Mirza International - consistent performer but undervalues at present?

[pahaaadi]

It doesn’t matter how and when someone contributes content here. The point is they contributed. Before or after taking a position is pointless to those who are here for thesis/anti-thesis and not free tips. It’s our job to do our share of research before investing. No one is going to give it to us on a platter. No one owes us anything. It’s a forum, not a paid service. So pls calm down and re-read the post. You just might find when @sahil_vi initially bought it.

PS: Will delete this but it is sad to see zero-value add posts like this.

[hakim_yamin]

I think there no major problem
Hdfc mutual fund regular buying
Even last month data suggest hdfc fund buy 1lac,
If any mutual fund buy 150cr worth they doing some research may be some time they miss calculate but risk everywhere

[Rahul_Singh_Dhek]

It has been on the watchlist for a year now,
Tracking it since it was around 140 levels.

One of friends bought it around those levels and suggested me the same. I read about the co, about its management, somehow wasnt convinced to take an entry.

And since then, it has been on a run touching life time high and I have invested more time getting more info about the co.

Lately the stock is taking a breather and I am waiting for the right time now to take the first entry.

November last, my friend and I happened to visit one of the Redtape stores in tier 3/4 city ,
Plan was to buy new shoes.
We enter the store, and see everything but shoes(they had different floor for the shoe segment)
We ended up buying good quality winter jacket and other few accessories, not the shoes.

While at the store I found an amazing guy(belonged to the store) who happened to be aware about the financial for the store and was not reluctant to share the same.

When asked, he shared

“We have closed Oct month with ** sales, and plan to close Nov sales with ** sales”

(Month to month growth around : 60-65%)

I immediately asked what was the sales for last year Nov.

"the last year sales for Nov month was around *"
(Expecting a growth of 20-25 on last Nov to this Nov)

He also mentioned this year November will be their best month, they might not have similar Dec month.

I am not sure if Red tape could become no 1 brand in Tier 1 cities but definitely can penetrate tier 3,4 cities more compared to other brands

I still find Mirza international to be a risky bet,

Waiting for right levels(imo)
First entry level would be around 210, happy to miss if it doesnt touch these levels

Not a great management in the past,
But the growth story looks in cards,

Disclaimer : not invested

[salman_khan]

One of the mirza stores in sharjah UAE even I saw everything except shoes lots of leather jackets and other clothing items

[RajeevJ]

@jsrvivek_k
Sahil has pretty much covered all your concerns. To me Mirza continues to look good & I continue to hold my full quantity. As you said that you are relatively new to the market, all I would suggest is that you hear / read all points of view, but the decision to buy/ sell has to be yours alone & you have to take responsibility for the decision, more so when it goes wrong.

Another suggestion would be not to average your buying if the price falls, not till you have spent enough time in the market. If your investment thesis is correct then the price should recover, & you can always add above your initial purchase price. That way you will remain in the money. There will always be times when your investment hypothesis is wrong, in which case the share price may never recover & continue its downward journey. In such cases, if you had averaged down, you end up in a deeper hole! If at all you average downwards, like all of us sometimes do, be aware of the risks involved. I hope I am making sense!

[manoopatil]

Research Report from a Brokerage published this month - https://ashikagroup.com/images/blog_images/2022-12-01_4724_Ashika%20-%20Stock%20Picks%20–%20Mirza%20International%20Ltd.%20-%20December%202022.pdf

[rajasekharmekala]

Hi,
I am a newbie to investing and hope this doesn’t come across as not doing my research. But I wanted to know if there is any website/reports that are released monthly about the overall footwear sales, exports in our country. Just similar to the auto industry.

Also, I read on some Twitter threads that the large increase in footwear sales in tier 2,3 cities is mostly due to the pent up demand. Since the company is now actively trying to move to these cities, i was wondering if it could be an anti thesis point, instead of being a growth opportunity.

Finally, due to the recession in developed countries like US, UK(and it is expected to last for a while), don’t you think that the company would take a hit on profitability in the exports?

Your views are greatly appreciated.
Thanks

[Gauti]

Some of key possitives

1. Hdfc small cap fund a consistant buyer on every month.
   2 FTA trade with UAI, AUS many more countries
2. Govt keen to boost foorware & Leather exports
   China accounts 85% of global footware exports, India at mere 3%, Huge opportunity for India to export
3. PLI sheme for Footware
4. Mirza aggresively expanding offline sales with company owned branded outlets
   Could personally see the outlets being lauched
5. Promoter buying
6. Demerger on cards

Some risks factors

1. Q3 sales to be watched to be sure that the last few quarters sales growth is just not driven by pentup demand. Q2 already showed the real growth as per my personal opinion. Q3 to cement the same
2. Intense competetion from widely unorganised players, However Mirza scores high as it is a end to integrated player with tannery , Design, Manufacture and Marketting etc…
3. Europe demand slowdown.

Disclosure: Invested

[RajeevJ]

The Mirza Intl. stock had corrected more than 40% from the top on decent volumes, which made shareholders jittery since most were still sitting on gains. That would also partially explain the volumes as investors were keen to lock in their gains. A major concern was whether HDFC Mutual fund, which held about 3.7% at September end, was amongst the sellers, as it was a large entity holding a substantial chunk. The shareholding pattern for December end shows an increase in its holding to 4.39%, adding about 7.8 lakh shares during the Dec qtr. Investors in the Co. would be pleased as it helps them in maintaining their conviction levels.

Not insignificantly, the promoters too have increased their stake in the quarter, perhaps more with the intention of sending a message to its shareholders.

[Rahul_Singh_Dhek]

Good results (if not great), Q3, 2023 from Mirza International

• Sales flat YoY (Was expecting better sales considering Dec being their best quarter)

• Branded Footwear (Redtape and Bondstreet) sales grown YoY.

• Other Footwear - Exports and other sales down YoY

• Garment & Accessories (Under Brand Redtape) flat sales YoY.

• Better margins (Brand Redtape contributing most of it, the survivor )

  1. While the Branded Footwear sales grew around 20% YoY, EBITA has grown closer to 90% YoY
  2. Similar is the case for Garment & Accessories (Under Brand Redtape), though the sales has been flat but the margins have improved significantly. EBITA almost double YoY with flat sales.

I will continue to watch it closely from sidelines ( as I have doing since last once year) and wait for my price levels to make an entry,

Overall results are good(Might be great for someone , might be below par for some others) . Lets see if it breaks the technical mark of 255.

[Lavanya_Tomar]

Can anyone explain me why such a huge negative number in change in inventories, in this and last quarter in expenses segment? Whereas it should be positive due to high RM prices leading to higher expenses. I could not understand this. Why was their no impact on margins despite high RM prices. I am still waiting for their Cash Flow statement to see how cash has moved.

[RajeevJ]

Mirza Intl. came out with a superlative set of December Qtr numbers. The basic investment thesis here is the growth in the branded business (Red Tape Ltd. post the demerger) & not the legacy business of leather, which has contributed 18% of sales but only 6% of profits, & thus bringing the overall profitability of the Co. down.

The branded business, is showing improving profitability with each successive qtr. As mentioned by @ayushmit after attending the AGM, the Co. is well on its way to becoming a fashion company. The garments business is doing exceptionally well with operating margins in excess of 17%, even higher than the footware business which itself is doing about 15% having increased its margins meaningfully. This bodes very well for the future as more products are added. As a pure marketing Co., Red Tape Ltd. can focus purely on profitable growth by opening more outlets across the country, a business model already working for the Co. How such an asset light model, pure marketing Co. is valued by the markets will be interesting to watch, but I feel the valuations for the Co. a year from now would surprise on the upside.

[ujjawal_kumar]

NCLT approval is here. Have been waiting for this event for sometime now. We believe this demerger will lead to value unlocking as the valuation mismatch between Mirza and other footwear companies is very significant.

disc: invested; biased; not a reco

Ujjawal Kumar
WealthCulture - CIO

[Ghonarbochon]

Record date for elligibility of receiving Redtape shares has been declared as 29th March .However, the listing date and price is yet to be declared . Is it safe to sell Mirza shares post the record date ? One will still get the Redtape shares in due course ,right ??

[abhijitjph]

what does it mean? those who purchase the shares of mirza international on or before 29 th march, will only get the red tape shares or something else? please help . i am newbie.

[Ketan_Chheda]

Shareholders of Mirza will get shares of Redtape and they will anyway continue to possess Mirza shares. Hope that clarifies.

[siyaram7]

Excited to see that the man behind expanding the retail footprint of the redtape brand is being appointed as MD of Redtape ltd.

[sahil_vi]

I had a call with an ex category manager at flipkart (they worked at flipkart to manage brands in specific vertical which is footwear & apparels at different points in time). Here are the notes:

Q1. Can you please describe the nature of your engagement with mirza & red tape while working at FLipkart. What were your observations of the company while working there?
Answer:

1. Red tape kanpur based brand was a small brand earlier. Redtape earlier was mass brand. Improved a lot in terms of ASP. Definitely one of top 5 brand in Flipkart in casual footwear.
2. Flipkart, 4-5 verticals in mens footwear. Mens casual, formal, sports, flip-flop, open. Red tape comes into casual primarily. It is in the top 4-5 brand. 2 models how FK operates with RT (Red tape). Marketplace model & outright model. Marketplace: Redtape as a brand is listed as seller on FK. It could be nominated seller or their own warehouse. They lease selling warehouse.
3. Other model is outright where FK buys inventory from rdtape & stores in FK inventory.
4. Why so many models: Safeguard on inventory; SLA or availability how fast customer can receive the order.
5. Commercial side: marketplace model preferred by FK (Flipkart). In 2018 60% outright, 40% was market place model. Last 2 years transition marketplace is 80%, outright share is 20%
6. Commercials part: FK makes some money in marketplace model. Outright model has good control over the supply chain so that is also important. Stock, pricing etc. In Outright model, fk owns pricing.
7. Marketplace model: XYZ seller we charge them 14-15% commission. Redtape BAU (business as usual months), we charge 7-8% comission at flipkart. They also want to grow. So they support with some waver. Festive month: pricing cuts are very deep. Amazon does prime day we also do event. Diwali type month we also do 2-3%. Brand should also make money. To enable brand to do price discounting we reduce our commission
8. In outright model: there is no commission. There is cost price. Redtape there is a 500 rupee shoes. Flipkart buys at 200-300 rupees. Flipkart will do high discounting during holidays. Transfer price.
9. Marketplace: Two models: Redtape nominated seller & redtape itself is seller: Redtape will have limited warehouse. There are marketplace Flipkart FC (fulfillment centers) across india. We stock the FC with redtape inventory. Logistics fees is lower for zonal orders (order placed & fulfilled within same zone). National order 50% higher pricing. SLA can be lot better if stock is better in regional warehouses. Better customer experience. Slot filling is given to seller for top brands. Given on FIFO basis. Free of cost to brand. Collection is done by category manager of flipkart. Good custumer experience for FK. Good for brand since they do zonal shipment order. So save on the logistics costs.
10. Hub is the place where we store general orders after picking them up from seller warehouse. During big events flipkart goes on throttling hub gets choked, Flipkart will throttle. Low ASP it will stop showing less than 500 rupee tshirts.
11. Hub gets choked. Being in FC allows you to avoid the throttling. Ekart will take it from marketplace warehouse and store it in hub.
12. Hub can get throttled in festive season. So being in FC allows top brands (that category managers have picked) some sort of a competitive advantage since their sales can go on unfettered even when there is very high order inflow during sales time & FK has to throttle their hub. (this is an economies of scale advantage which comes from distribution idiosyncrasies).

Q2. Did you as flipkart have visibility into the inventory management of mirza & redtape & other brands? Can you tell me something about their inventory management of mirza?

1. When we go in outright model: most of times, this selection of top sellers. High repeating. Knows for sure it sells every day. We will have DOH (Days on Hand) 10 units per day. 100 stock. 10 days of stock. Accordingly we place order. Automated the orders go to vendor for replacement. Mostly 30 days we keep inventory.
2. Advanced planning goes on for seasonality stuff. If the purchasing has been done in SOR (sell or return_ model. Agreement to RTV (return to vendor) in 120 days.
3. Brand will give support to flipkart. 20 rs per unit support to flipkart. Additional discounting to customer. Flipkart will then liquidate at its own end.
4. Nike 999 campaign in BBB. FK knows we will not make any money. We bought only 20k units from puma, flipkart, adidas. Primarily for marketing.
   Key learning: two models here: RTV/SOR & non-SOR. non-SOR is better for brand. Need to figure out for each brand what is % of SOR vs non-SOR.

Q3. How did does redtape compare with the other brands that you handled in terms of growth rates, or unit economics for flipkart ?

1. Pecking order: Top tier: Addidas, nike, reebok; Tier 2: bata, sparx, redtape Tier 3: woodland
2. Good part about redtape: Availability, stock replenishment, huge presence in offline tier 3 cities. Redtape huge brand recall in india.
3. Ecom has allowed Redtape to expand very fast. They Also invested marketing etc.
4. Their selection is very good. What this means is that the Selection is not very specific designing (niche). Mass market kind of product such that masses can relate to the product. Not very specific. Designed for masses.
5. Adi, puma, nike they have huge brand recall in international as well as india markets. Redtape entered ecom in last 7 years. Known to be mass brand. Scaled up very well.
6. target Consumer for both tiers is very different who buys adidas & redtape. Look & feel is very different.
7. Adidas, nike, puma are also coming in 999 segment. So they have eaten the marketshare of redtape. (Sahil’s notes: need to be very careful about the competitive intensity & need to find a way to triangulate these marketshare data with more experts).
8. People are more into sports since it is more sports.
9. They should do more Product development could do wonders for them.

Q4. How does the unit economics work for a 1000 rupee shoes sold on flipkart? How much does flipkart make and how much does the brand make & does this vary from brand to brand?
Answer:

1. 6-9% commission for adidas, nike, puma. If there is 10% discounting then it could be split between flipakrt & brand together.
2. BAU also we can go to 2-3%.
3. The commission depends vertical to vertical.
4. 8% for cotton tshirt for redtape.
5. In general a larger brand has higher bargaining power to negotiate a better deal by virtue of bringing volumes. But deal contours also depend on what FK is getting. For example if the range is FK exclusive, FK might ask for lower commissions. If Brand do higher discounting on FK, FK might be ok with lower comissions.

Q5. Based on your experience in the industry, what do you believe are the key factors that will determine the long-term success of Mirza/Red Tape or any consumer facing brand in the Indian footwear and apparel market?

1. Top reason for success: selection & pricing. Combination of product & pricing. Cataloging, marketing are supporting. Product has to be good otherwise marketing wont help.
2. Overall: overall product offering; Design, color, overall product, competition in that price point.
3. Rating & reviews really really matter a lot for the customer.
   Sahil’s notes: need to benchmark the rating & reviews for Redtape & competitors to map out potential evolution better.

Q6. Are there any industry trends or consumer preferences that you believe will have a significant impact on Mirza/Red Tape’s future success? How is the company adapting to these trends?

1. Sports is faster growing than casual shoes. Data for growth: sports footwear has grown tremendously. It has taken the higher market share than casual.
2. Casual : redtape casual looks like sports then it sells better.
   Sahil’s notes (see previous feedback on product development. Clear feedback for Redtape here is to develop more sports shoes, They sell more. They are growing faster.

Q7. In the price ranges that mirza/Red tape operates, who are the key brands who were competitors for them who had roughly similar volume or value contribution to flipkart platform?

1. Asian : brand which is competing with redtape. Earlier used to be lower ASP, Now trying to compete in Redtape ASP range.
2. Sparx is also selling on same price point.

Q8. Mirza or red tape offers their goods at 60-75% discount all the time. Are there any other brands who also offer such steep discounts & does this actually work in terms of moving consumer psychology into buying those discounted shoes or apparel?
Answer:

1. Discounting doesnt matter now. Earlier customers placed a huge weight.
2. Customer has understood that ASP is what matters not the discount %.
3. Even FK has understood all that matters is the asp. (no more increasing price then discounting higher)

My key takeaways:

1. Hopefully will allow shareholders to ask pointed questions about SOR non-SOR mix, design choices (sports shoes vs casual) & learn management’s reasons for pursuing one vs the other.
2. We learned some interesting competitive advantages that larger brands have in terms of lower commission & fees from Marketplaces & also prioritized shelf space in marketplace warehouses to keep brand inventory
3. got to learn about who might be competitors in this space & threat of higher competition from international incumbents like Adidas, puma, nike.

Disclaimer: invested & biased. SOme interesting learning now.

[IMRANKHAN_B]

Hi All, any one know Redtape sales for this financial year?

[ujjawal_kumar]

Here is our analysis of the Mirza International De-merger situation

We are optimistic of the prospects here and believe this is a value unlocking opporunity for us.
disc: invested, biased not a reco
Happy to hear your views on this analysis

Ujjawal
Founder & CIO - WealthCulture