Mirza International - consistent performer but undervalues at present?

Custom duty hike on footwear from 20 To 25

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First of all, I would like to thank @yogansh for bringing this to my notice. I did Audit of this company as an Article trainee long back (around 14-15 yrs back)

Related party transactions as pointed above is a genuine concern. But has anyone been able to meet his sons to know what is their vision and what is on their mind?

Second generation of management can prove themselves and change negative perception around the Company but they should have the passion and vision.

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The outlook has been revised to Negative from Stable due to the increase in leverage, deterioration in liquidity position in FY2018 as evidenced by almost full utilisation of cash credit limits, substantial rise in the working capital intensity of operations (from 53% in FY2017 to 62% in FY2018) due to significant investment in receivables and inventory for growing domestic sales, and significant drop in gross cash flows and cash DSCR in FY2018. The ratings may be downgraded in case of further increase in leverage or additional stress in the working capital cycle and liquidity position. The outlook may be revised to Stable if the working capital intensity and leverage improves andutilisation of working capital limits eases.

https://www.icra.in/Rationale/ShowRationaleReport/?Id=73974

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Mirza has opened a subsidiary in Bangladesh:

Looks like they’re going to sell Garments there.

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In the Q1 Conf call Shuja had mentioned that he is going to Bangladesh to explore that as a sourcing route some of their newer product lines. This was in response to a question on customs duty hike and specifically on the China route.

Looks like the Bangladesh Subsidiary will be used more for sourcing than for exports. It’s pretty logical to get the outsourced goods from the Vietnam/SEA and Bangladesh route than from China going forward

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No improvement in the numbers. Although topline has grown, margins have shrunk at the gross level and consequently the operating level. The discounts are hurting clearly.

01%20PM

https://www.bseindia.com/xml-data/corpfiling/AttachLive/799bd212-728f-48c5-acc3-1b4208e17cf8.pdf

The working capital situation hasn’t improved either although domestic sales is growing.

Disc: Reduced and holding insignificant quantity for tracking.

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losses in leather division has hurt the margins. 4.56 cr of losses reported in leather division.
good to see good growth in domestic business continues. (40 % yoy growth)
also good to see export business bouncing back .
the margins of both the domestic and footwear business have remained strong at 17 % plus.
inventory has increased to 437 cr, but stands at around 150 days to sales… given the fact managment had guided for them to go uptill 190 days , i think the managment is well on track with the inventory management.

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If somebody has attended the conference call today, please update.

One takeaway from concall is that only Chairman (1 out of 5 promoters) have stopped taking “Guarantee commission” effective from April 2018. :slight_smile:

Funny Moment in the call was about role of Mirza U.k - “Mirza u.k places order to Mirza india, Then Mirza india supplies to Mirza u.k,Then Mirza u.k keep stocks in warehouses and then Mirza u.k supplies to big customers.”(Reminded me of the famous - Amitabh Bachchan cricket commentary in namak halal ;))

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Haha. It’s an interesting way of providing a rationale for reduction, but not complete reduction. It’s hard to let go of money coming in. They even mentioned that the other promoters will also consider giving this up going forward. I am happy with the direction this is moving in. It is a sign that the promoters are exploring the additional value that they can realize by improving corporate governance. If the market values this, they will probably continue moving in the direction of better corp gov. Who knows, if overall market sentiment turns bullish, the rest of the promoters may decide to give up their share all at once - pumping up the bottomline by 7-8% in one stroke (my reading though, is that this will gradually reduce).

They also said that Mirza UK predates listing of Mirza International; so there was less thought on structuring Mirza UK as a 100% subsidiary (versus it being a different entity and related party). They mentioned that they are exploring the option of making Mirza UK a 100% subsidiary. Again, if they do that, it will be a good step. One might disagree with the value (as I did in the case of their Genesis acquisition). But that is a one-off, and in the long term, a 100% subsidiary structure is far more preferable.

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Mirza concall notes

  • Export sales this quarter 143 cr
  • UK sales 90 cr vs 96 cr last year; US flat at 31 cr ; ROW – 23 cr vs 16 cr ( mostly France & Italy)
  • Domestic sale ( redtape & bondstreet) – 125 cr vs 75 cr yoy
  • Break up of domestic sales -
  • Retail is 55 cr vs 25 cr ( 120% yoy growth)
  • Online ( through Amazon , Myntra) is 53 cr vs 25 cr ( 120 % yoy)
  • Wholesale – modern retail is 17 cr vs 28cr ( 40 % decrease yoy)
    6 month performance
    Retail – 93 cr vs 51 cr ( 82% yoy)
    Online – 103 cr vs 49 cr ( 110% yoy)
    Wholesale – 46 cr vs 70 cr( -36% yoy)
  • Ad expenses for this quarter was 3.08 cr vs 7.37 cr last year same quarter
  • D/E = 0.57 ; NW = 616 cr
  • Number of stores increased from 187 to 193 this quarter
  • Break up – 43 offline; factory outlet 11 ; 40 online
  • Target is to topen 65 online outlets , then investment will be stopped .
  • Will wait for 6- 9 months post that and see how things work out,
  • Debt will be 30 – 40 cr more than current debt
  • After opening stores we wait for a year , if good numbers are not reported we close the store.
  • closed 3 stores last quarter
  • Irshad mirza opted not to take guarantee commission( 1 out of 5 guys who are taking)
  • Break up of 432 cr inventory – 0.2% will be more than 2 years old ; 3% will be 1-2 years , rest will be less than a year.
  • Main increase in inventory has been due to the garment inventory
  • 3 reasons for decrease in margins this quarter
  1. loss in tannery ( 4.56 cr loss) , every 4- 5 years this happens as we clean up our tannery inventory
  2. increase in dollar by 10 % ( we import for domestic sales)
  3. increase in discounts given for domestic sales
    - Mirza UK runs at no profit level
    - Mirza directors not taking a salary from Mirza UK;
    - Mirza UK handles all distribution for UK markets , run by all English ppl
    -in export we take 100% cover , while in import we were not taking
    • have started taking 50 % import cover on booking
    • incremental growth is coming more from sports and bond street segment
    • they contributed 39 % to domestic sales vs 29 % earlier
    • out of 155 cr receviables ; 80 % belong to domestic debtors
    • out of this 120 cr most of it from whole sale
      I might have missed out some points or i might have made some errors . Please correct it or add if any points are missing or wrong.

Thanks
Disc- Invested

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There is an important nuance here - the promoters could simply be taking out cash from Mirza UK by showing any kind of expenses, which could also be payments to themselves. It’s not difficult to show 0 profit if you take everything out as expenses. The claim should be verified by seeing the detailed accounts of Mirza UK.

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I request members not to give generalized comments. Please listen to the last concal for details.

It was asked in the last concall about Mirza UK and it’s set up, the answer is it’s a distribution company only with no holdings from any of the Indian promoters, all the directors of Mirza UK are foreigners, they have network/distribution/contacts with local business, take orders from them and give business to Mirza International with minimal charges for distribution. This set up was done earlier to grow the business in UK.

In the concall it was asked to make/consider the Mirza UK as Subsidiary from one investor, the answer is they will check/discuss with management.

One investor suggested to rename the Company with Redtape for more recognition, the answer is they will consider this once domestic business sales reach 1000 Cr Mark.

Sowly the company/management trying to transform by getting off all the legacy issues and trying to become more professional with new generation and setting up Redtape brand.

Any change takes time.

Disclosure:Invested recently and using Redtape shoes from last 10 years without knowing it’s from Mirza, was thinking it’s a foreign brand becos of it’s quality, pleasantly surprised.

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It seems Red tape has increased the price for the casual shoes and sports shoes in Flipkart and Amazon by 400 to 800 rupees.It will be interesting to see the domestic sales growth as well as the profit in Q3.

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Agree with rest of the points but not quite sure about this.I am not sure how authentic these websites are.Can we get access to Mirza UK AR.

Disclosure - Invested,my largest holding.

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This has been discussed on this thread. Pls scroll up and look at the post by @sarmams

Some Mirzas are very much present as Directors in Mirza UK.

Found this while researching - Mirza International has trade mark legal dispute going on with Boman Irani (of Jawa Bikes ) for trade mark “Yezdi” .


https://indiankanoon.org/doc/45433121/
Delhi High court prima facie decides against YEZDI motorcycle .
The court has only denied the interim injunction at this stage and it will be interesting to follow the trial proceeding. If after the trial, the Defendants are able to succeed then it will be major setback for YEZDI motorcycle and its fan following.

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Did some local scuttlebutt on the store in Panipat, Haryana. It has 15 employees and the sale is more than 1 lac every day. Last month they achieved 50 lac sales. The store has everything from Shoes, Sandals, Floaters to Shirts, Trousers, Jackets. The new product was Mens brief priced at around 200 with 30% discount. The sales guy told me they haven’t sent back anything till now because they increase the discount based on the age of product on the shelf and it sells. They are seeing repeated customers and overall staff looks very motivated about the products and was ambitious to increase sales more to around 65 lacs per month. One other thing I noticed, the company has reduced discount on the product. Store rent is 2.5 lacs. Assuming margin of around 35-40 percent on the product, I feel store is doing very good with the overall cost of around 5.5 lac in running the store including employee salaries.

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Devil’s advocate…
I am from Surat and I find it difficult to buy Redtape products here.
There are options online but I prefer to first check the product in store before considering online option. I feel offline presence is important even from marketing point of view (not just sales).

A few local shoe stores are listed as retailers of Redtape but none of them had Redtape stock.
I talked to them and consistent response was that they stopped keeping redtape stock coz it doesn’t sell.

Disc: I hold mirza for a while now (I started this thread here) but I have had only 1% to 2% holding due to corporate governance issue. I probably got anchored on the bank guarantee issue I shared in my first post. :slight_smile:

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In Contrast, Here in Hyderabad, Yesterday saw a huge footfalls in the REDTAPE online outlet with parking space fully occupied, comparatively, There was nil presence at Nike and Adidas stores located adjacent to it.

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