Rating Rationale
June 12, 2018 | Mumbai
Mirza International Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.396.88 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
Rs.50 Crore Commercial Paper CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities and commercial paper of Mirza International Limited (MIL).

MIL's business model is undergoing a change with a shift in focus from leather export to domestic branded sales through both offline and online channels. This was also evident in fiscal 2018, wherein this segment grew 75% year-on-year to Rs 390 crore. Launch of new brands in fiscal 2018, continuing healthy domestic demand and addition of new retail stores in the near term, is expected to significantly increase branded domestic segment sales.

In line with the business growth, working capital requirement is also expected to increase. Inventory increased to 175 days as on March 31, 2018, from 125 days a year ago; correspondingly, debt increased to around Rs 390 crore from Rs 330 crore. Nonetheless, debt protection metrics were comfortable and should remain so given the expectation of healthy cash accrual and absence of any new long-term debt. Adequate revenue and stable profitability will remain key monitorables over the near to medium term.

The ratings continue to reflect the experience of MIL's promoter in the footwear manufacturing segment, established market position, integrated operations, and healthy financial risk profile. These strengths are partially offset by large working capital requirement, geographical and customer concentration in revenue, and susceptibility to fluctuations in foreign exchange (forex) rates.

Analytical Approach

Discounted bills of Rs 119 crore as on March 31, 2018, have been treated as debt.

Key Rating Drivers & Detailed Description
* Experience of promoter, established market position, and integrated operations
MIL has an established position owing to the well-diversified presence in both domestic and export markets, along with a reputed brand. MIL sells footwear, apparel and accessories under the brand, Redtape, in the domestic market. In fiscal 2017, despite decline in export business, the company has been effectively able to increase domestic business (grown by 21% from previous fiscal). In addition, MIL benefits from integrated operations, with an in-house tannery for conversion of raw hide into finished hide.

Business risk profile should further improve over the medium term, supported by expansion in the higher-margin domestic retail business and healthy export revenue.

* Healthy financial risk profile
Networth and gearing were healthy at Rs 550 crore and 0.7 time, respectively, as on March 31, 2018. Interest coverage was 6.2 times in fiscals 2018 and 2017.

Operating margin has been above 15% over the five fiscals through 2018 despite wide fluctuations in forex earnings. The margin has been supported by integrated operations as reflected in healthy operating efficiency, with an earnings before interest, tax, depreciation, and amortisation margin of 18% and return on capital employed of around 16% for fiscal 2018.

MIL has negligible long-term debt; short-term debt is taken to meet working capital needs. While the short term debt is expected to increase in fiscal 2019 with the planned business expansion, the financial risk profile is expected to remain healthy, supported by ample cash accrual and minimal long-term debt obligation.

* Large working capital requirement
Working capital requirement is large, with high inventory and debtor days. MIL needs to maintain high inventory because of substantial lead time involved in production process. Furthermore, due to integrated operations, MIL has to maintain inventory for both its divisions'leather and footwear. Inventory holding increased to 175 days as on March 31, 2018, from 125 days a year ago. It is further expected to increase to around 190 days in fiscal 2019 with adequate growth in the domestic market. A commensurate revenue and profitability growth is expected to offset the impact of the increased working capital requirement and will be a key monitorable.

* Geographical and customer concentration in revenue
MIL has been successful in increasing domestic sales, with around 60% rise in domestic sales in fiscal 2018; around 54% of revenue is still earned through exports.

Around 70% of export revenue is from sales to the UK, which makes the operating performance vulnerable to any downswing in the UK economy as well as fluctuations in forex rates. Furthermore, sales to top three customers constitute around 60% of the total footwear exports, with Mirza UK Ltd being the biggest customer (45% of total exports are to Mirza UK). Mirza UK sells MIL's products to leading chain stores in the UK market. MIL continues its efforts to increase its presence in the US, with 14% of the export revenue coming from the US.

* Vulnerability to fluctuations in forex rates
MIL derives around 60% of its sales in pounds, leading to significant exposure to forex risk, as the pound has been volatile since the Brexit. MIL also imports raw materials such as cow hide which are not available in India. The company has a policy of entering into forward contracts to cover 100% exports while the imports are left open.

MIL will likely remain exposed to geographical and customer concentration risk over the medium term. Moreover, operations are expected to remain working capital intensive, driven by high debtor and inventory days.
Outlook: Stable

CRISIL believes MIL will continue to benefit from integrated operations, promoter's experience and higher growth in the domestic branded segment. The financial risk profile is expected to remain strong over the medium term, supported by low gearing, moderate capital expenditure, and healthy cash accrual.

Upside scenario
* Significant rise in revenue through diversification in geographic mix
* Sustainable increase in profitability, while maintaining financial risk profile
* Improvement in liquidity

Downside scenario
* Significant decline in revenue and profitability because of intense competition
* Weakening of financial risk profile
* Stretch in liquidity, driven by more-than-expected increase in working capital requirement.

About the Company

MIL, incorporated in 1979 manufactures footwear and also has a tannery unit. The company was reconstituted as a public-limited company in fiscal 1994 following a public issuance of shares. Operations were established by Mr Irshad Mirza, the current chairman. MIL earns 54% of its revenue through exports, wherein sales of footwear are undertaken under customers' brand names. MIL's primary export market is the UK, which contributes to a major portion of its export revenue. The company sells footwear in the domestic market under its brand, Redtape.

Key Financial Indicators
As on / for the period ended March 31 Unit 2018 2017
Revenue Rs crore 972 936
Profit After Tax (PAT) Rs crore 78 72
PAT Margins % 8.0 7.7
Adjusted debt/Adjusted networth Times 0.7 0.7
Interest coverage Times 6.2 6.2

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Cr) Rating Assigned with Outlook
NA Commercial Paper NA NA 7-365 days 50.00 CRISIL A1
NA Cash credit NA NA NA 40.00 CRISIL A/Stable
NA Packing credit NA NA NA 120.00 CRISIL A1
NA Bill discounting NA NA NA 190.00 CRISIL A1
NA Letter of credit NA NA NA 20.00 CRISIL A1
NA Term loan NA NA 31-Mar-2019 13.47 CRISIL A/Stable
NA Term loan* NA NA 30-Sep-2017 4.00 CRISIL A/Stable
NA Term loan NA NA 31-Mar-2021 8.91 CRISIL A/Stable
NA Bank guarantee NA NA NA 0.50 CRISIL A1
*CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these facility
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  50.00  CRISIL A1  16-04-18  CRISIL A1    --    --    --  -- 
Fund-based Bank Facilities  LT/ST  376.38  CRISIL A/Stable/ CRISIL A1  16-04-18  CRISIL A/Stable/ CRISIL A1  27-09-17  CRISIL A/Stable/ CRISIL A1  29-06-16  CRISIL A/Stable/ CRISIL A1  27-01-15  CRISIL A/Stable/ CRISIL A1  CRISIL A/Stable/ CRISIL A1 
                05-05-16  CRISIL A/Stable/ CRISIL A1       
Non Fund-based Bank Facilities  LT/ST  20.50  CRISIL A1  16-04-18  CRISIL A1  27-09-17  CRISIL A1  29-06-16  CRISIL A1  27-01-15  CRISIL A1  CRISIL A1 
                05-05-16  CRISIL A1       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee .5 CRISIL A1 Bank Guarantee .5 CRISIL A1
Bill Discounting 190 CRISIL A1 Bill Discounting 190 CRISIL A1
Cash Credit 40 CRISIL A/Stable Cash Credit 40 CRISIL A/Stable
Letter of Credit 20 CRISIL A1 Letter of Credit 20 CRISIL A1
Packing Credit 120 CRISIL A1 Packing Credit 120 CRISIL A1
Term Loan 26.38 CRISIL A/Stable Term Loan 26.38 CRISIL A/Stable
Total 396.88 -- Total 396.88 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000

Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023

Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329

Akanksha Aggarwal
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2174
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
For Analytical queries:


Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.

About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
For more information, visit www.crisil.com 


About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit https://www.crisil.com/en/home/privacy-and-cookie-notice.html. You can view the Company’s Customer Privacy at https://www.spglobal.com/corporate-privacy-policy

Last updated: April 2016


This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL