Mirza International - consistent performer but undervalues at present?

[Vivek_6954]

Annual-Report-FY-2022-23 redtape.pdf (1.5 MB)
RED TAPE AR 23 OUT

[zain]

Any idea about who is Ms. Yasmin Mirza in Mirza family?

What’s her relationship with Rashid Ahmed Mirza and Shuja Mirza?

[sahil_vi]

@sahil_vi

The guarantee commission has been coming down. It was around 8.2cr in FY16. It is now around 2.25cr in FY21. It was around 6cr in FY20. Drastic reduction in latest FY. If there were a concall today, this would be the first Q i would ask, that does the management commit to reducing the guarantee commission monotonically over time & taking it to 0 in the medium term?

The thesis has played out beautifully here.

Latest annual report is out. And no guarantee commissions.

Total payment to directors of 7cr (mostly salary to Shuja, who richly deserves it IMO) which is 5% of PAT.

Contrast this with payment to directors of 14cr in FY22 (from mirza Anual report).

Even if we include the mirza int FY23 payment this is flat compared to FY22 numbers while PAT has grown well. Importantly most of PAT comes from Redtape, most of director remuneration from Mirza. So Redtape shareholders have nothing to worry about.

Some more notes:

Industry Tailwinds/TAM

1. The FMCG, apparel & footwear, and consumer electronics are the largest retail segments in India, constituting 65%, 10%, and 9% respectively of the retail market. Online shoppers in India are expected to reach 500 million by 2030 and the e-Commerce market is expected to touch US$ 350 billion in GMV by 2030.

2. 35B$ online TAM for redtape.

3. India is the world’s second-largest buyer and producer of footwear, with an eight-fold rise expected by 2030. The Indian footwear industry is projected to grow by 24.73 percent per year (CAGR 2021-2025)

4. Nearly 85% of the Indian footwear industry comprises unorganised players who sell their products at meagre prices and enjoy multiple benefits such as lower sales tax, lower overhead cost, lower labour cost and absence of research and development (R&D) expenses

5. Shift to Organized has HUGE TAM

Strategy

1. Over the years, we have broadbased our brand presence across various fashion verticals, and tapped into the men’s clothing and accessory category in 2006. Today, our brand also caters to the fashion needs in the female and kids clothing and accessory category
2. improved our penetration in existent markets leveraging our strong omni-channel presence, especially with a strong focus on digital infrastructure

Growth

1. Redtape stores grown from 348 to 387. (11% growth). So good SSSG too.

Business Details

1. The Company is having 100% controlling stake in M/s Mirza Bangla Limited. Mirza Bangla Limited was acquired under the Scheme of Arrangement from Mirza International Limited. However due to pending completion of legal formalities for transfer, investment are still held in the name of Mirza International Limited. ** The Company is partner in M/s Sen En Mirza Industrial Supply Chain LLP having Profit sharing of 52%.
2. Inventory turnover ratio of 2.82 is healthy.
3. For comparison, Relaxo is at 3.2. Campus 3.66. Metro shoes is at 1.67. Bata is at 1.71. So redtape is better than most, but there is some headroom to expand more. My guess is, Inventory turnover might be a tradeoff with margins. Need to understand this better.

Durable Competitive Advantages

1. With a legacy of almost 3 decades, REDTAPE has emerged as one of India’s most trusted fashion and lifestyle brand with a strong presence not only limited to domestic but also international markets

2. We have an integrated footwear manufacturing unit based out of UPSIDC Industrial Area in Uttar Pradesh

3. It is on the balance sheet of Redtape

4. And they make sports/casual shoes along with leather shoes

5. two online MP warehouses located at Noida Sector 59 and UPSIDC Industrial Area Unnao in Uttar Pradesh

6. we have been conducting extensive research and making consistent product innovations to cater to the everchanging fashion trends across the world.

7. Redtape: Athleisure: Men’s Apparels, Shoes and Women’s Footwear, Accessories

8. Mode by REDTAPE: Women’s Ethnic wear

9. Bond Street by REDTAPE: Men’s Casual footwear

10. At REDTAPE, we have carved our growth trajectory on the back of a strong brand recall which is synonymous with trust, quality and the latest fashion(Fast fashion).

Management

1. Shuja: A graduate in science from the California State University, USA, Mr. Shuja Mirza has a rich experience in the field of marketing. Leveraging his experience, he is managing operations, product design, development and manufacturing. He also introduced the Retailing Units and Online Division in the Company, which helped us grow exponentially. Additionally, owing to his exposure in the international markets, he is also responsible for diversifying and bringing the needed vigor to the Company

Disc: Invested, biased

[ramansharma]

Hi Sahil Sir,
In other expenses there is Commission expenses which is increased from 45 cr to 222 cr. What is this for ?

[sahil_vi]

@ramansharma

In other expenses there is Commission expenses which is increased from 45 cr to 222 cr.

The increase will appear high because of accounting. Even revenue went up multifold that is coz redtape the FY22 subsidiary (which is now demerged company) didnt have all redtape business. Check absolute numbers. THis comission is likely comission to franchise owners. So about 15% of topline is going as comission to franchise owners.

[mantis1]

are these numbers correctly reported in their AR? How did they manage to show such growth numbers in FY 23?

Also RPTs in the form of rent and maintenance and other expenses continue in the current AR

[RajeevJ]

Thanks @sahil_vi for your insightful post.

The guarantee commission issue is now clearly a thing of the past. Redtape is now being run by one branch of the family rather than multiple family branches, each looking for spoils! This will go a long way in improving corporate governance going forward.

If the foot ware industry as a whole is indeed expected to grow 8 fold over the next 6-7 years & annually at about 25%, then clearly Redtape is in a sweet spot & set to benefit immensely over the said period. It is not unreasonable to assume that Redtape can continue to grow at about 29%, the growth it exhibited in Q1. If it can sustain Q1 margins, then the stock at CMP of 440 is trading about 25 times for the current year 23-24. Investors can gauge for themselves how they want to value the Co., but to me it seems further re-rating is a definite possibility, but for that to happen, the market needs to reassured that corporate governance going forward will be top notch. Only time will tell.

[Mohit_baid]

Created a new thread dedicatedly for Redtape - Redtape ltd. - The next fashion giant?
Please share your valuable thoughts and keep us all informed.

Requesting @sahil_vi @RajeevJ and others to re-post your latest updates.