mirza international ltd share price Management discussions

FORWARD-LOOKING STATEMENT

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company, describing the Companys objectives, expectations or predictions, may be forward-looking within the meaning of applicable securities, laws, and regulations.

Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise forward-looking statements, based on any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include determination of tariff and other such charges and levies by the regulatory authority, changes in Government regulations, tax laws, economic developments within the country, and other such factors globally.

The financial statements have been prepared on a historical cost basis and accrual basis and are prepared in accordance with the accounting standards notified under the Companies (Accounting Standard) Rules, 2006, as amended, and other relevant provisions of the Companies Act, 2013 (the ‘Act). The financial statements comply in all material aspects with the Indian Accounting Standards (Ind AS) notified under Section 133 of the Act, read with the [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

The management of Mirza International Limited ("MIL" or "the Company") has used estimates and judgements relating to the financial statement on a prudent and reasonable basis, in order that the financial statement reflects in a true and fair manner, the state of affairs for the year.

The following discussions on our financial condition and result of operations should be read together with our audited financial statement and the notes to these statements included in the Annual Report.

Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", or "MIL" are for Mirza International Limited.

ECONOMY AND MARKET OUTLOOK

As per the ‘World Economic Outlook by International Monetary Fund, the growth is projected to fall from 3.40% in 2022 to 2.80% in 2023, before settling at 3.00% in 2024. Advanced economies are especially expected to see a pronounced slowdown in growth, from 2.70% in 2022 to 1.30% in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.50% in 2023 with advanced economy growth falling below 1%. The global headline inflation is expected to fall from 8.70% in 2022 to 7.00% in 2023 on the back of lower commodity prices. The underlying (core) inflation, however, is likely to decline more slowly. Infiations return to target is unlikely before 2025 in most cases.

Indian economy

Indian Leather, Leather Products and Footwear Industry holds a prominent place in the Indian economy. The sector is known for consistent high exports and is among the top ten foreign exchange earners for the country. India is the second largest exporter of Leather Garments, Saddlery and Harness and the fifth largest exporter of Leather Goods in the world.

The strengths of the Indian Leather sector are as follows:

• Indian-own raw material source: About 3 billion sq. ft. of leather is produced annually.

• Strong and eco-sustainable tanning base.

• Modernised manufacturing units.

• Trained//skilled manpower at competitive wages.

• World-class institutional support for Design & Product Development, HRD and R&D.

• Presence of support industries like leather chemicals and finishing auxiliaries.

• Presence in major markets – Long Europe experience.

• Strategic location in the Asian landmass.

Emerging strengths

• Design and development initiatives by institutions and individuals.

• Continuous modernisation and technology upgrade.

• Economic size of manufacturing units.

• Constant human resource development programme to enhance productivity.

• Increasing use of quality components.

• Shorter prototype development time.

• Delivery compliance.

• Growing domestic market for footwear and leather articles.

India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers at a global scale over the next 10-15 years, backed by its robust democracy and strong partnerships.

Industry structure and key developments

Indian Footwear and Leather Development Programme (IFLDP) (erstwhile IFLADP), a Central Government Scheme, aims to empower the sector through a multi-faceted approach which includes infrastructural development, addressing the sectors environmental concerns, facilitating additional investments, generating employment, and improving production. The scheme has an approved financial outlay of Rs. 1,700 Crores and has been extended to March 31, 2026 or till further review by the Central Government.

The scheme will be implemented through the following_sub-schemes under IFLDP during 2021-26:

• Sustainable Technology and Environmental Promotion (outlay Rs.500 Crores).

• Integrated Development of Leather Sector (IDLS) (outlay Rs.500 Crores).

• Establishment of Institutional Facilities (outlay Rs.200 Crores).

• Mega Leather Footwear and Accessories Cluster Development (MLFACD) (outlay Rs.300 Crores).

• Brand Promotion of Indian Brands in Leather and Footwear Sector (outlay Rs.100 Crores).

• Development of Design Studios (outlay Rs.100 Crores).

The footwear sector holds huge prominence in the Indian leather industry and serves as one of its key growth drivers. India is the second largest global producer of footwear after China, accounting for 11.63% of global footwear production of 17.7 billion pairs. It is also the second largest consumer of footwear after China, with a consumption of 2.60 billion pairs. India produces 2,065 million pairs of footwear under different categories which includes leather footwear (909 million pairs), leather shoe uppers (100 million pairs), and non-leather footwear (1,056 million pairs). Nearly 95% of this production is utilised to meet the countrys own domestic demand and about 115 million pairs are exported. The Footwear (Leather and Non-Leather) export account for about 52% share in Indian Leather and Footwear industrys exports.

Over the years, India has become a focal point for the fashion and lifestyle industry, reflecting a powerful manufacturing sector and a fast-growing middle class. Combined with strong economic fundamentals, rapid digitalisation, and efficient process automations, these factors are enabling India to emerge as a dominant international fashion destination, also providing an impetus to the Indian footwear industry. According to a report by McKinsey, Indias ascent as a growing force in the global fashion industry is one of the top ten trends the fashion industry should watch out for. Another report by Invest India suggests India as the second largest consumer and producer of footwear in the world, with the demand and production projected to increase 8 folds by 2030. This growth can be attributed to a significant change in consumer behaviour supported by a dramatic rise in their disposable and per capita income.

The leather industry can be further segmented into Finished Leather, Footwear, Footwear Components, Leather Garments, and Leather Goods including Bags, Saddlery, Harness and Leather Gloves. For every 1,000 pairs of footwear produced and sold in India per day, the sector is capable of creating 425 jobs spanning manufacturing, allied industries, and retail. In terms of volume, India is expected to produce almost 3 billion units of leather products by 2024, growing at more than 10% annually.

Though India is already among the worlds top 10 largest footwear exporters, Mirza International Limited believes that a significant portion of the countrys potential still remains untapped and can be utilised to grow its share considerably in the overseas markets. USA, UK, Germany, France, Italy and UAE are some of the largest Indian footwear importers.

Indias leather exports

The Indian Leather, Leather Products and Footwear Industry holds a prominent place in the Indian economy. India is the second-largest exporter of Leather Garments, Saddlery and Harness and the fifth-largest exporter of Leather Goods in the world. The export of Leather, Leather Products and Footwear has registered about 8% growth in this fiscal, reaching USD 5.26 billion in FY 2022-23 as against USD 4.87 billion in FY 2021-22.

However, the export growth in Leather slowed down over the last six months, registering an overall decline of 7.41% in the second half of the financial year (October 2022 to March 2023) as compared to 25.67% growth during the first half_ (April 2022 – September 2022). The sectors exports declined from USD 456.90 million during April 2022 to USD 378.53_million during April 2023, registering a 17.15% fall. The decline was on account of the global economic slowdown and factors such as Russia-Ukraine war and suspension of EU GSP for Leather and Fur products during 2023, among others.

Nevertheless, the exports are expected to revive in FY 2023-24, supported by the recent Free Trade Agreements (FTAs) with UAE and Australia with 0% duty for Leather, Leather Products and Footwear, resulting in an increase of exports to these markets. The exports to UAE increased from USD 105.48 million in FY 2021-22 to USD 123.87 million in FY 2022-23, registering 17.43% growth. Though the FTAs with Australia came into force only on December 29, 2022, the exports to Australia increased from USD 91.23 million in FY 2021-22 to USD 94.01 million in FY 2022-23, registering 3.05% growth.

EU and UK accounts for 52% of Indian Footwear and Leather sector exports. FTAs with 0% duty for Leather, Leather Products and Footwear within these regions will thus play a crucial role in accelerating the exports. The export to Canada increased from USD 47.05 million in FY 2019-20 to USD 70.35 million in FY 2022-23, growing by 49.52%. The FTAs with Canada are therefore expected to increase the market share of Indian exports of Leather, Leather Products and Footwear considerably, which stands at about 2% currently.

OPPORTUNITIES AND THREAT

Opportunities:

Industry trends and forecasts predict that the global footwear market will grow by 12.83% year-on-year by 2028. The growth in demand is expected to be driven by factors such as changing lifestyles, growing economies and a massive shift in consumer perspective. Today, consumers perception about footwear has transcended the boundaries of their basic purpose and functionality, making it a product that represents fashion and style. The leather and non-leather segments, driven by a robust domestic demand, comprise the Indian footwear industry. As per a report by Invest India, the Non-leather Footwear Industry in India is projected to increase eight-fold by 2030. The industry is expected to cross the USD 6 billion mark by 2024.

Led by the evolving consumer preferences, 86% of the global footwear consumption by volume includes non-leather products, with India witnessing a similar trend._ Nevertheless, leather footwear continues to be a significant part of the industry and is a major export category for India, with the UK being one of the leading export destinations for the Indian leather footwear.

The Company remains open to explore, experiment, and appreciate new thoughts and ideas with the objective to continuously meet and exceed customer expectations. Innovating at MIL is not only limited to its products, but is also incorporated in its brand representation and has become a part of its brand identity. The Company strives to stand by its core values that enables it to stay aligned to its purpose and long-term vision, in the interest of all its stakeholders.

Threats and challenges:

Consumers, in the 21^st century, are_ more educated and knowledgeable,_ and therefore, more demanding than ever before. The number of consumers with easy access to widespread information and in favour of certain causes is rapidly increasing. This presents a serious challenge for the Footwear industry, creating an urgent need for the players to keep a track of and quickly adapt to the changing consumer preferences, which plays a fundamental role in their purchasing decisions.

To mitigate this challenge, MIL is required to adapt to the new fashion trends as well as consider the new set of consumer desires and beliefs. As consumers now demand more transparency and security, they search for footwear that is safe and made in accordance with the existing regulations, placing enormous significance on quality, comfort, and ensuring that they do not cause any health hazard. Besides, some consumers also express concerns about the origin and manufacturing of such products.

The Footwear industry is predominantly unorganised and scattered across different parts of the country, with Uttar Pradesh and Tamil Nadu being the biggest footwear-related markets. Though technology is being increasingly adopted and enabling modernisation of the Footwear industry, most of the products are currently handmade. Other than this, the industry is challenged by fluctuations in foreign exchange rate and crude oil price and the sectors development is also deterred by absence of or poor policies.

Tough competition from unorganised players

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. This will intensify competition as organised players will pass the price benefits to the consumers, while unorganised players try to enter the organised space.

Sluggish growth of Indian leather footwear market

The United Kingdom is one of the leading export destinations for Indian footwear. However, with BREXIT affecting the value of British pound (GBP), the Indian leather export has been severely impacted. Government policies banning animal slaughter on leather tanneries has further impacted leather availability, leading to a sluggish industry growth.

Import from China

63% of Indias imported footwear is sourced from China. Chinese footwear, being cheaper and sold in the unorganised retail market, proves disadvantageous for the Indian footwear manufacturers.

The Company monitors its major risks and concerns at regular intervals. Appropriate steps are taken in consultation with concerned individuals and authorities, including the Risk Management Committee and the Audit Committee of the Board, to identify and mitigate such risks.

RISKS, CONCERNS, AND CONTINGENT LIABILITIES

Economic and political factors, both national and global, that are beyond control, and factors force majeure, may directly affect performance of the Company as well as the Footwear industry. These factors include interest rates and its impact on availability of retail space, rate of economic growth, fiscal and monetary policies of governments,_inflation, defiation, consumer credit availability, consumer debt levels, tax rates and policies, unemployment trends, terrorist threats and activities, worldwide military and domestic disturbances and conflicts, pandemics, and other matters that influence consumer confidence and spending.

Risks are an integral part of any business environment and it is essential that the Company has suitable processes to identify and alleviate such risks concerning its business. MIL believes that adequate risk management ensures controls and monitoring mechanism supports smooth and uninterrupted running of the Companys business. The risk management policy is periodically reviewed by the Companys Board and the risk management systems are constantly evaluated by MILs Audit Committee of the Board. The identified risks and concerns include competitive business environment, varying consumer preferences, import of finished footwear at lower prices, showroom/ office occupancy cost, foreign currency fluctuation, and the fragmented structure of the industry.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Well-designed internal control systems lay down the framework for day-to-day operations, provide guidelines for employees and, most importantly, provide a certain level of security against a variety of risks such as fraud and misappropriation. The system involves all policies and procedures laid down by the management to control the organisation and its people with the objective to achieve its goal. MILs control system and procedures are regularly reviewed for relevance and effectiveness and modified in alignment with the evolving business environment.

The Company has an Audit Committee consisting of Independent Directors, details of which has been mentioned in the Corporate Governance Report. An independent Chartered Accountant firm has been appointed as the Internal Auditors to the Company and is responsible for reviewing the effectiveness of MILs internal control mechanism at regular intervals. The periodic audit reports submitted by the Internal Auditors, along with suggestions for improvement, are reviewed by the Audit Committee. Relevant suggestions are then considered, in discussion with the Management, and implemented by initiating corrective actions and improvements in business processes. The Audit Committee also meets the Companys Statutory Auditors, from time to time, to ascertain, inter-alia, their views on the adequacy of MILs internal control systems. It also keeps the Board of Directors informed about the major observations on a regular basis.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

Mirza International Limited is differentiated by its diverse talent pool of highly experienced people from various sectors whose extensive knowledge create the building blocks of a world-class company. With multiple initiatives that encourage the employees to learn from each other and develop their true potential, the Company fosters a work environment that is fair and inclusive. MIL is strengthened by over 1,672 permanent employees as on March 31, 2023.

OCCUPATIONAL HEALTH AND SAFETY

Commitment

MIL is committed to carrying out its operations free from accidents and occupational illnesses. It strives to implement world-class safety practices for all stakeholders, including employees and contractors. The Company firmly believes that providing a safe working environment is not only a statutory requirement but also its moral responsibility.

RESOURCES

A team of highly qualified, experienced and skilled professionals is deputed to provide management with the required support on occupational health, safety and fire-related matters. The Company deploys latest in-built safety technologies and systems across all new projects and business expansions to safeguard its employees against any operational hazards. State-of-the-art fire prevention and mitigation technologies further ensure utmost safety at work. The Company complies with the highest industry standards to safeguard the interest of employees. These standards address General Safety, Occupational Health, Process Safety and Emergency Preparedness.

HEALTH AND SAFETY STANDARDS

The Companys operations conform to the Health & Safety standards. The Company is continually focussed at improving employee safety, reducing workplace risks and creating better, safer working conditions.

MANAGEMENT ENGAGEMENT

The Company firmly believes in ensuring safety, health and wellbeing of its employees at the workplace. It is committed to upgrade the skills of its employees and to create an environment where excellence is recognised and rewarded. The target is to place the right people at the right position and to enhance the efficiency, working speed, competency and time management skill of its employees. MIL endeavours to create an environment where people can utilise their capabilities in promoting the business of the Company.

FINANCIAL PERFORMANCE

The key indicators of the financial performance of the Company for the Financial Year 2022-23 were as under:

Particulars	FY 2022-23	FY 2021-22
1. Total Revenue	63,208.40	1,40,283.73
2. Total Expenses excluding Finance Cost & Depreciation	56,494.04	1,20,841.67
3. EBIDTA (Earnings before Interest, Depreciation & Tax)	6,714.36	19,442.06
4. Finance Costs	773.31	2,300.63
5. Depreciation and Amortisation Expense	2,530.30	5,757.36
6. Profit/Loss before Exceptional items (3-4-5)	3,410.75	11,384.07
7. Add Exceptional Items [Gain (+)/ Loss(-)]	-	-
8. Profit/Loss from Continuing Operations Before Tax (6-7)	3,410.75	11,384.07
9. Tax Expense	792.45	2,824.56
10. Profit/Loss from Continuing Operations After Tax	2,618.30	8,559.52
11. Profit/Loss from Discontinued Operations After Tax	-	-
12. Profit/Loss for the year after Tax	2,618.30	8,559.52
13. Other Comprehensive Income	(72.07)	188.61
14. Total Comprehensive Income (12+13)	2,546.23	8,748.13
15. Basic EPS (per share of Rs. 2/-) (in Rs.)	1.89	7.11
16. Diluted EPS (per share of Rs. 2/-) (in Rs.)	1.89	7.11

Segment-Wise Performance & Review of Operations

Segment Revenue	FY 2022-23	FY 2021-22
a. Export and Other Sales	52,616.85	50,386.69
b. Domestic and Other Sales under own brand	14,110.24	96,188.79
Total	66,727.09	1,46,575.48
Unallocated	502.71	1,721.15
Total	67,229.80	1,48,296.63
Less: Inter-segment Revenue	4,021.40	8,012.90
Total Revenue	63,208.40	1,40,283.73
Segment Profit / Loss	FY 2022-23	FY 2021-22
a. Export and Other Sales	3,750.53	4,882.64
b. Domestic and Other Sales under own brand	541.19	7,839.41
Total	4,291.72	12,722.05
Unallocated	502.71	1,721.15
Total	4,794.43	14,443.20
Less: Interest	773.31	2,300.63
Less: Unallocated	610.37	758.51
Profit from continuing operations before Tax	3,410.75	11,382.06

Details of significant changes in key financial ratios along with explanation

Change of 25% or more in the key financial ratios of the Company for financial year 2022-23 as compared to financial year 2021-22, is mentioned below along with the explanation:

	FY 2022-23	FY 2021-22	Variation (in %)
Debtors Turnover	6.71	8.88	-24.43
Inventory Turnover	4.33	3.82	13.35
Interest Coverage Ratio	8.68	8.45	2.72
Current Ratio	2.51	1.97	27.41
Debt Equity Ratio	0.06	0.11	-45.45
Operating Profit Margin (%)	6.62	9.76	-32.17
Net Profit Margin (%)	4.03	6.24	-35.42
Return on Net Worth	5.59	20.15	-72.53

Pursuant to approval of Composite Scheme of Arrangement of RTS Fashions Private Limited, Mirza International Limited and REDTAPE Limited by Honble National Company Law Tribunal, Allahabad Bench, Prayagraj vide their order dated February 21, 2023, the Scheme has become effective from February 25, 2023, upon filing of copy of order with the Registrar of Companies, Kanpur. The Appointed date of the Scheme is January 1, 2023. The demerger of branded business/REDTAPE Business of Mirza International Limited into REDTAPE Limited as on appointed date January 1, 2022, the Balances of March 31, 2022 have been restated, therefore, the ratios are not comparable.

Cautionary statement

There are certain Statements which have been made in the Management Discussion and Analysis Report describing the estimates, expectations or predictions, may be read as ‘forward-looking statements within the meaning of applicable laws and regulations. The actual results may differ materially from those expressed or implied. The important factors that would make a difference to the Companys operations include demand-supply conditions, raw material prices, changes in Government policies, governing laws, tax regimes, global economic developments, and other factors such as litigation and labour negotiations.