| Mirza International Limited | ||||||
| Ratings removed from ‘Watch Developing’; 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 removed its ratings on the bank facilities of Mirza International Limited (MIL) from 'Rating Watch with Developing Implications' and reaffirmed ratings at ‘CRISIL A-/CRISIL A2+' while assigning a 'Stable' outlook to the long-term rating.
The ratings were placed on watch following the announcement of the demerger of the branded business – Redtape from MIL and amalgamation of RTS Fashions Pvt Ltd with MIL approved by the board of directors. The domestic business of MIL has been demerged into a new entity -- Redtape Ltd wherein the shareholding of MIL has been mirrored. CRISIL Ratings has received clarity on business and financial risk profile of MIL post demerger and consequently, the watch has been resolved.
The ratings factors in strong financial risk profile of the company and sufficient liquidity available in terms of bank lines post the demerger of the branded business (Redtape) from MIL.
The business risk profile of the company has been impacted due to hiving off of domestic business of branded footwear and consequent reduced scale of operations. Going forward, healthy volume growth and increase in scale of operations will remain essential. Furthermore, exposure to volatility in foreign exchange (forex) rates will remain a monitorable. |
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 53 crore as on March 31, 2023 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: Extensive experience of promoters and integrated operations The four-decade-long experience of the promoters has enabled MIL to remain at a moderate market position in the international leather footwear market post the demerger. MIL sells private label footwear, apparel and accessories, majorly under Thomas Crick, Off The Hook London & Oaktrak brands in the international market. Also, it undertakes make-to-order contracts for various reputed brands in the overseas market.
The operations are backward integrated, with an in-house tannery enabling conversion of raw hide into finished hide and thus enhancing quality control.
Strong financial risk profile due to reduction in debt and stable networth post demerger Financial risk profile is supported by the absence of long-term debt, healthy networth, comfortable gearing and adequate liquidity. Reduction in short term debt post demerger also supports the financial risk profile. Debt protection metrics are expected to remain strong over the medium term in absence of external debt.
Working capital cycle remains a key monitorable as debtor days has gone up from ~51 days in FY22 to ~85 days in FY23 and GCA (excluding cash) days has increased from ~168 days in FY22 to ~178 days in FY23.
Weaknesses: Moderation in business risk profile post demerger Business risk profile of the company has been impacted due to demerger of branded business – Redtape which has reduced the scale of operations. Further, the demerged business, being more profitable, also impacted the operating profitability of the company. The company has achieved an operating income of Rs 653 crores post demerger in fiscal 2023 as compared to Rs 1679 crore in fiscal 2022. The operating margin stood at ~9.4% in fiscal 2023 as compared to ~14% in the previous fiscal.
Scale up in operations and improvement in operational margin considering the possible impact of slowdown in export market demand remains a key monitorable.
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 90% 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. |
Liquidity: AdequateCash and cash equivalents stood at Rs 16 crore as on March 31, 2023. Utilisation of the working capital limit has been modest at ~20% for last 6 months ending April, 2023. Expected cash accrual of Rs 55-80 crore per annum over the next three years should comfortably meet the moderate capital expenditure (capex), incremental working capital and debt obligation over the medium term. |
Outlook: Stable MIL will continue to benefit from its moderate market position across product categories and experienced promoters. The financial risk profile should remain strong, driven by nil long-term debt, high financial flexibility, and moderate capex.
Rating Sensitivity factors Upward factors * Significant growth in revenue and operating profitability leading to net cash accrual of more than Rs 125 crore on a sustained basis. * Improvement in working capital cycle.
Downward factors * Decline in revenue or operating margin sustaining below 8-10%, leading to lower cash accrual. * Large working capital requirement or significant debt-funded capex, weakening the financial risk profile. |
About the Company MIL was incorporated in 1979 as a private limited company by Mr Irshad Mirza (chairman) and got reconstituted into a public limited company in fiscal 1994, following a public issuance of shares. The company manufactures footwear and finished leather apparel and sells products under its private label brands - Thomas Crick, Off The Hook London & Oaktrak in the international market. 90% of the revenue comes from exports. MIL exports top 22 countries with more than 75% exports to the UK & US.
For the fiscal year ended March 31, 2023, MIL (post demerger) reported revenue from operations and profit after tax of Rs 653 crore and Rs 26 crore, respectively, as against Rs 1649 crore and Rs 113 crore (pre-demerger of Redtape), respectively, in 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: |
Annexure - Details of Instrument(s)
* - Includes Packing Credit & Bill Discounting as sublimit of Rs.21cr each, Letter of Credit & Bank Guarantee as sublimit of Rs10cr each
# - Includes Bank Guarantee as sublimit of Rs.0.5cr
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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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