| Mirza International Limited | ||||||
| Ratings placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ‘CRISIL A-/CRISIL A2+’ ratings on the bank facilities of Mirza International Ltd (MIL) on 'Rating Watch with Developing Implications‘.
The rating action follows an announcement by MIL on November 12, 2021, regarding the proposed restructuring of the company. The board of directors have, in principle, approved the amalgamation of RTS Fashions Pvt Ltd, which is the holding company of Mirza U.K. Ltd (Mirza UK) with MIL. Mirza UK is a related company of MIL. Furthermore, the domestic business of MIL, which comprised 68% of revenue in fiscal 2021, will be demerged into the resulting entity. The shareholding of MIL will be mirrored on the resulting entity. CRISIL Ratings is in discussions with the management to seek details of the transaction, including the resultant group structure; operational, managerial and financials linkages between MIL and the resultant entity; and division of assets and liabilities between the two entities. CRISIL Ratings shall resolve the watch once it has clarity on these aspects.
While operating performance was subdued in fiscal 2021 due to the impact of the Covid-19 pandemic in the first half of fiscal 2021, it has reached pre-pandemic level in the first half of fiscal 2022. Operating income for the same period was Rs 644 crore with operating margin of 12.8%, compared to Rs 614 crore and 12.8%, respectively, for the 6 months ended September 2019 (pre-pandemic). The company had revenue of Rs 355 crore and operating margin of 9% for the six months through September 2020 as the operations were significantly impacted by lockdowns imposed to contain the pandemic, leading to debt of over Rs 400 crore as on September 30, 2020. Driven by healthy operating performance subsequently, the financial risk profile has improved with debt reducing to Rs 221 crore as on September 30, 2021. Gearing reduced to 0.31 time in fiscal 2021, compared to 0.62 time in fiscal 2020 and should sustain below 0.3 time over the medium term.
The ratings continue to reflect the company’s established market position, backed by the experience of the promoters and management in the leather footwear industry, integrated business operations, and healthy operating performance in the domestic retail segment with recovery in the international segment. These strengths are partially offset by high working capital requirement and exposure to volatility in foreign exchange. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of MIL and its subsidiaries as the entities are in the same business and have common promoters. The discounted bills of Rs 56 crore as on March 31, 2021, 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:
Furthermore, the company’s operations are backward integrated with in-house tannery for conversion of raw hide into finished hide enabling greater in-house quality control. MIL’s market position is expected to remain healthy over the medium term, backed by strong growth in the domestic retail business and expected growth in export revenue.
Weaknesses:
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Liquidity: Adequate Liquidity is driven by cash balance of about Rs 10 crore as on September 30, 2021. The company’s average monthly utilisation of total working capital limit of Rs 454 crore was below 30% over the six months through September 2021. The expected yearly cash accrual of Rs 100-120 crore during fiscal 2022 is expected to be sufficient to meet moderate capital expenditure (capex), incremental working capital requirement and debt obligation of Rs 18 crore scheduled for repayment in fiscal 2022. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1979 by Mr Irshad Mirza (Chairman) as a private limited company, MIL manufactures footwear and apparels. The company was reconstituted as a public limited company in fiscal 1994 following a public issuance of shares. The company has an established position in the domestic footwear market and sells footwear and apparel under its Red Tape, Mode, Bond Street and Oaktrak brands. The company also has a presence in the overseas market and earns 35-40% of its revenue from exports, wherein 90% of footwear sales is under customers' brands and 10% is under the company’s Red Tape footwear brand. MIL's primary export market is the UK.
For the six months ended September 31, 2021, the company reported operating income of Rs 645 crore and profit after tax of Rs 49 crore, against Rs 355 crore and loss of Rs 18 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators
These are CRISIL Ratings adjusted numbers and do not match directly with the numbers reported by the company |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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