Shilpa is a API provider of oncology molecules and other niche molecules. Much of the API provider’s revenues depends on the fortunes of the formulator whom he supplies. For ex: formulator may have FDA issues, plant upgradation, may decide to get out of some formulations etc which in turn affect the demand of Shilpa’s APis. To overcome this, Shilpa has decided to get into formulations of some of the molecules which may give it better control over the molecules to target.

Shilpa does not work with innovator/originator currently. Predictability is little less in generic business. Hence, Shilpa refrains from giving numbers.

This year there was more talk of First to Files (FTF). Shilpa will be filing its first FTF this year. Shilpa management feels it has the strength in molecules to file FTFs in its own name.

Shilpa has taken significant capex and investments last few years and the revenues will come from 2017-18. Shilpa has around 400 R&D engineers and has filed around 175 patents of which 75 have been filed last year. However, it can be that one molecule itself can have upto 5 – 10 patents.


PCA is a subsidiary of ICE Italy (was acquired by ICE). ICE manufactures cholic acid while PCA manufactures deoxycholic acid and its derivatives like ursodiol etc. Cholic acid is used for manufacturing deoxycholic acid. PCA also manufactures the API and is not into formulations. ICE and PCA over a period of 50 – 60 years have worked on only this molecules and have an edge over any other company (ICE controls 70% of the world’s cholic acid demand while PCA controls 45% of the world’s demand for deoxycholic acid) which primarily is in R&D and sourcing as it is naturally produced (ox bile, chick bile etc). ICE and PCA can increase prices of this molecule as and when required. Shilpa just provides the CRAMS for manufacturing of ursodeoxycholic acid where inputs, process, technology etc are provided by ICE only.

The current market for this API is 1500-2000 tonne which is around Rs.2500 crore in value terms. Currently, Shilpa has 200 tonne capacity while the JV will have a capacity of 400 – 500 tonne. There is a lot of shortage of this molecule worldwide. Shilpa has orders upto two years. However, due to supply constraints it is not able to fulfill the demand. ICE does not want to expand in Europe due to high costs and other issues. Scaling up will be easy for the company here and through JV their interest and longevity will be higher. Since ICE has 50% stake in the JV, the margins can be higher. It will be ICE’s only facility outside Italy. The reason for ICE to stick with Shilpa is trust. The benefit for Shilpa in the JV is it is de risking its major revenue source and freeing up capacity at its API plant for other business divisions. Shilpa also has contract for selling this API in few markets like India. Once this plant is functional, this will be a separate profit center for shilpa with limited bandwidth from Shilpa management (kind of self pilot mode).

The plant is a world class one and took almost two years for construction. The plant is in final stages of construction and will be ready in one – two month’s time. The company has already started working on exhibit batches and by June, 2016 the company will have 9 – 10 months of stability data after which it will file for DMF in Japan. This will start yielding revenues in FY17 but majority of it will come in FY18 after all the shifting has been done from the standalone API facility. It might happen that due to shortage of this molecule, Shilpa on standalone basis might continue to supply for few years.


Earlier, the vacated facility for manufacturing of ursodeoxycholic acid was proposed to be used for manufacturing of ARVs. However, due to less clarity on the issue of when the manufacturing of ursodeoxycholic acid will stop in standalone operations, the plan has been put on hold. If we start constructing a new block for ARV and all the transfer happens to Raichem soon, it will lead to idle capacities. The company will take a decision on this in short term (three to six months). Apart from the four molecules (QUAD), the company has also worked on few other molecules at R&D stage. Company has plans to go into formulation also in the long term for ARVs.


Shilpa Medicare has ventured into CRAMS with a Japanese pharmaceutical company to produce tranexamic acid. The company is dedicating an entire block for this arrangement, the construction for which is expected to be completed by December 2015. The total cost incurred on the capex was Rs.31 crore. The manufacturing of the exhibit batches will start from January, 2016 onwards. The capacity for this block will be 100 tonnes and can result in revenue of Rs.50 crore. However, it will have higher margins compared to the current arrangement with ICE as Shilpa will procure raw material directly along with the manufacturing process. Shilpa has also got license to sell it in few markets. Like ICE, the pharmaceutical company has expertise in the manufacturing of this molecule.

Shilpa’s management views this a stepping stone with relationship with Japanese Generic players. Shilpa is the only company whose API is registered in the Japanese markets. Establishing relationship generally takes a long time and they initially start with only small volumes and scale it up over longer periods of time. A few large oncology companies have also visited Shilpa’s facility. A lot of patience is required for working with Japanese partners and there is no room for short cuts. This can be a sustained model after 5-10 years and a separate revenue stream.

Unlike US, the Indian pharmaceutical companies except for Lupin haven’t been able to make a mark in the Japanese markets. Reva Pharma, a sister concern, is an official advisor for Indian Government for Japanese pharmaceutical companies. It has been instrumental in asking PMDA, the pharmaceutical regulatory authority of Japan to set up an office in India. Japanese market has very low generic presence which is expected to increase significantly going forward benefitting Indian pharmaceutical companies.


API Facility: The USFDA inspected the plant in March, 2015 and there have been few observations. However, none of them are related to data integrity, which has been a major concern for the pharmaceutical companies. The company has replied to these observations. The company has been regularly writing mails and following up with the authorities and expects an outcome by October/November (they sounded pretty bullish on securing an approval).

Formulation Facility: Shilpa’s Jadcherla formulation facility was inspected by USFDA recently. The management was expecting the inspection after January, 2016 but an ANDA getting into bio-equivalence/ later stage of ANDA approval triggered the inspection. The inspection happened over 10 days and there were nine 483 observations. However, there are no data integrity issues. Shilpa has responded to these observations and is expecting FDA approvals for this plant latest by around June 2016 after which it is expecting to get ANDA approvals one by one. Shilpa Medicare has shared these observations with its customers and they are confident of us getting the approval soon. Many of the issues related to regulation are because of lower level employees taking short cuts. Shilpa has taken many steps to address this including hiring an ex-FDA inspector (who charges USD 280,000 annually) consultant to visit the plant and give inputs and training.

Shilpa has got approval from Brazilian, Mexican and EU authorities (that Slovenian approval was for whole of EU). Argentinean regulatory approval has also been triggered and they might come for inspection.

As per the management, USFDA is trying to categorize pharmaceutical companies into various grades and the grades will decide the frequency of USFDA audit going forward


The company has 20 DMF filings in the US markets. The same molecules have been filed in the EU market as well. The company has a hybrid approach for development of new molecules – sometimes our R&D employees find a molecule lucrative, sometimes customers approaches us and few of the times the top management finds a molecule to work on. Shilpa is even working on few molecules which have expiry in 2025 – 2027 or are currently undergoing clinical trials. The key here is non-infringing patent and being able to tie up with formulator. In APIs Shilpa has a lot of strength in few of the molecules where it can impact the prices of it. However, the company does not have a philosophy of gaining market share by reducing the prices. Competitive intensity of a particular molecule decides the step taken to manufacture it. If it’s a competitive molecule, R&D people start from the scratch and work from N – 5 and N – 4 stage to reduce cost while in not so competitive molecule we go back to just N – 2 stage as well. China is expected to be the biggest oncology market in the medium term. In US, out of every 10 new molecules being approved by USFDA, seven are in oncology. Few molecules which were discussed:

  • Capacetabine: Shilpa have expertise in this molecule and have expanded our capacity from 600 – 700 kg/month to 2500 kg/month. Even the batch size has been increased to 25 kg. Post the expansion, Shilpa will have 25% of the world’s capacity. Although, the prices have come down from USD 650 – 700 per kg to USD 450 per kg, Shilpa will make decent profits and benefit from increase in volumes. We have also filed ANDA for it in our own name. Sun has approval for Capacetabine in EU market but it is not doing well.
  • Gemcetabinie: Intas had completed expansion at its plant last year. So they took less quantities from Shilpa in FY15. As many finished dossiers have entered the market, production has fallen from 3 tonne to 1 tonne. Capecetabine is expected to make up for this.
  • Bortezomib: Shilpa is expected supplying to many formulators as it has a patent for the molecules under which it works (stability) even in some specific temperatures.
  • Imatinib Mesylate: This will be the next big molecule for the company after capecitabine. Company has an edge in this molecule.
  • Ambroxol: Shilpa also wants to diversify into non-oncology molecules. They have expanded capacities in this molecule from 60 tonne per annum to 240 tonne per annum. The capex for the expansion was around Rs.30 crore. Although, the molecule has lot of competition and is not difficult to manufacture, they have lot of experience in it, more filings and better quality. The market for this molecule is expanding. Other companies are decreasing the price while they are increasing it.

On being asked about the molecules which they are currently working on (taken from Karvy report and company’s website) have a market size of more than USD 5 billion, he replied that we also are working on bigger molecules than the ones mentioned. Post approval from USFDA, we might have to increase capacities for the US market. We had won a case against Bristol Myers Squibb for a molecule called Dastinib despite our telling them that we wont be launching in the domestic market. We work at various levels to ensure that our process and molecules are non-infringing. Pfizer had also launched a case against us for a molecule. However, after we told them that we won’t be launching that molecule in the Indian markets, they withdrew it.



We have filed 13 ANDAs as on date. Out of these 13, 5 have been filed in our name while 8 have been filed by the partner. The marketing arrangement for this filing is:

  • Own filing: We incur the R&D costs and tie up with the partners at various stages of development of the molecule. If we tie up at the beginning of development of molecule, we will have lower profit share while if we tie up after the filing of ANDA, we will have higher profit share. Out of the 5 filings, it is a mix of both. We have a marketing arrangement with the partners where they sell our products in the US market. We will be filing our first FTF this year in our name. Typical cost of filing a ANDA is Rs 5 – 6 crore plus litigation costs. Going forward, we will try to file new molecules in our name. Shilpa had filed its first ANDA in its own name in Dec 2013. Seems capacetabine and imatinib have been filed in Shilpa’s name.
  • Filing in partner’s name: Here we work on CRAMS basis (cost plus profit). R&D expenses, litigation cost etc are incurred by the partners. The main purpose of this model is to hedge our API supplies also. For off patented molecules, we tie up with 3 – 4 formulators while for FTFs we exclusively tie up with just one formulator (the company has filed for FTF through its partners). The partners chosen are good in marketing and have capability of garnering good market share.

The company currently has one line for manufacturing tablets and one for injectable at it formulations plant. The company has fully tied up for its existing lines for manufacturing of tablets and injectables. The company is constructing one more line for tablets and one for injectable at its formulations plant, the cost for which is expected to be Rs.30 – 40 crore. The construction for the new lines is expected to be completed by December – January. In oncology, there has been gradual shift towards tablets from injectables. The company is also planning to build third dry powder injectable line at its existing facility. The total capex for the line is expected to be Rs.200 crore. We might go for another expansion in three to four years which along with the dry powder line will cost around Rs.450 crore. For third or future lines, the company might tie up for innovators also. It will be first such dry power line for oncology products in India. The company might go for equity dilution for the capex in near to medium term.

For formulation facility, the company has tied up with new customers. In FY16, the company has plans to file five ANDAs (one in its own name and four in the partner’s). The company is not looking to file for biosimilars currently due to high cost involved (USD 15 million) as well as lack of clarity from the regulatory authorities. However, there seems to be some clarity emerging from the regulators and the company might plan to go for its manufacturing in the long term.


Company has filed or planning to file five dossiers for the five ANDAs it has filed in the US in its own name in European market too. The approval from the US regulators usually takes less time of around one year as compared to more than two three years for the US markets. The company’s partners are filing for formulation drugs in Mexican and Brazilian markets.

Going ahead formulations will be major revenue generator for Shilpa. The Jadcherla plant is being setup with advanced machinery which will have lesser chances of recalls. Shilpa had made investments of around Rs.250 crore in this facility. Shilpa Medicare has got a strong IPM department which will help decide which molecules to pursue.


Shilpa does not like to take too much debt. As per the management, then focus will be on re-paying debt instead of thinking of new ideas. Besides, having cash in the bank, helps Shilpa to fund new R&D proposals. Hence all the capex will be funded with mixture of debt, equity and internal accruals. Equity dilutions might be done at good valuations (most probably for future capex). The company has a philosophy of funding big capex with a mix of internal accruals, debt and raising more equity.


As per the management, Shilpa does not have problem of retaining top talent. The R&D head has been working with Shilpa for more than 20 years. There is a bit of attrition of lower levels like chemists. However, top level R&D scientists continue to stick with Shilpa. Most employees get between 15-30% hikes every year. They are given a free hand in R&D projects without too much politics from management. One of the reasons is that Shilpa management likes to keep cash in bank instead of being in debt. It can fund these small R&D proposals easily and not make them wait for funding. Shilpa is thinking of ESOP incentives for retaining top talent. Salary is in line with the best in the industry. Sometimes people leave at 3x salary. However, this has no impact on Shilpa. They file a patent at initial stages for the idea on feasibility analysis. This prevents the new company from filing patents for these ideas once the chemists leave.


Shilpa is keen to fund smaller companies (startups) with good people and good technology. This requires management with VC kind of mind setup. This will keep company abreast with new technologies and new ideas like Nano technology etc and new drug delivery systems (NDDS). This NDDS will help Shilpa in future projects through launch of its own formulation through them.

MAIA Pharma: Shilpa funded initially round and now there was another round of dilution which Shilpa did not fund at around four times the valuation at which Shilpa had invested (that is why you see lower holding of Shilpa). They are filing a 505 b (2) and Shilpa will be providing API too.

INM Technologies: It is working on nano technology and Dr Phani with 75 research papers is leading the company. The company is based out of Bangalore.

Shilpa has funded Rs.8-10 crore last year in these ventures and is looking to fund the same amount in next 2-3 years. The company has philosophy of funding new ideas with good technology and not spend too much money on a single idea.

Loba continues to be in red and seems to be a mistake committed by the management. There are lot of regulations in the market and management is trying to make it self sustainable.


  1. All revenues are in USD and thus not exposed to Euro depreciation
  2. Admired Alembic and Torrent apart from Natco
  3. No targeted R&D/sales ratio. Everything based on requirements

Most of current molecules are injectables in oncology. But after 5-6 years most expiring molecules are Orals

Mayur Uniquoters Management Q&A: Jun, 2011


Kindly share with us this journey and the key factors responsible for such an impressive growth performance. What have been the main drivers of this growth?

You need to understand that Synthetic or Artificial Leather today is everywhere – quality has improved tremendously in the last few years – in design, texture, colour matching, tensile strength, abrasion tolerance, etc. Daily use products like footwear, ladies bags, furnishings, upholstery, and automotive seats are using artificial leather predominantly. You will be surprised to know that 90% of leather used in footwear and furnishings today is artificial leather. Even in Leather products – say a leather sofa -the main seating area & backseat is pure leather, the sides and bottoms use matching colour artificial leather. In leather shoes you may see inners and sockings using artificial leather. Genuine Leather has become prohibitively costly. The synthetic leather industry has been helped by market forces at work!
There are 3 or 4 main contributing factors.
Firstly economics of scale have kicked in with our fixed costs getting spread over increasing volumes. Secondly product mix has been changing for the better with higher value added products leading to better realisations. The third factor that has worked for us in the last few years is the gradually increasing input prices, which in our industry we have generally been been able to pass on with a time lag. (a 5%-10% increase in our products make a difference of hardly 1%-2% in the end product price)
Delivering consistent quality, ability to scale up in tune with customer demands while maintaining solid financial discipline has helped us leverage on our best customer relationships. Today the business/customer is very savvy, appreciative of their best vendors and the marriage is usually very strong, as they cannot afford to expose their production lines to inconsistent quality. Is it in any wonder that bulk of the business goes to their best vendors? Our nearest competitor does roughly about 50% of our business levels.
We have also done lot of market development work especially in Southern market. This has included right from introducing the customer to new product design & innovations to helping them with sourcing the right technology (machines) and raw material partners.


This is not just economics of scale at work. Mayur Uniquoters has clearly shifted gears and is operating at a different level today. Kindly share the key changes that have happened over the last 2-3 years in the company. What changes have you effected in your business model to bring about this focus on improvement in operational efficiency?

I would again say the factors cited above are responsible. Also new product development and innovations have helped us move up the value chain with better price realisations. We have also consciously been moving the customer/segment mix and volumes towards higher margin segments like automotive replacement market and automotive exports.


This is an exceptional performance, which needs to be properly understood. You have mentioned higher input cost, better price realisation, value additions as factors. Kindly elaborate on the extent of contribution from each of these factors.

Well last year was another extraordinary year. Higher input costs to the extent of 18-20% is what we mainly benefited from to see such an order of Sales performance. If we see similar escalation again this year, I am not sure all our customer segments can absorb another such steep hike in rapid succession. Volume off-takes and Margins could well be effected.
This year so far it has been okay but this is a key risk and we have to see how the situation develops for the rest of the year. We are hopeful that the situation will moderate soon.


Kindly give us an idea of the revenue contribution & margins from major product segments. Which segments are expected to drive growth in next 2-3 years, where is the company’s focus and why?

There are 5-6 main segments. Footwear, Furnishings, Automotive OEM, Automotive replacement market, and Automotive Exports. We are trying to open up a new segment in Automotive OEM Exports Replacement market.
The philosophy of the company has been to achieve growth more from new segments that allow us to leverage our consistent quality, ability to innovate and demonstrate better value-addition to our customers, and get better realisations. In doing this we also are spreading the risk across segments. Eventually we are trying to see that no segment has more than 25% revenue contribution. Margins are more or less the same across most segments.
All segments are growing well and the potential is good. Automotive OEM exports and Automotive exports replacement market will see increasing focus. But this will take time – We have slowly leveraged on the Chrysler relationship which has grown multifold. Quality requirements are stringent and rejections carry the risk of considerable penalties.


Kindly share with us the quality of business and the level of business with your major customers. How much do your top 3 customers contribute to revenues? Is there any single customer contributing more than 10% of Sales?

The 80:20 rule applies to us, as in most businesses. 20% of our customers get us 80% of the business. No single customer accounts for more than 4-5% of our revenues.


Kindly share with us your successes and plans on the exports front. What will it mean to have GM as a customer? What is the scale of opportunity with a customer like GM? Do you enjoy superior margins there?

As I mentioned Chrysler relationship is growing stronger. They have increasing confidence in us. Two new programs with Chrysler will start later this year. They have again called us to US to discuss participation in another new program. They are very happy with the quality we have been able to consistently deliver. 80% of current OEM exports are to Chrysler and 20% to Ford.
Ford, Toyota. GM relationships will be leveraged as we put up additional capacity. But again we will be going slow in first stabilising the processes for optimum efficiency and quality. It will take us a full year before we stabilise and run the new coating line continuously on 24 hour 3 shifts basis.

The vision of the company now states “to be a preferred supplier of artificial leather to the leading automotive OEMS in the world”. So has the focus decisively changed towards automotive exports? What is the kind of growth that is expected from automotive exports segment?

Each of these 6-7 big automotive OEMs have annual artificial leather buys in excess of 500-600 Crs today in the developed markets like US and Europe. Our estimates tell us that this is a 3000-4000 Cr market across US & Europe.
We should be able to get 500 Cr -1000 Cr business from automotive OEM exports and Exports replacement market eventually. But this is a slow climb, it takes 2 years of constant engagement to break in for these majors to even entertain us. We also need to strengthen the organisation to scale up to meet the challenges thrown up by these opportunities in front of us.

What will be the effect on the product mix as footwear segment used to contribute some 55% of sales and was a significant counter against cyclicality of auto sector?

As mentioned before we would like revenue contributions to be no more than 25% eventually from any segment. Risks get spread across segments – not just auto sector cyclicality. And as mentioned before automotive replacement market is big and is getting bigger by the day as new vehicles get added every year. In the next few years the replacement market will be much bigger than the OEM market. If you recall in the FY09 auto recession we were not really affected.


Kindly explain your sales and marketing processes & set-up for the different segments.

We have Agents in developed markets on retainer basis for the automotive OEM exports. Even  in India we work through Agents for some major OEMs like Mercedez Benz.

For the Auto OEM segment, once product approval is received from say GM, who places the order on Mayur Uniquoters – GM, or their Car Seats vendor/assembler? Who do you supply to? How is price negotiation done and by whom?

Once an OEM like Chrysler selects us for a Program (say a new model), it instructs its leading automotive seat vendors to procure from Mayur Uniquoters. The price baseline is fixed by Chrysler. The seat vendor then contacts us and places orders. Some negotiation around the baseline is inevitable.


This is a very welcome step. Kindly comment on the significance.  Should we take this as a signal of the confidence Management has in the scalability of this business?

Definitely Yes. A couple of years back we would not have been able to even afford to have such experienced professionals on board. Mr Khannna brings over 30 years of experience in Quality control. Mr Acharya brings over 30 years rich experience in R&D and Production in synthetic leather and related business for automotive OEMs in the US.

They are critical cogs in our plans to build scalabilty in the organization teams/processes to be able to address major opportunities before us. If we have to meet stringent export market norms with any consistency, our Operations and Quality processes need to be strengthened. Similarly R&D efforts will need significant  bolstering to offer new product development and innovations for attracting new business from customers.

Given Mr Ramdas Acharya’s extensive experience with different product lines for auto OEMs in developed markets, is there hint of product diversifications in the coming future, or settting up JVs for the same?

[ValuePickr: Sorry we missed asking this directly in the informal discussion flow. Mr Acharya is recruited directly from the US market after pursuing for 3 years we were told. His rich experience in Automotive OEM synthetic leather market and contacts with industry players will be very useful for opening up new opportunities – Automotive exports replacement market could be one such initiative, we were given to understand. Mr S K Poddar categorically told us that within 2 years the company would like to be in a situation where most of the day-to-day operations are run by professional management and the Owner-Management (Mr S K Poddar, his son Manav Poddar, and son-in-law Arun Poddar) devote only 10% of their time in day-to-day operations and are free to spend their time on strategic areas.]


What is the size of the current market being addressed? Where do you see the company 5 years from today? What are the major challenges to reach there?

Let’s look at the Indian market first. Our internal estimates show current synthetic leather production in India caters to roughly ~2000 Cr. Another 700 Cr is met by way of Chinese Imports. 50% of the market probably is catered to by the unorganized sector. And balance 50% is catered to by some 15 players in the organized sector. Of these 5-6 are bigger players, the rest are much smaller players. Our nearest competitor has less than 50% of our capacity.

About the automotive OEM export market we talked at length before. We reckon that US and European synthetic leather market together is worth not less than 3000-4000 Cr annually.

We should definitely double our Sales in next 5 years!

[ValuePickr: Management likes to talk very conservative. Mr S K Poddar was quoted in this Dec 2010 CNBC interview of doing Rs.48-49 EPS in FY12. They achieved that (Rs. 46 EPS) in FY11 itself. When reminded of this by us, Mr S K Poddar laughed and said we believe in under-promising! Today we have a much greater responsibility as more people like you and analysts have started talking to us regularly. Let our performance do the talking for us!]


What is the level of competition you face today both domestically and in exports. Who are these players? Would you continue to enjoy a sustainable competitive edge, and why?

Domestically as I mentioned there are about 5-6 bigger players in the organized sector. The customers in the organized sector also like to deal with these bigger players for reasons as mentioned before. Jasch Industries, Polynova, Royal Cushion Vinyl, Fenoplast are some of these players. Our nearest competitor has roughly ~50% of our capacity.

Other than Mayur Uniquoters, no Indian synthetic leather manufacturer has been able to penetrate automotive OEM export market. There are only 2 players from Asia in this market and that includes Mayur Uniquoters. There is a Canadian manufacturer who has set up plants in China who is another big player. A US based player shut down recently. It’s not a very crowded market!

If Mayur Uniquoters is a leading vendor with major customers today, it is for a reason. A certain financial strength and stability is needed to be able to invest in supplying bulk order quantities. Backed up by consistent quality and the ability and willingness to engage customers with new product ideas and innovations. We have developed more than 500 product varieties and are continuously adding to this. Our capacity utilization rates are the highest in the industry. While we derive roughly 4.5-4.75 linear lakh meters/month from one coating line I would hazard a guess that most others are not deriving more than 3-3.5 lakh linear meters/month. We invest continuously in machine and process upgradation. A small example – a leather roll changeover that used to take 45 minutes earlier, today takes less than 5 minutes! 


No wonder Fixed Asset Turnover has doubled form 4x to ~8x in last 5 years. Again maximum improvements have come in last 2 years.

As mentioned before, one thing you need to appreciate is that Sales growth has not been led by volume growth as much as by better price realizations (value additions and higher input prices). Having said that, once a coating line stabilizes, our utilization is very high – at 100% levels -24 hours, 3 shifts a day.

This looks almost like an asset-light business model? What’s going on? Is this sustainable ~8x fixed asset turnover for a manufacturing business?

You should also recognize that some our assets are very well depreciated. The first coating line is almost 15 years old and still going strong. The good part is much of the parts can be periodically replaced/upgraded and we have been doing that. Once this 4th coating line starts, we will be able to shut off this 1st line for a few days and carry out some upgrades. Please take into account with new investments of some 50 Crs being made over the next 3 years, these figures may/will temper down.

Please share the company’s philosophy, processes, and how you have gone about implementing such extraordinary productivity and efficiency improvements.

Well the answer to that is our Hunger. And the Ambition. Who sets the benchmarks here? We set them –right? There are no cut off –figures! We are a process industry. Seemingly small but continual investments in processes upgradation is a Mantra with us. If you ask me, if I were to grade us where we are today from where we would like to be I would say we are operating at 60% efficiency!

[ValuePickr: Mr VK Khanna and Ramdas Acharya had also joined us by now. Mr Khanna chipped in saying while CMD’s assessment is at 60% , my own assessment is that we are at 40% today!! There is a lot to do and achieve. We are hoping that the next plant that we are coming up with will be a quantum jump over our efforts today. Next time when you visit we would like to showcase to you a world-class facility. Let’s see.]


Has this been completed? Is this only for captive use for the exports segment or for generating additional sales as well? What kind of capex will be required going forward?

The land has been acquired. Unfortunately it has taken us 9 months to get the land converted for Industrial use. Construction has started now.

This investment in knitted fabrics is necessitated because of the quality issues being faced by us especially for export markets. We wanted to have this key raw material under our control. Initially much of this will be for captive use, but we also see increasing possibilities of opening up a new market segment for us!

Knitted fabrics has much wider ranging applications than synthetic leather. This market in India alone is a 50,000 Cr annual market! That will bring its own challenges, but show me a business today that does not have intense competition. There are no easy lunches. We are quite sure if there is an opportunity, we will find our own way, albeit gradually.

How much was the expense incurred in Knitted fabrics RM as a percentage of Sales? What will be the contribution towards margin expansion, if any, on account of this?

[ValuePickr: Sorry we missed asking this directly in the informal discussion flow. Will get this answered for you, soon]


RM constitutes some 70-75% of Sales. Kindly explain how the company manages raw material price volatility risks. Are you able to pass on price increases? What is the process with auto OEMs? How often have you resorted to price increases in FY11? What is the outlook for FY12?

Our suppliers are some of the biggest players in the world. They set the prices based on the demand equation and crude situation. We are completely dependent and vulnerable to RM price hikes. The good part though is that we are generally able to pass on the price hikes to our customers. For some of them we have regular price escalation clauses in the agreements. While for some of them we need to go back and negotiate. As mentioned before in our industry we are usually able to pass on with a time lag. (a 5%-10% increase in our products make a difference of hardly 1%-2% in the end product price).

If it is a gradual hike, usually price increases have worked for us in enabling higher sales. But as mentioned before I am not sure if we see another 18-20% hike in input prices again this year on the back of last year, something has to snap – not all our customers can absorb/pass on such steep hikes!


This picture may substantially change with rising exports in FY12. Will the natural hedge between imports & exports be maintained? What are the measures the company is taking to mitigate risks on this front?

The natural hedge works for us. At the moment we do not see an issue here.

Astral Poly Technik

Company Background


Astral Poly Technik (APL) has its production facilities at Gujarat and Himachal Pradesh to manufacture plumbing systems from ½” to 8” diameter. Main products include Chlorinated PVC (CPVC) pipes and fittings for hot and cold water plumbing systems, CPVC industrial piping system for transportation of hazardous and highly corrosive chemicals, and lead free PVC systems for cold water application.

APL was the first licensee of Lubrizol (formerly B. F. Goodrich), USA to manufacture and market CPVC (patent protected) piping and plumbing system in India in 1999. APL entered into a techno-financial joint venture with Specialty Process LLC of USA, which provided the required technical expertise for manufacturing CPVC pipes and fittings for home and industrial applications. Specialty Process LLC, USA has 15.xx% ownership in APL. APL claims to be the only Licensee of Lubrizol in India and neighbouring countries for the use of the trademarks ‘‘BlazeMaster” (since 2006), “FlowGuard” (1998) and “Corzan” (1998).

APL introduced a new product range in lead free PVC pressure pipes and fittings in 2004, again a first in india. With the concept of providing a one-stop source for all plastic piping systems, APL also began trading in products such as CPVC and PVC fittings, flanges and valves from Spears (USA), solvent cements (adhesive solutions) for joining pipes and fittings from IPSC (USA), underground specialty fittings from Hunter (U.K) and CPVC and PVC plastic pipes of a larger diameter from Harvell Inc. (USA).

APL has ISO 9001:2000 certification for manufacture and supply of CPVC and PVC pipes and fittings for plumbing systems and industrial piping system. Astral is the only company in India whose CPVC products are approved by Nations Sanitary foundation (NSF) USA. Astral recently received ISI approval for its CPVC products in the country.

APL’s manufacturing facility at Barotiwal-Solan District (H.P) enjoys tax benefits/ concessions, relating to duties of Sales Tax, Excise and Income Tax. Overall tax rate for the company in FY2010 was 16.90%. These benefits are expected to continue till FY15.


Growth Snapshot

We can’t just look at a series of past growth rates and assume that they will predict the future – if investing were that easy, money managers would be paid much less, and this stock analysis would be much shorter. It’s critical to investigate the Sources of a company’s growth.
Variable FY06 FY07 FY08 FY09 FY10
Sales Turnover (Rs. Cr.) 58.19 101.70 144.53 205.25 304.52
Sales Growth Year on Year 79.47 40.71 42.30 50.15
3yr Average Sales Growth 54.16 44.39
3yr Sales CAGR 58.91 41.50 46.17
5yr Average Sales growth 53.16
5yr Sales CAGR 52.41
Profit After Tax (PAT) (Rs. Cr.) 4.02 9.11 17.07 14.19 28.03
Adjusted EPS 1.79 4.05 7.59 6.31 12.47
EPS Growth Year on Year 126.62 87.38 -16.87 97.53
3yr Average EPS growth 65.71 56.01
3yr EPS CAGR 106.06 24.81 28.14
5yr Average EPS growth 73.66
5yr EPS CAGR 62.50

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Profitability Snapshot

Profitability is the second, and in many ways, the most crucial, part of our Analysis framework. How much profit is the company generating relative to the amount of money invested in the business – the returns? This is the real key to separating a great company from average ones -the higher that return, the more attractive that business. Net profit Margins and comparing cash flow from operations to reported earnings per share are good ways to get a rough idea of the company’s profitability (because cash flow from Operations represents real profits!). But neither account for the amount of capital that’s tied up in the business, and that’s something we cant ignore. We need to know how much economic profit the company is able to generate per dollar/rupee of capital employed because it will have more excess profits to re-invest which will give it an advantage over less-efficient competitors.
Variable FY06 FY07 FY08 FY09 FY10
Operating Profit Margin 13.76 14.10 15.23 11.54 14.45
Net Profit Margin 7.47 9.44 12.57 7.34 9.66
Fixed Asset Turnover 2.35 3.13 3.30 2.45 3.30
Asset Turnover 1.70 1.05 1.21 1.47 1.83
Return on Assets 12.68 9.90 15.24 10.77 17.68
Financial Leverage 2.29 1.36 1.40 1.42 1.34
Return on Equity 29.03 13.48 21.37 15.30 23.73
Return on Capital Employed 20.60 13.75 19.74 16.36 24.33
Debtor Days 64.54 76.92 88.42 77.96 84.82
Inventory Days 115.01 96.49 99.96 117.11 112.53
Cash from Operating Activities (Rs. Cr.)
Operating Cash Flow to Sales
Capital Expenditure 11.85 28.91 32.74 17.73
Free Cash Flow
Free Cash Flow to Sales
Equity Dividend (Rs. Cr.) 0.00 0.00 1.13 1.12 2.25
Dividend per share 0.00 0.00 0.50 0.50 1.00
Adjusted DPS 0.00 0.00 0.50 0.50 1.00
Dividend Growth Year on Year -0.88 100.89
3yr DPS CAGR 41.11
Dividend Payout 0.00 0.00 6.62 7.89 8.03

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Common size P&L Statement

Can we dig deeper to see what else we can understand about how this company makes money? A good way is to look at the common size profit and loss statement. Common size statements are great tools for evaluating companies because they put every line item in context by looking at each of them as a percentage of Sales.
Variable FY06 FY07 FY08 FY09 FY10
Common Size Sales 100.00 100.00 100.00 100.00 100.00
Common Size Raw Material 58.70 72.79 67.41 75.46 73.34
Common Size Power & Fuel 1.92 1.97 2.04 2.41 2.44
Common Size Employee Cost 4.28 3.54 3.69 3.18 2.84
Common Size COGS 62.50 76.11 71.22 79.89 77.94
Gross Profit Margin 37.50 23.89 28.78 20.11 22.06
Common Size Depreciation 2.55 2.28 2.40 3.20 2.96
Common Size Interest Cost 2.34 1.95 1.98 2.75 1.67
Common Size SG&A 28.21 15.62 16.71 15.80 12.09
Operating Profit Margin 13.76 14.10 15.23 11.54 14.45

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Financial Health Snapshot

Once we have figured out how fast (and why) a company has grown and how profitable it is, we need to look at its financial health. Even the most beautiful home needs a solid foundation, after all.
Variable FY06 FY07 FY08 FY09 FY10
Financial Leverage 2.29 1.36 1.40 1.42 1.34
Debt to Assets 0.51 0.27 0.29 0.30 0.25
Debt to Equity 1.18 0.36 0.40 0.42 0.34
Interest Coverage 4.93 6.73 8.22 4.06 7.97
Interest Cost to Total Debt 7.73 7.68 8.37 13.60 11.98
Current Ratio 2.11 3.42 3.74 2.09 1.96
Quick Ratio 1.15 2.59 2.63 1.16 1.14
Cash to Assets 3.91 39.86 23.11 1.66 2.38

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Mayur Uniquoters

Company Background


Mayur Uniquoters, a PU and PVC synthetic leather (artificial leather) manufacturer, was established in 1992 by S.K. Poddar, an industry veteran trader in PVC Leather line.

It has 3 manufacturing facilities at Jaipur with an installed capacity of about 1.2 million linear meters/month, from where the company manufactures a wide range of premium products for Footwear, Apparel, Luggage, Furniture, Leather Goods, Upholstery and Automotive Industries. 

Chemicals (~64%), Knitted Fabrics (~16%), Other fabrics (~14%), Release paper (~6% which is reusable) are the main raw materials. 


Mayur Uniquoters concentrates mainly on 3 segments. Footwear (55%), Auto (25%), Furnishing (10%). Others bring up the balance 10%. Exports (10% of Sales in FY2010) is spread among above segments. Automotive OEM exports have begun in FY11 to GM & Chrysler. Other international OEMs like BMW, Mercedes and Ford have put Mayur Uniquoters on the approved vendor list, and orders are awaited.

Major customers include Bata, Liberty and Action in Footwear and Maruti, Tata Motors, GM in Automotive segments. Recent breakthroughs include international OEM customers such as Chrysler & GM in US.

Growth Snapshot

We can’t just look at a series of past growth rates and assume that they will predict the future – if investing were that easy, money managers would be paid much less, and this stock analysis would be much shorter. It’s critical to investigate the Sources of a company’s growth.
Variable FY07 FY08 FY09 FY10 FY11
Sales Turnover (Rs. Cr.) 71.70 97.81 123.13 176.15 269.14
Sales Growth Year on Year 36.18 27.50 43.20 50.87
3yr Average Sales Growth 35.62 40.52
3yr Sales CAGR 31.76 35.12 46.99
5yr Average Sales growth 39.44
5yr Sales CAGR 39.17
Profit After Tax (PAT) (Rs. Cr.) 2.65 5.11 6.06 16.22 25.27
Adjusted EPS 4.90 9.45 11.20 29.98 46.71
EPS Growth Year on Year 92.83 18.59 167.66 55.80
3yr Average EPS growth 93.03 80.68
3yr EPS CAGR 51.22 78.16 104.20
5yr Average EPS growth 83.72
5yr EPS CAGR 75.73


Mayur Uniquoters has made steady progress over last 5 years. The company has roughly tripled its sales to reach Rs.176 cr in FY10 and EPS has gone up roughly 6x in the same period. Sales have grown at ~30 percent CAGR while EPS on an adjusted basis has grown at over 57 percent CAGR.

Sources of Growth

1. Mayur Uniquoters dominates the PU/PVC Synthetic Leather Market. The customer list straddles all the major footwear brands and major automotive OEMs in India, the main segments the company concentrates on. At 1.2 million meters/month they enjoy some economies of scale, as the nearest competitor has only about half the capacity.

2. Special products for Automotive OEMs in Europe and USA, which satisfies world class quality standards for synthetic leather. Investments in Analytical Labs (for raw material quality inspection) and special plant & machinery enabled them to develop the artificial leather for GM, Chrysler and Ford in USA and Mercedes Benz and BMW in Europe. As per the company, this type of material has been developed for the first time in India, and no other leather cloth company has been able to develop such products.

3. Large variety of products  – 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.

4. Three main segments contribute to the Sales mix. Footwear (55%), Auto (25%), Furnishing (10%). Others bring up the balance 10%. Exports (10% of Sales in FY2010) is spread among above segments. The company reportedly supplies 75% of Bata India’s requirements. 

Profitability Snapshot

Profitability is the second, and in many ways, the most crucial, part of our Analysis framework. How much profit is the company generating relative to the amount of money invested in the business – the returns? This is the real key to separating a great company from average ones -the higher that return, the more attractive that business. Net profit Margins and comparing cash flow from operations to reported earnings per share are good ways to get a rough idea of the company’s profitability (because cash flow from Operations represents real profits!). But neither account for the amount of capital that’s tied up in the business, and that’s something we cant ignore. We need to know how much economic profit the company is able to generate per dollar/rupee of capital employed because it will have more excess profits to re-invest which will give it an advantage over less-efficient competitors.
Variable FY07 FY08 FY09 FY10 FY11
Operating Profit Margin 9.51 11.18 10.39 16.13 16.05
Net Profit Margin 4.00 5.66 5.27 9.85 10.17
Fixed Asset Turnover 4.16 4.23 5.08 7.12 7.94
Asset Turnover 2.19 2.72 3.13 3.55 3.61
Return on Assets 8.75 15.40 16.46 34.91 36.73
Financial Leverage 1.56 1.37 1.27 1.10 1.13
Return on Equity 13.61 21.12 20.93 38.57 41.42
Return on Capital Employed 17.01 27.64 29.20 57.21 57.20
Debtor Days 92.60 82.52 68.41 56.79 46.39
Inventory Days 61.07 36.20 28.77 28.71 27.86
Cash from Operating Activities (Rs. Cr.)
Operating Cash Flow to Sales
Capital Expenditure 6.11 3.25 2.50 13.93
Free Cash Flow
Free Cash Flow to Sales
Equity Dividend (Rs. Cr.) 0.75 1.00 1.91 2.71 5.42
Dividend per share 1.50 1.92 3.53 5.01 10.02
Adjusted DPS 1.39 1.85 3.53 5.01 10.02
Dividend Growth Year on Year 33.33 91.00 41.88 100.00
3yr DPS CAGR 59.58 64.62 68.45
5yr DPS CAGR 63.96
Dividend Payout 28.30 19.57 31.52 16.71 21.45

This is as pretty a picture as you can find – with a caveat. This achievement is on a very small base, and typical risks associated with small companies of this size, apply. Please see Bearish Viewpoints in our stock story section, for the overall picture.

On the margins front, Operating Profit Margin (OPM) has remained between 10-11% for the most part, in the last 5 years. Only in FY10, operating margins have seen a big jump to over 16%. This is on the back of a ~1% drop in raw material prices, and a big 3% drop in Selling, General & Administrative (SG&A) costs, and other efficiencies achieved on power & fuel costs (as a percentage of Sales, see Common size P&L statement below) in FY10.

The Net Profit Margin (NPM) record is far better, showing a somewhat steadier climb form 4.5% to ~10% in FY10. this is on the back of a steadily reducing interest burden and debtors and inventory levels. Its great to see debtor days consistently coming down from ~96 days in FY06 to ~56 days in FY10. Similarly Inventory days have halved from ~57 days in FY05 to ~28 days in FY10. This is a great record in working capital management for a company as small as Mayur Uniquoters and speaks a lot about the Management focus on operational efficiency.

It is also great to see a steady rise in Asset Turnover – rising from ~2x in FY06 to over 3.55 in FY10. Few manufacturing companies manage such a steady rise – tells me that capacity expansions have been judiciously planned and executed, in tune with rising demand. This coupled with the rising net profit margins have ensured that Return on Assets (RoA) climbed from ~9% in FY06 to over 16% in FY09. In FY10 RoA climbed to ~35% on the back of doubling of net profit margins. We can think of ROA as a measure of efficiency. Companies with high ROAs are better at translating Assets into Profits.

The rising net profit margins and asset turnover (with a gradually declining Financial Leverage) has ensured Return on Equity (RoE) has climbed from ~14% to over 20% till FY09. In FY10 RoE has jumped to ~39% on the back of almost doubling of net profit margins. RoE is a good measure of overall profitability as it measures the efficiency with which a company uses shareholders’ equity. We can think of it as measuring profits per rupee of shareholders’ capital. The Return on Capital employed record is similar going up from 18% in FY06 to ~29% in FY09, before jumping to over 57% in FY10.

The company has an even better track record in steadily increasing Operating Cash flows. Operating Cash flow/Sales more than tripled from ~4% in FY06 to over 13% in FY10. The Free Cash Flow (FCF) record is even better recording almost a 6x increase from ~2% in FY06 to ~12% in FY10. Free Cash flow at over 10% of Sales for a manufacturing company that has grown sales at a ~30% 5yr CAGR is a very rare achievement. It needs to be noted that Capital Expenditure (Capex) of some 15 Cr is slated for FY11 on a backward integration project. Further Capex of another 8-10 Cr will be needed for capacity expansions, sooner than later. If these are not exceeded, the Cash on balance sheet and the healthy cash flows are perhaps adequate to fund the upcoming capex requirements.

And when we find a company with a high RoE and high FCF combination, it is said to be in a sweet spot, and reason to track this company as a potentially excellent business to invest in, but at the right valuation.

Also one must not forget the consistent dividend payment track record. Dividend payments have been steadily rising to register a 5yr DPS CAGR of over 52%. Again a good record for a company of Mayur Uniquoters size.

For Mayur Uniquoters FY10 has been a year of stupendous achievement. We may argue that till FY09 the performance was not exemplary and one may not have taken much notice, it is only FY10 performance that has made us sit up – Will the high OPM & NPM margins be sustainable? The odds are on, to that settling down at slightly lower levels, perhaps.

An objective look back at this profitability analysis tells us that softening raw material prices played only a small part, and it is the operational efficiency improvements on most fronts that has propelled the company to greater heights.

Common size P&L Statement

Can we dig deeper to see what else we can understand about how this company makes money? A good way is to look at the common size profit and loss statement. Common size statements are great tools for evaluating companies because they put every line item in context by looking at each of them as a percentage of Sales.
Variable FY07 FY08 FY09 FY10 FY11
Common Size Sales 100.00 100.00 100.00 100.00 100.00
Common Size Raw Material 78.84 77.63 74.15 72.96 74.13
Common Size Power & Fuel 1.24 1.10 1.14 0.93 0.65
Common Size Employee Cost 4.11 3.44 3.37 3.11 2.50
Common Size COGS 81.90 80.46 77.09 75.85 76.68
Gross Profit Margin 18.10 19.54 22.91 24.15 23.32
Common Size Depreciation 2.29 1.54 1.38 1.32 1.08
Common Size Interest Cost 1.81 1.30 1.13 0.81 0.75
Common Size SG&A 10.32 8.66 11.17 8.41 7.81
Operating Profit Margin 9.51 11.18 10.39 16.13 16.05

This section has got covered mostly in the profitability analysis, as we looked for reasons behind the good performance.

Raw material prices seem to have softened over the last 4 years, when seen as a percentage of Sales. Power and Fuel costs have also come down. As per the Annual Report FY10, online embossing process improvement led to reducing 1 complete process in the chain with significant power savings. Employee productivity seems to be improving over the years as employee costs as a percentage of Sales has been gradually coming down. Selling, General & Administration expenses have also come down as a percentage of Sales.

This common size P&L statement points to a company getting more efficient over the years. We have also seen earlier in the profitability analysis consistent improvement in working capital management as the company has steadily brought down debtor days and inventory days.

is Mayur Uniquoters becoming a more efficient company, as it is growing? The track record of last 5 years certainly points to a strong management focused on improving operational efficiencies.

Financial Health Snapshot

Once we have figured out how fast (and why) a company has grown and how profitable it is, we need to look at its financial health. Even the most beautiful home needs a solid foundation, after all.
Variable FY07 FY08 FY09 FY10 FY11
Financial Leverage 1.56 1.37 1.27 1.10 1.13
Debt to Assets 0.36 0.27 0.21 0.09 0.11
Debt to Equity 0.56 0.37 0.27 0.10 0.13
Interest Coverage 4.29 7.84 8.27 19.84 21.16
Interest Cost to Total Debt 11.10 13.03 16.56 30.39 23.91
Current Ratio 1.88 1.56 1.66 1.82 1.99
Quick Ratio 1.32 1.24 1.34 1.52 1.60
Cash to Assets 3.76 13.29 15.65 42.14 33.19

Mayur Uniquoters Financial Heath track record is the best testimony perhaps, for the company.

Any which way you look at it, this is a great record. Debt to Equity has steadily been decreasing over the years. From 0.64x in FY06 it is practically debt free in FY10 at 0.10x. Financial Leverage and Debt to Assets mirror the same trends. Interest Coverage has been steadily rising over the years from 4x in FY06 to ~20x in FY10, and thus its unlikely that it will run into difficulty in meeting debt liabilities if earnings should fall unexpectedly.

Liquidity measures like Current ratio and Quick ratio are comfortable, showing that the company is able to source enough cash to meet near-term liabilities. Cash to Assets has steadily risen over the years and is at a very high 42% of Assets. The company plans to utilise the cash for the announced backward integration plans of setting up a knitting fabric plant (a key raw material) in FY11. 

The only blip that shows up is a high Finance cost to Total debt of over 30% in FY10. This is a sudden rise on account of high bank charges (~35 lakhs) and other finance charges (36 lakhs) adding to the ~60 lakhs interest cost. It is possible that the Total debt was reduced (4.41 Cr in FY10 from 7.85 Cr in FY09) at the fag end of the year, leading to the higher charges. 

Overall the picture that emerges is, Mayur Uniquoters has a strong clean balance sheet and is in a very comfortable situation, on the financial front. Again the record speaks highly of Management excellence.