| Mirza International Limited | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has revised its outlook on the long-term bank facilities of Mirza International Ltd (MIL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘Crisil A-’. The short-term rating has been reaffirmed at ‘Crisil A2+’.
The revision in outlook reflects MIL’s moderation in the business risk profile as indicated by subdued operating income with declining operating margin for the past two fiscals. The company has strong financial risk profile, along with healthy liquidity, and extensive experience of the promoters and integrated operations. Also owing to high share of exports, the company is vulnerable to fluctuation in foreign exchange (forex) rates, which is mitigated by hedging the net forex exposure.
The revenue has degrown by ~4% (on-year) in the first nine months of fiscal 2025 owing to slowdown in overseas markets (Europe and US) and increase in competition. The competition has increased from synthetic leather shoes as well as from countries such as China and Bangladesh. The topline has remained subdued from the past two fiscals. However, the company is focusing on increasing their online sales of owned brands along with targeting big customers for large orders. The company has order book of Rs 260-270 crore as on date, which will be executed in the next 5-6 months. The revenue is estimated to be moderate in fiscal 2025 with slight degrowth.
The operating margin decreased by ~1% (year-on-year) to 6.6% in the first nine months of fiscal 2025. This was majorly owing to operating deleverage, while the gross margin improved due to normalisation of leather prices, but the employee cost and other cost have increased. The operating margin has been decreasing sequentially year-on-year and is estimated to be moderate at 6.7-6.8% in fiscal 2025 compared with ~9.4% in fiscal 2023. Further, the tannery business is also continuously making losses owing to low utilisation of the large plant capacity. The stabilisation of leather prices, along with improvement in volume sales and the company's cost management efforts, is likely to push the operating margin at 8-9% over the medium term.
The company’s financial risk profile remains strong as reflected in healthy capital structure with estimated networth of over Rs 550 crore and negligent long-term debt as on March 31, 2025. Further, the financial risk profile is expected to remain healthy with gearing likely to remain below 0.2 time and total outside liabilities to adjusted networth below 0.4 time in the medium term. The company continues to maintain healthy debt protection metrics with interest coverage ratio of ~4.1 times and net cash accrual to adjusted debt ratio of 0.4 time estimated in fiscal 2025. Gearing and debt protection metrics are likely to remain strong owing to healthy cash accrual over the medium term with no major debt-funded capital expenditure (capex) plans. |
Analytical Approach Crisil Ratings has combined the business and financial risk profiles of MIL and its subsidiaries as all the entities are engaged in the same business and have common promoters. The discounted bills of Rs 42 crore as on March 31, 2024, were treated as debt. The discounted bills were ~Rs 60 crore as on December 31, 2024.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The operations are backward integrated with an in-house tannery enabling conversion of raw hide into finished hide and thus enhancing quality control. Though the tannery business is continuously incurring losses owing to low utilisation of large plant capacity, the company is focusing on reducing the losses with cost cutting measures.
Weaknesses:
The scale up in operations and improvement in operating margin remain monitorable.
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Liquidity: Adequate MIL had unencumbered cash equivalent of Rs 18-20 crore as on December 31, 2024. Further, the company had access to working capital limit of Rs 185 crore which was utilised at an average of only 42% over the 12 months ended December 31, 2024. Also, the company has regular annual capex plans of Rs 15-20 crore, which will be funded by the internal accrual. The internal annual accrual of Rs 35-45 crore will be sufficient to fund its capex and working capital requirement. |
Outlook: Negative Crisil Ratings believes the business risk profile of MIL will remain moderate owing to moderation in operating income and margin because of low demand from exports. Improvement in the company’s operating income and profitability will remain monitorable over the near term. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the Company MIL was incorporated in 1979 as a private limited company and got reconstituted into a public limited company in fiscal 1994, following a public issuance of shares. The company manufactures footwear and finished leather and sells products under its private label brands - Thomas Crick, Off The Hook London and Oaktrak - in the international market and to various brands (white label). Around 85% of the revenue comes from exports. MIL exports to ~24 countries with UK and US constituting ~70% of revenue in fiscal 2024. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Includes packing credit and bill discounting as sublimit of Rs 21 cr each, letter of credit and bank guarantee as sublimit of Rs 10 cr each |
Annexure – List of entities consolidated
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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