| Mirza International Limited | ||||||
| Ratings continues on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings’ ratings continues its ratings on the bank facilities of Mirza International Limited (MIL) on 'Rating Watch with Developing Implications‘.
The ratings continue on watch due to the proposed restructuring of the company. The board of directors have approved the amalgamation of RTS Fashions Pvt Ltd with MIL. Furthermore, the domestic business of MIL, which comprised ~two thirds of revenue in fiscal 2021, will be demerged into a new entity -- Redtape Ltd --wherein the shareholding of MIL will be mirrored. CRISIL Ratings is in discussions with the management to seek details of the transaction, including the resultant group structure; operational, managerial and financials linkages between MIL and the resultant entity; and division of assets and liabilities between the two entities. CRISIL Ratings shall resolve the watch once it has clarity on these aspects.
While operating performance was subdued in fiscal 2021 due to the impact of the Covid-19 pandemic in the first half of fiscal 2021, it has shown healthy growth over the pre-pandemic level. Operating income and operating margin were Rs 1,228.88 crore and 13.14%, for the first nine months of fiscal 2022, compared to Rs 1,011 crore and 13.61%, respectively, for the nine months through December 2019 (pre-pandemic). Financial risk profile also improved, with debt reducing to Rs 221 crore as on September 30, 2021 from over Rs 400 crore as on September 30, 2020. Furthermore, interest coverage ratio improved to ~9 times for the nine months of fiscal 2022 from ~4 times compared to the corresponding period in fiscal 2020.
The ratings continue to reflect established market position, backed by the experience of promoters and management in the leather footwear industry, integrated business operations, and healthy operating performance in the domestic retail segment with recovery in the international segment. These strengths are partially offset by exposure to volatility in foreign exchange (forex) rates. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of MIL and its subsidiaries as the entities are in the same business and have common promoters. The discounted bills of Rs 56 crore as on March 31, 2021, have been treated as debt.
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 Experienced promoters, established market position and integrated operations The promoters have experience of around four decades in the leather industry, during which time the company achieved significant market position in the domestic leather footwear market. The company has diversified presence across multiple channels, including company-owned retail stores, franchisee-based retail stores, established multi brand retail stores (such as Shoppers Stop and Lifestyle) and ecommerce websites (such as Amazon and Flipkart). MIL sells footwear, apparel and accessories, majorly under the RedTape, Mode and Bond Street brands in the domestic market. Also, it undertakes make-to-order contracts for various reputed brands in the overseas market.
Furthermore, the company’s operations are backward integrated with in-house tannery for conversion of raw hide into finished hide enabling greater in-house quality control. MIL’s market position should remain healthy over the medium term, backed by strong growth in the domestic retail business and expected growth in export revenue.
Healthy operating performance in the domestic market and recovery in international business For the nine months through December 2021, MIL witnessed full recovery to pre-pandemic levels in the domestic segment -- domestic footwear and apparel -- which recorded revenue growth of ~8% in the first nine months of fiscal 2022, compared to the corresponding period of fiscal 2020 (pre-pandemic). Revenue for the overseas segment also witnessed good recovery. Strong revenue in the domestic market is supported by steady increase in retail stores and established brands.
Weakness Vulnerability to fluctuations in forex rates Business operations involve importing raw materials, such as cow hide, which is not available in India. Furthermore, exports account for 30-35% of revenue, which exposes the company to volatility in forex rates. However, MIL has a policy of entering forward contracts to cover 100% of its exports and imports are also hedged |
Liquidity: Adequate Liquidity is driven by cash balance of about Rs 10 crore as on September 30, 2021. The company’s average monthly utilisation of total working capital limit of Rs 454 crore was below 30% over the six months through September 2021. The expected yearly cash accrual of Rs 100-120 crore during fiscal 2022 is expected to be sufficient to meet moderate capital expenditure (capex), incremental working capital requirement and debt obligation of Rs 18 crore scheduled for repayment in fiscal 2022. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company MIL, incorporated in 1979 as a private-limited company by Mr Irshad Mirza (Chairman), manufactures footwear, finished leather apparels. The company got reconstituted into a public-limited company in fiscal 1994, following a public issuance of shares. The company has an established position in the domestic footwear market and sells footwear and apparel under its RedTape, Mode, Bond Street and Oaktrak brands. The company also operates in the overseas market and earns 30-35% of its revenue from exports, wherein 90% of footwear sales is under customers' brands and 10% is under the company’s RedTape footwear brand. MIL's primary export market is the UK.
Operating income was Rs 1,234 crore and profit after tax (PAT) was Rs 83 crore for the nine months ended December 31, 2021, against Rs 736 crore and loss of Rs 1 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators
These numbers are adjusted by CRISIL Ratings and do not match directly with the numbers reported by MIL |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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