Mirza International Ltd (MIL) is engaged in manufacturing and marketing leather and
leather footwear. It exports its products to the European Union, Germany, the United
Kingdom, the United States, Italy, and France among other geographies. Its brands
include Red Tape and Oaktrak.
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 Rs346cr. 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 Rs90cr, EBITDA margin of ~29%, and PAT of Rs20cr.
Outlook and Valuation: We expect MIL to report a net revenue CAGR of ~11% to
~Rs1,148cr 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 ~11% to Rs97cr over the same period on the back of margin improvement.
At the current market price of Rs84, the stock trades at a PE of 12.2x and 10.5x its
FY2017E and FY2018E EPS of Rs6.9 and Rs8.0, respectively. We initiate coverage on the
stock with a Buy recommendation and target price of Rs113 based on 14x FY2018E EPS,
indicating an upside of ~34% from the current levels.

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