Is Mayur Uniquoters Limited (NSE:MAYURUNIQ) A Cash Cow?
Mayur Uniquoters Limited (NSE:MAYURUNIQ) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. Today we will examine MAYURUNIQ’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
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What is free cash flow?
Mayur Uniquoters generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.
There are two methods I will use to evaluate the quality of Mayur Uniquoters’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Along with a positive operating cash flow, Mayur Uniquoters also generates a positive free cash flow. However, the yield of 4.58% is not sufficient to compensate for the level of risk investors are taking on. This is because Mayur Uniquoters’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
What’s the cash flow outlook for Mayur Uniquoters?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at MAYURUNIQ’s expected operating cash flows. Over the next few years, the company is expected to grow its cash from operations at a single-digit rate of 7.8%, increasing from its current levels of ₹868m to ₹936m in two years’ time. Furthermore, breaking down growth into a year on year basis, MAYURUNIQ is able to increase its growth rate each year, from -1.5% next year, to 9.4% in the following year. The overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
The company’s low yield relative to the market index means you are taking on more risk holding the single-stock Mayur Uniquoters as opposed to the diversified market portfolio, and being compensated for less. Though the high operating cash flow growth in the future could change this. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Mayur Uniquoters to get a more holistic view of the company by looking at:
Valuation: What is MAYURUNIQ worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MAYURUNIQ is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Mayur Uniquoters’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
