for PVC leather. So where has been the challenge and where do we see the business evolving from these 2 OEs for us?

See you must understand one thing that the automotive business is a very long-term business. It takes time to get into it, and it takes time to get out of it also because once they approve the supplier, till that particular model is not finished, they will not change the supplier until unless there is a problem in supply or quality. Now, so far as this quarter is concerned, from April onwards or you can say from March, this chips problem has started very badly. Otherwise, if we go through January and February last year -- this year, '21, it was fantastic, since we are increasing like anything. Previously our FCA business was hardly, say, 130,000 meters or 125,000 meters like that, which increased in January and February to 175,000 meters to 180,000 meters. Suddenly because of the crisis, the sales has gone down, they have to close the business. Now in America, the situation is like this that they don't have a car to have -- to display in showroom. The demand is fantastic. Now it has started increasing from last week. Last week, the sales was improved. And now they say that by third week of August, we will have original sales. That's what they're saying. And maximum, you can take 1 week more. So, so far business is concerned, I don't see any problem in automotive sector. And India is doing quite well. There is no issue in India. We have increased the prices also when the prices were increased, and they are giving us price increase also. So far as business is concerned in this year, I'm very much optimistic compared to last year. See, in last 2 quarters, it was fantastic sale in last year. And this April was the record highest sales in Mayur's history. But again, that because of this pandemic, May and June were back. Now July had picked up. August is also picking up. So if there is no pandemic and I hope so, it will not be that bad what has happened, I mean the future is very good.

Okay. Sir, actually, my question was on specific to 2 OEs, which used to be a bulk of our exports in the past. So in automotive export, Chrysler and Ford were the majority of the customers -- 2 OEs, which drove the majority of the auto OE export. Now can you share what are the peak volume we did with those 2? And in the last 2 quarters, what kind of volume we were doing, any color?

Volume, I will let you know. As I told you, in January, February, March -- in January and February, volume touched to 2 lakh meters in the month. And then suddenly, in the March, it started going down because of this problem. But April was good in domestic market and all that. Now it has gone down by 50%. Now it has started increasing from last 2 weeks. Last week, it has come down to approximate 12,000 meters to 15,000 meters per week. Now last year, we have sold more than 22,000 meters, 25,000 meters. And now after 15th August, it will start increasing. They have given us tentative orders also. So there is no issue. This was all because of pandemic, and we are working on so many items. Now we have started PU also, which nobody is supplying at the moment in the automotive industry in export, and we are quite close. Maybe it takes 3 months, 6 months' time to get approval. But once it approves, it's a big business. I mean, $25, $26 like that, and we are very close. And once it is approved, then there is only 1 supplier in the whole world. So we are working on that also very seriously and hopeful that maybe in '22, we may start having this business also. So far as business is concerned, I'm not worried at all. And I hope that '21, '22 must be much better than '20, '21, so far we are -- what we are seeing today.

Okay. Second question is on the PU part. So in last couple of quarters, you mentioned that currently, the sales are quite low. So what kind of expenses or losses in P&L? What is the monthly expense we are incurring towards the plant because the sale won't be much right now? Any color you can give?

See, one thing, you keep it in mind, expenses don't go down. Expenses go down with the sales. If you increase the sales, your expenses automatically in percentage goes down, right? And if your sales are decreased, then automatically, the expenses goes up. What has happened between last fourth quarter and this quarter, because fourth quarter, the sale was INR 188 crores, and this quarter is INR 127 crores. So naturally, the percentage will increase. And then unfortunately, the cost of raw material has increased suddenly. And then you must have seen what is happening to the freight cost. The container cost has become 4x. So [Foreign Language] and there is no container. This is a worldwide program -- problem. So many companies are closing down not because of ships only, because the raw material is not coming in time. And you know how this automotive companies work. They just work on just in time. They don't keep much stock. That is the issue.

Okay. I'll put my question differently. What I meant is, in last couple of quarters, so this is not specific to Q1 and generally, if I look at Q3, Q4, you said that a breakeven -- the business is not making any breakeven because your volumes currently are low. So what is the kind of losses in P&L we you be incurring right now?

You are asking for Gwalior?

Yes, specific Gwalior, PU business.

Yes. You see, unfortunately, we started in the year 2021. [Foreign Language]

Including depreciated interest, it is around INR 90 lakhs per month.

Per month? Okay. Okay. Got it. And post we kind of implement our backward integration in terms of fabric and PU chemical plant, will the margin eventually be similar to a PVC? Or any indication we have in terms of what the stable state margin of those business is?

See, we are working very hard on this fabric. We are making knitted fabric. Now we are going to start very soon, maybe in 1 year time, this warp knit fabric, then nonwoven, then PU also. Because of this pandemic problem from last 1.5 years, the things were blocked. Nobody was certain what is going to happen tomorrow. So that's why everything has been delayed by 15 months, you can say. Now we are -- what we are seeing now, if everything goes well, which we think it should do well in the next 2 months, we have already -- everything is ready with us. All plants, we have space also, we know what kind of machines we need, everything is decided and freezed. As soon as the situation become positive, then we will immediately start ordering the machine. And once we start, it will -- within 1 year time, you will have it. Now we are very serious that we had to fight with China. I think with China is only 2 things that all the fabrics should be in in-house and PU chemical also we have to start manufacturing. For that also, we have started looking for an engineer, who is expert -- who are expert in PU, so that in course of time, we'll start making PU also. This is necessary for the long term.

So once we kind of implement the backward integration fully, what kind of a margin -- so would it be similar to what we do make in PVC in terms of, say, 25% operating margin or the focus in the initial years will be on the scale of so...

You see at the moment, it is difficult to say, but the market is very big of PU also. More than 1 crore meter is being imported in India from China every month. So far as market is concerned, there is not a big issue. The only issue is pertaining to the malpractices, which is done in India under invoicing and all those. For that also, we are working. Already, we have filed the anti-dumping duty on PU resin. We had first hearing 4 days back. Now we are working very seriously on that because what is happening from China. China is the biggest problem. And then the problem is our country. So the only way to fight with them is to go for backward integration, which we will definitely do it. We have started working. And as you know, this 1 year was full of tensions. No businessman know what to do. Now God willing, if next 3, 4 months are good, definitely, people will come forward to increase the capacity. And we are ready with everything. There is no money problem. There is no -- all processes are ready, they've just to push the switch. That's all.

We'll move on to the next question, that is from the line of Depesh Kashyap from Equirus Securities.

Sir, if you can give the total volume sold in this quarter, please, just a bookeeping question?

49, 50, like 49,000 meter.

Okay. Got it, sir. And sir, what is the outlook on the overall PU sales for FY '22? Do you think we can do INR 60 crores, INR 70 crores of PU sales this year?

This year?

FY '22, yes, sir.

'22, '23.

This year, continue?

Yes, sir, '21, '22.

No, it'll not be there.

No. No. No. Now last month, we reached INR 1.5 crores, last month. [Foreign Language].

Okay, okay. Sir, just like after the PU plant came, sir, there has been a COVID lockdown and everything, and you have been talking that the inventory with the customer is high. But if you look at the import data from China, that is still pretty high, right? So people are still importing from China. So how do we are going to -- how are we planning to basically tackle this thing? So unless the backward integration happens, do you think the PU sales will remain low?

See, you try to understand one thing that most of the material, which has been sold by China is the cheap material, number one. Then the manipulation is there. So how you bid? The bidding is that you make a good quality product or create a new product and sell in the market. But unfortunately, there was no response in the last 1.5 years from the market because today, the shop is open, tomorrow, it is not open. So nobody was looking for any future. So let the things come down to the normal, the thing will automatically happen. I'm not a fool to invest so much money because I see the market. You know why I'm moving on automotive with PU, because there is huge difference. Now people are understanding the difference between the leather and artificial leather because in leather also, genuine leather, there is lot of pollution. So they are coming themselves forward that, "Okay, Mr. Poddar, give us the material." But now it's not easy to just compare artificial leather with the leather with the same property and all that, although we have come to 70% to 80% we have reached, and we are 100% sure that rest of the 20% also will be done in a few months. And that is the big, big business.

Got it. Got it. Sir, next question, sir, basically in the exports, you have told before that the price negotiation is not that easy for raw material inflation. But now the freight cost is also going through the roof. So are you able to pass on any cost inflation to the Ford and Chrysler in U.S.?

See, we -- all our general export, we have passed on this freight cost to them, and they are accepting, 90%, 80% are accepting. But so far automotive is concerned, they are very strict. So -- but we have given them ultimatum that from this quarter -- I mean, third quarter, this is the second quarter, from third quarter, if the things are not normal, we will increase the price. And they have to increase because so many supply -- even leather cloth supplier, they are declaring force majeure because if you are not giving the supply -- prices what the supplier will do? A force majeure [Foreign Language]. There is a problem for the raw material. Everywhere, you go any industry, any raw material, everywhere the prices are increasing. And you imagine freight has increased by 4x.

Right. Sir, and PVC seventh line was supposed to be commissioned in July. Has it happened, sir?

PVC seventh line...

Seventh...

Sorry. As said, we have commissioned a line. We have taken it for our first trial production yesterday. Maybe it will take another 7 to 10 days for the line to start production.

Okay. Lastly, Vinod sir, over the last 3 years, your gross fixed assets have increased by INR 95 crores to INR 98 crores, but your depreciation amount is like same around INR 4.5 crores to INR 5 crores per quarter. So just wanted to understand why is that? And will the depreciation increase going forward?

So actually, it is booked on written-down value basis. So that's why once we -- as soon as we capitalize more, the depreciation on remaining assets comes down. So normally, it is remaining same in last few quarters.

Okay. The PU plant has been capitalized, right, all the expenses have been capitalized? So this is the run rate that we are working with here?

Yes.

The next question is from the line of Bismith Naik from RW Investment Advisors.

Sir, has working capital days normalized, like any sort of normalization from Q4 levels?

Hello? Your voice is not clear. Can you...

Am I audible?

Yes, tell me.

Yes. As working capital days normalize, any sort of normalization from Q4 levels?

It's still -- it is -- your voice is not clear.

One moment.

Your voice is breaking.

No, sir, we're not able to hear you clearly. [Operator Instructions]

Yes. Is it better?

Yes, it is better.

Sir, I just wanted to ask what is the working capital days looking like? Has it normalized from Q4 levels?

Not. Because of this lockdown, few days increased in working capital in Q1, working capital.

So by Q2, Q3, let's say, if there is no lockdown, it can come down to our historical levels, right?

Yes.

The next question is from the line of Priyadarshi Srivastava from Monarch Networth Capital.

Sir, I just wanted to know what -- we have been talking about the raw materials. So what is the average raw material prices now? And what was the breakup of that was, sir?

Average raw material price.

Raw material price?

Price average. Per kg average price.

[Foreign Language] Can you repeat your question? What do you want to know about raw material prices?

I just wanted to know what is the average raw material price is currently? And what will be the breakup for that cost?

That's very difficult to say on the conference call right now.

That cannot be informed easily.

We cannot give you that like this also. But like we have 2, 3 top article -- this thing. But prices have gone up. It went down a little bit, so stable around that price, but we cannot give you the exact price right now on the conference call.

Okay, okay, sir. And sir, What will be your CapEx plan for FY '22, sir?

CapEx plan in '22. Clearly, it will be around INR 25 crores to INR 30 crores.

[Foreign Language] modernization.

Okay. Okay, sir. And sir, also I wanted to know who are the current PU client because what will be your current client base?