Mirza International - consistent performer but undervalues at present?


(Sarang Anajwala) #1

Mirza International - a family run shoes/apparels business with RedTape like brand in kitty and consistent revenue and profit growth for last 10 years.

Some of the numbers given below -

CMP: Rs. 34.00
Market Cap: Rs. 315.18 Crores
Book Value: Rs. 29.75

Stock P/E: 6.42

Dividend Yield: 1.47%
Debt to equity: 0.61

PEG Ratio: 0.18

Promoter holding: 65.97% (no pledging)

FY13 export %: 66.56%

Avg ROCE 3Years: 25.66%

Avg ROCE 5Years: 24.41%

Avg ROCE 10Years: 22.53%

The stock has been laggard on the market for last few years and has recently broken out above Rs 26-27 on weekly chart.

Since breakout, it has had a steep run up to 33-35 range. (Some big investor entered the stock after breakout)

One negative point I noticed though is the contingent liability. Specially the counter guarantee given by company to it’s directors against their gurantee.

Company’s 2013 AR mentions “COUNTER GUARANTEE - Given by the Company to its directors against their guarantee” of Rs 339Cr.!!!

My understanding of this statement of Counter guarantee is that the company has given guarantee on behalf of it’s directors - pls correct me if I am wrong here.

If I am right, Rs 339 Cr is a mammoth guarantee for a company with market cap Rs 315Cr - that too given to directors!

Anyone has idea if such kind of guarantees are normal practice or does it indicate potential corporate governance issues?

Except this confusion regarding contingent liability, the company looks good. Any other negative points I am missing here?

Disclosures: I have invested a small amount (more than a token investment though!) in this company so my views might be biased.

:slight_smile:


(Vishnu) #2

Look at Super House too… (But price is doubled from when i started following). Mirza too increased to 50% from when i started following…I feel comfortable with Leather Exports stocks compared to IT stocks when people refused to give proper valuation 1-2 years back


(sandeep) #3

Seems to be market is quite disappointed with this results. Its back to where it started taking off. Can this one be entered now for long term or story is not worth betting on ??


(Sarang Anajwala) #4

Senior members… any inputs on the contingent liability?


(sandeep) #5

Folks,

Anyone still following this ? Fundamentally not so strong but has got good brands and export business. More of a Value pick . Very cheap when compared to the likes LIBERTY,RELAXO and BATA,though they cater to retail customers and mirza mainly caters to wholesale export business.

Technically it has given a long-term break-out and has seen lot of accumulation. It is in a free zone now and can take off anytime. Can double from here if management chalks out some plans to increase their retail presence and the results see any fillip.


(vinay ambekar) #6

Dear Sarang - please see note 3 on page 22 of 2012-13 annual report, where it states that the loans to banks are guaranteed by Directors to the extent of Rs 339cr. These are personal loans given by the Directors for the company’s borrowings. These in turn are guaranteed by the company to the Directors. Which effectively means, that if there is a default and the bank invokes the personal guarantee of the directors, the directors will invoke the corporate guarantee given by the company. Circular loop right? This could be with the intention of getting a window of opportunity by the directors to dispute the claims by the company’s lenders and delay using counter court cases. A red flag indeed.

Look at note 32 on page 32, sr. no 6 and note 33 on page 33 ie guarantee commission paid - most likely the the directors have been paid commission on the guarantees provided by them. This is similar to Vijay Mallya taking commission in hundreds of crores from Kingfisher for the personal guarantee provided by him. Another red flag.

Whereas, look at page 17, point xv - where auditors have stated that “According to the information and explanations given to us, the Company has not given any guarantees for loan taken by others from a bank or financial institution” - but have conveniently missed highlighting the above.

Please be wary of such practices, unless I am mistaken and someone can indicate otherwise to me. Hope this helps.


(vinay ambekar) #7

Sorry - just noticed that Sarang’s q was in Jan-Feb, and the stock is around 37% up since then. But that doesnt take away the corporate governance issues.


(Sarang Anajwala) #8

Hi Vinay,

Thanks for the points.

The promoters do not have history of corporate gov issues but then this clause is definitely a red flag!

Specially if you have enough companies with good corp gov record - may be not attractive from valuations perspective!


(sandeep) #9

Hi Vijay,

Certainly pointed to be noted. Believe we need to take some accounting expert’s opining on this. Meanwhile stock has surged further today. Looks very good technically after long consolidation. Have missed the Liberty shoes play citing minor corp. governance issues and doubting on management’s past lethargic track record. Now it is on the cusp of Liberty like surge… feeling very tempted though :slight_smile:


(Sarang Anajwala) #10

Mirza is 2.5% of my portfolio today. Despite the concern I mentioned in my first post in this thread, I invested some amount in this. Specially when Ashish Kacholia entered this stock with significant investment.
However, due to the concern, I could not convince myself to go full throttle with this stock. Not that I regret - Regret is not good for discipline! :slight_smile:


(Shankar) #11

Have been invested since 31 odd bucks,
The question by you on the guarantee remains, second issue is that now they are merging Genesis footwear a co run by promoters in same business with the listed co. http://www.mirza.co.in/scheme-of-amalgamation.html


(richdreamz) #12

I analysed this when it was around 15-17 INR per share. I did not invest as I was not comfortable with its debt and the guarantee thing. It seemed like a risky bet. However, they had good brands to speak of and exports were doing good (particularly in UK).

Everything worked out well so I’m repenting with the benefit of hindsight but at that time it would have been the right thing to do.

Now, I have been relaxing these criteria for stock selection by a bit because if the management is doing right things in terms of its business growth these things with a bit of luck will settle themselves. But, you need to keep track of them though. In this context, I have entered into a micro cap as posted in that thread couple of days back.


(Sarang Anajwala) #13

The stock has surged 4 times from my purchase price and I have recovered my cost.
The stocks I have in my portfolio is pure profit now.

However, imp point is that such stocks do not matter much because of being low conviction stocks where we do not invest significant amount.


(Priyaranjan Mahto) #14

Amalgamation of Mirza With Genesis Footwear is positive news.link http://www.mirza.co.in/Stock%20Exchanges%20APPROVAL%20OF%20SCHEME.PDF
Genesis Footwear ia a Debt free company with net worth of around 80 crores and yearly net profit is around 20 crores.Link http://www.mirza.co.in/scheme-amalgamation.pdf
After amalgamation DEBT-EQUITY ratio will improve significantly of MIRZA INTL. and surplus cash flow from GENESIS will be used to reduce the DEBT to save interest cost.After amalgamation outstanding EQUITY SHARES of MIRZA will be increased to 12.07 crores from current 9.27 crores shares.For F.Y. 2016-17 I expect amalgamated NET PROFIT of rs. 110/- crores and fully diluted EPS rs. 9.11/-. so, it is trading at one year forward PE multiple of just 15 which is very low in comparision to BATA and RELAXO FOOTWEAR.
DIsc:-holding


(DAGARWAL) #15

It is the first stock I saw on screener on which I didn’t find any pros or cons …
Vp members and @ayushmit @Donald and other top contributors can tell us more whether it is undervalued or deserve to be there …

Disc - I found business is good and story is building .


(v4value) #16

great performance on bottomline. hy is the market punishing them so much?


(Abhishek shah) #17

I guess they have suffered in the UK markets due to recession. US and Indian markets might have performed well. This might be the very reason for the low increase in TTM sales. I guess the markets have beaten the stock rather much badly.


(ranvir dehal) #18

Today, I was going through the annual report of Mirza International. My Impressions after reading it-

  1. Nice consumer facing company with growing brand name- Atleast in North India.
  2. Huge growth Potential.
  3. Undervalued wrt current mkt conditions.
  4. Nothing suspicious that I could find about the corporate governance. The annual report is fairly detailed and answers most questions.
  5. Comfortable financial situation with nice growth.
  6. No problems with cash flows. Manageable debt levels.

To me it looks like a mouthwatering opportunity.Could be a potential multibagger.
Views invited from Fellow Value Pickrs.
Am I missing anything???

Disc: Not invested yet. Planning an entry.


(kaubaner) #19

Contingency Liability of 185 Cr in FY16 AR against Bills Discounted. Can someone tracking this stock explain what this means and what implications this may have? Anand Rathi in their research report last month mentioned this is related to their distribution arm Mirza UK but no other info.

Also, is what is the level of threat to leather from other materials esp. faux leather given the sensitivity around killing of animals/PETA etc.


#21

Disc - not invested
i think this is the only listed company which has developed brand its own brand in uk and in other countries. Also the only player which exports more than 70 percent of its production , bata and relexo mostly focus on indian market only