2QFY2017 Result Update | Footwear
November 16, 2016
Mirza International
BUY
CMP
`80
Performance Highlights
Target Price
`107
Quarterly Data
Investment Period
12 Months
(` cr)
2QFY17
2QFY16
% yoy
1QFY17
% qoq
Revenue
250
255
(2.0)
252
(0.8)
Stock Info
EBITDA
38
41
(7.3)
44
(13.7)
Sector
Footwear
Margin (%)
15.1
16.0
(87bp)
17.4
(227bp)
Market Cap (` cr)
960
Adj. PAT
16
16
2.1
20
(18.5)
Net Debt (` cr)
213
Source: Company, Angel Research
Beta
1.6
For 2QFY2017, Mirza International (MIL)’s results have come below our estimates
52 Week High / Low
145/77
on both the top-line and the bottom-line front. Revenues de-grew by ~2% yoy,
Avg. Daily Volume
87,445
which is lower than our estimate. On the operating front, the company reported
Face Value (`)
2
contraction in margin, primarily on account of employee & other
BSE Sensex
26,305
expenses. Further, on the bottom-line front, the company reported flattish growth
Nifty
8,108
on account of lower sales and poor operating performance.
Reuters Code
MIRZ.BO
Bloomberg Code
MRZI.IN
Top line de-grew by 2%: The company’s top-line de-grew by ~2% yoy to `250cr
(which is below our estimate) on back of lower growth in domestic as well as
international market.
Shareholding Pattern (%)
Lower sales impacted the overall profitability: On the operating front, the
Promoters
73.8
company’s margin contracted by 87bp yoy to 15.1%, primarily on account of
MF / Banks / Indian Fls
0.3
employee & other expenses. The company reported ~2% yoy rise in its net profit
FII / NRIs / OCBs
0.5
to `16cr on back of poor sales and operating performance.
Indian Public / Others
25.4
Outlook and Valuation: We expect MIL to report a net revenue CAGR of ~9% to
~`1,106cr over FY2016-18E on back of strong growth in domestic branded sales
Abs.(%)
3m
1yr
3yr
(owing to aggressive ad spend and addition in the number of EBOs & multi-brand
Sensex
(3.7)
4.5
30.9
outlets [MBOs]) and healthy export revenues. On the bottom-line front, we expect
MIL
0.9
(29.9)
251.7
a CAGR of ~9% to `92cr over the same period on the back of margin
improvement. Thus, we maintain our Buy rating with the target price of `107.
3-year price chart
160
Key financials
140
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
120
Net sales
919
927
987
1,106
100
80
% chg
29.9
0.9
6.5
12.1
60
Net profit
51
78
79
92
40
% chg
51.2
78.1
78.6
91.6
20
0
EBITDA margin (%)
15.5
18.5
18.0
18.0
EPS (`)
4.3
6.5
6.5
7.6
P/E (x)
22.3
14.6
14.5
12.5
Source: Company, Angel Research
P/BV (x)
3.8
2.8
2.3
2.0
RoE (%)
16.4
18.5
15.9
15.7
RoCE (%)
22.3
22.6
20.7
20.9
Amarjeet S Maurya
EV/Sales (x)
1.5
1.5
1.4
1.2
022-39357800 Ext: 6831
EV/EBITDA (x)
9.5
7.9
7.6
6.7
Source: Company, Angel Research, Note: CMP as of November 15, 2016
Please refer to important disclosures at the end of this report
1
Mirza International | 2QFY2017 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
2QFY17
2QFY16
% yoy
1QFY17
% qoq
1HFY17
1HFY16
% chg
Net Sales
250
255
(2.0)
252
(0.8)
503
471
6.6
Consumption of RM
146
153
(4.9)
147
(0.5)
293
294
(0.6)
(% of Sales)
58.3
60.1
58.1
58.2
62.4
Staff Costs
16
15
5.7
15
4.8
31
21
50.1
(% of Sales)
6.4
6.0
6.1
6.3
4.4
Other Expenses
50
46
9.8
46
8.6
96.91
89.04
8.8
(% of Sales)
20.2
18.0
18.4
19.3
18.9
Total Expenditure
212
215
(1.0)
208
1.9
421
404
4.1
Operating Profit
38
41
(7.3)
44
(13.7)
82
67
21.6
OPM
15.1
16.0
(87bp)
17.4
(227bp)
16.3
14.3
Interest
6.5
10
(31.9)
7
(3.8)
13
18
(27.3)
Depreciation
7.1
7
8.5
7
7.1
14
13
4.5
Other Income
-
-
-
-
PBT (excl. Ext Items)
24
25
(2.1)
30
(20.5)
55
36
52.9
Ext (Income)/Expense
PBT (incl. Ext Items)
24
25
(2.1)
30
(20.5)
55
36
52.9
(% of Sales)
9.7
9.7
12.1
10.9
7.6
Provision for Taxation
8
9
10
18
12
46.8
(% of PBT)
32.4
35.2
34.1
33
35
Reported PAT
16
16
2.1
20
(18.5)
36
23
56.1
PATM
6.5
6.3
8.0
7.2
4.9
Equity shares (cr)
12
12
12
12
12
FDEPS (`)
1.4
1.3
2.1
1.7
(18.5)
3.0
1.9
56.1
Source: Company, Angel Research
November 16, 2016
2
Mirza International | 2QFY2017 Result Update
Key investment arguments
Strong growth in domestic branded segment to drive overall growth
In the branded domestic segment, we expect the company to report a ~24%
CAGR over FY2016-18E to `346cr. We anticipate strong growth for the company
on the back of (a) the company’s wide distribution reach through its 1,000+
outlets including 120 exclusive brand outlets (EBOs) in 35+ cities and the same
are expected to reach 200 over the next 2-3 years and (b) strong branding (Red
Tape) in the shoes segment. Further, MIL is enhancing its brand visibility owing to
higher ad spend in FY2017. MIL has doubled its ad spend over the last five years;
ad spends as a proportion of branded product sales now stand at 9-10%.
Strong global footprint
MIL’s major export revenue comes from the UK (73%), followed by the US (14%)
and the balance from ROW. Export constitutes ~75% of the company’s total
revenue. The company is reasonably insulated in terms of client concentration. Its
clients include ASDA, River Island, Matalan, ASOS, Elan Polo, and Steve Madden
among others. In the UK, the company has a market share of ~25% in the men’s
leather footwear mid-segment category. We expect the company to report healthy
growth over the next 2-3 years on back of recovery in the UK market, strong
growth in the US market and with it tapping newer international geographies like
the Middle East countries.
Genesis Footwear merger to boost margins
In FY2016, the company acquired Genesis Footwear which has a better margin
profile than it. The deal resulted in MIL’s EPS increasing by ~4% and ROE
improving from 15.9% to 17.5%. Further, due to this merger, the company’s
capacity has increased from 5.4mn to 6.4mn units. During FY2016, the company
reported net sales of `90cr, EBITDA margin of ~29%, and PAT of `20cr.
November 16, 2016
3
Mirza International | 2QFY2017 Result Update
Outlook and Valuation
We expect MIL to report a net revenue CAGR of ~9% to ~`1,106cr over FY2016-
18E on back of strong growth in domestic branded sales (owing to aggressive ad
spend and addition in the number of EBOs & multi-brand outlets [MBOs]) and
healthy export revenues. On the bottom-line front, we expect a CAGR of ~9% to
`92cr over the same period on the back of margin improvement. Thus, we
maintain our Buy rating with the target price of `107.
Exhibit 2: One year forward PE Chart
160
4x
8x
12x
16x
20x
140
120
100
80
60
40
20
0
Source: Company, Angel Research
Downside risks to our estimates
Any slowdown in global economy could hurt the company’s revenue (75% of
revenue comes from exports).
Volatility in USD and Euro exchange rate against INR can have negative
impact on margins.
November 16, 2016
4
Mirza International | 2QFY2017 Result Update
Company Background
MIL is an India-based company engaged in manufacturing and marketing leather
and leather footwear. The company’s operations are segmented as the Footwear
division and the Tannery division. Its Tannery division manufactures finished
leather from raw hides, wet blue and crust and the Footwear division manufactures
finished leather shoes. The company exports its products to the European Union,
Germany, the United Kingdom, the United States, Italy, and France, among other
geographies. It operates an in-house shoe production facility and a design studio
in London. Its brands include Red Tape and Oaktrak. The Red Tape brand’s
product portfolio includes men's footwear, women's footwear, shirts, jackets,
denims, tees, pants/shorts and accessories. Oaktrak is a brand of formal footwear
including casual and urban styles. Oaktrak is sold through independents, small
retailers and multiples.
Exhibit 3: Historical revenue mix
100
80
72
71
69
74
75
77
75
60
40
20
28
29
31
26
25
23
25
0
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Domestic
Exports
Source: Company, Angel Research
November 16, 2016
5
Mirza International | 2QFY2017 Result Update
Consolidated Profit & Loss Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Total operating income
644
707
919
927
987
1,106
% chg
16.3
9.9
29.9
0.9
6.5
12.1
Total Expenditure
528
586
776
755
809
907
Cost of Materials
370
404
548
504
550
617
Personnel
33
37
46
59
67
80
Others Expenses
125
145
182
192
192
210
EBITDA
116
122
143
172
178
199
% chg
37.2
5.1
17.1
20.6
3.3
12.1
(% of Net Sales)
18.0
17.2
15.5
18.5
18.0
18.0
Depreciation& Amortisation
20
22
25
26
29
31
EBIT
96
100
118
146
149
169
% chg
38.7
4.0
18.3
23.9
2.0
13.1
(% of Net Sales)
14.9
14.1
12.8
15.8
15.1
15.2
Interest & other Charges
32
32
39
32
34
34
Other Income
-
-
-
2
2
2
Recurring PBT
64
68
79
116
117
137
% chg
27.6
5.3
16.1
47.2
1.2
16.6
Prior Period & Extraord. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
64
68
79
116
117
137
Tax
21
24
28
38
39
45
(% of PBT)
32.5
36.0
35.0
32.6
33.0
33.0
PAT (reported)
43
43
51
78
79
92
Add: Share of earnings of asso.
-
-
-
-
-
-
ADJ. PAT
43
43
51
78
79
92
% chg
43.4
43.4
51.2
78.1
78.6
91.6
(% of Net Sales)
6.7
6.1
5.6
8.4
8.0
8.3
Basic EPS (`)
3.6
3.6
4.3
6.5
6.5
7.6
Fully Diluted EPS (`)
3.6
3.6
4.3
6.5
6.5
7.6
% chg
43.8
(0.1)
17.9
52.7
0.6
16.6
November 16, 2016
6
Mirza International | 2QFY2017 Result Update
Consolidated Balance Sheet
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
SOURCES OF FUNDS
Equity Share Capital
19
19
19
24
24
24
Reserves& Surplus
233
268
294
398
471
558
Shareholders Funds
251
287
313
422
495
582
Minority Interest
-
-
-
-
-
-
Total Loans
167
212
218
225
225
225
Deferred Tax Liability
21
23
15
15
15
15
Total Liabilities
440
521
545
662
736
823
APPLICATION OF FUNDS
Gross Block
371
441
489
551
591
631
Less: Acc. Depreciation
119
133
181
207
236
266
Net Block
252
308
308
344
356
365
Capital Work-in-Progress
30
7
3
3
3
3
Investments
1
1
1
1
1
1
Current Assets
224
300
346
421
486
573
Inventories
138
192
225
262
284
324
Sundry Debtors
33
42
43
63
73
88
Cash
4
6
6
11
26
34
Loans & Advances
44
56
67
74
89
105
Other Assets
5
3
5
10
15
22
Current liabilities
68
97
115
110
113
122
Net Current Assets
156
203
231
311
373
451
Deferred Tax Asset
2
2
3
3
3
3
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
440
521
545
662
736
823
November 16, 2016
7
Mirza International | 2QFY2017 Result Update
Consolidated Cashflow Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Profit before tax
64
68
79
116
117
137
Depreciation
20
22
25
26
29
31
Change in Working Capital
(8)
(48)
(19)
(74)
(48)
(69)
Interest / Dividend (Net)
31
32
39
32
34
34
Direct taxes paid
(19)
(24)
(28)
(38)
(39)
(45)
Others
0
(0)
1
-
-
-
Cash Flow from Operations
89
48
97
61
93
87
(Inc.)/ Dec. in Fixed Assets
(58)
(54)
(59)
(63)
(40)
(40)
(Inc.)/ Dec. in Investments
-
-
-
-
-
-
Cash Flow from Investing
(58)
(54)
(59)
(63)
(40)
(40)
Issue of Equity
-
-
-
36
-
-
Inc./(Dec.) in loans
1
45
6
8
-
-
Dividend Paid (Incl. Tax)
(5)
(5)
(5)
(5)
(5)
(5)
Interest / Dividend (Net)
(36)
(33)
(40)
(32)
(34)
(34)
Cash Flow from Financing
(39)
8
(39)
7
(38)
(38)
Inc./(Dec.) in Cash
(8)
2
(1)
6
14
8
Opening Cash balances
12
4
6
6
11
26
Closing Cash balances
4
6
6
11
26
34
November 16, 2016
8
Mirza International | 2QFY2017 Result Update
Key ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E
FY18E
Valuation Ratio (x)
P/E (on FDEPS)
23.3
23.3
19.8
12.9
12.2
10.5
P/CEPS
16.0
15.4
13.3
9.7
9.1
7.9
P/BV
4.1
3.6
3.3
2.4
2.1
1.7
Dividend yield (%)
0.5
0.5
0.5
0.5
0.5
0.5
EV/Sales
1.8
1.7
1.3
1.3
1.2
1.0
EV/EBITDA
10.1
10.0
8.6
7.1
6.5
5.8
EV / Total Assets
2.3
2.0
1.9
1.6
1.4
1.2
Per Share Data (`)
EPS (Basic)
3.6
3.6
4.3
6.5
6.9
8.0
EPS (fully diluted)
3.6
3.6
4.3
6.5
6.9
8.0
Cash EPS
5.3
5.4
6.3
8.6
9.3
10.5
DPS
0.4
0.4
0.4
0.4
0.4
0.4
Book Value
20.4
23.4
25.3
34.4
40.9
48.4
Returns (%)
ROCE
22.9
20.0
22.3
22.6
21.5
21.4
Angel ROIC (Pre-tax)
23.2
20.3
22.5
23.0
22.4
22.8
ROE
17.3
15.1
16.4
18.5
16.6
16.2
Turnover ratios (x)
Asset Turnover (Gross Block)
1.7
1.6
1.9
1.7
1.7
1.8
Inventory / Sales (days)
78
99
89
103
105
107
Receivables (days)
18
22
17
25
27
29
Payables (days)
27
35
33
30
30
28
WC cycle (ex-cash) (days)
69
86
74
98
102
108
November 16, 2016
9
Mirza International | 2QFY2017 Result Update
Research Team Tel: 022 - 39357800
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL
and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a
registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
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contrary view, if any.
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Disclosure of Interest Statement
Mirza International
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
November 16, 2016
10