Mirza International Ltd 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.

INDUSTRY STRUCTURE AND KEY DEVELOPMENTS

The Indian Footwear and Leather sector has created a niche for itself in the global market through effective utilisation of its inherent strengths of huge raw material base and labour availability, and through implementation of modern production technologies. With active support from the Government, the sector has made huge investments in the modernisation and technological upgradation of production units and towards the skill development of its workforce. These investments have resulted in creation of innovative products, in line with the varying requirements of the buyers.

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:

• Development of infrastructure for the Leather and Footwear sector

• Address environment concerns specific to the Leather and Footwear sector

• Facilitate additional investments

• Employment generation

• Improvement in production

The scheme has an approved financial outlay of _1,700 Crores and has been extended to March 31, 2026, or till further review, by the Central Government.

The scheme is implemented through the following_ sub-schemes under IFLDP during 2021-26:

• Sustainable Technology and Environmental Promotion (outlay _500 Crores)

• Integrated Development of Leather Sector (IDLS) (outlay _500 Crores)

• Establishment of Institutional Facilities (outlay _200 Crores)

• Mega Leather Footwear and Accessories Cluster Development (MLFACD) (outlay _300 Crores)

• Brand Promotion of Indian Brands in Leather and Footwear Sector (outlay _100 Crores)

• Development of Design Studios (outlay _100 Crores)

INDIAN LEATHER INDUSTRY: ECONOMIC OVERVIEW

Indian Leather, Leather Products and Footwear Industry holds a prominent place in the Indian economy. This sector is known for its consistency in high export earnings and is among the top ten foreign exchange earners for the country. India is the second-largest exporter of leather garments, third-largest exporter of Saddlery & Harness, and fourth-largest exporter of Leather Goods in the world.

Driven by an increasing demand for leather products in the fashion industry, the global leather market is projected to grow at a CAGR of 5.1% from 2021 to 2026. The Indian leather industry also holds immense potential for growth, fuelled by the countrys growing middle-class population, rising disposable income, and increasing urbanisation. Other than the local factors, the industry is also projected to benefit from the ongoing trade tensions between the USA and China, which may cause a substantial increase in its exports to the USA, which is its largest export market.

To tap into this potential, the Indian leather industry is required to focus on modernisation, technology adoption, and sustainability. Adopting modern techniques, such as automation, will enable the industry to increase productivity and reduce costs while deploying advanced technology may lead to considerable reduction in the tanning industrys environmental impact. Use of eco-friendly materials, such as vegetable-tanned leather, which is gaining popularity in the fashion industry, can further prove beneficial in the industrys journey to sustainability.

In addition to concentrating on the aforementioned growth aspects, the Indian leather industry is also required to emphasise on boosting its exports to other countries. This can be achieved through improvement in product quality and consistent focus on value addition. Entering into strategic partnerships with international brands and retailers can also deliver positive results. Moreover, support can be availed from the Indian government in the form of increased incentives and subsidies for the leather industry as well as its promotion in international trade fairs and exhibitions.

Tanning Sector

• Annual availability of leather in India is about 3 billion sq. ft.

• India accounts for 13% of worlds leather production

• Indian leather trends/colours are continuously being selected at the MODEUROPE Congress

Footwear Sector

• India is the second-largest consumer of footwear after China, with a consumption of 2.60 billion pairs

• Footwear (leather and non-leather) export accounts for about 51% share in Indian leather and footwear industrys export (2022-23)

Leather Garments Sector

• India is the second-largest global exporter of Leather Garments

• Accounts for 7% share of Indias total export from leather sector (2022-23)

Leather Goods & Accessories Sector (including Saddlery & Harness)

• India is the fifth-largest global exporter of Leather Goods & Accessories and third-largest exporter of Saddlery and Harness items

• Accounts for 29% share of Indias total export from leather sector (2022-23)

OPPORTUNITIES AND THREATS Opportunities

The Indian footwear market, currently valued at USD 26 billion, is expected to reach USD 90 billion by 2030. India is the second-largest global producer of footwear, contributing 13% to worldwide production and holding a 2.2% share in global exports. The countrys strength lies in leather shoes, which currently holds a dominant 70% share in the Indian market, and contributed to exports worth USD 2.2 billion in 2022.

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.

Compared to larger markets like China (USD_180 billion), the USA (USD_ 100 billion), and Japan (USD_ 40 billion), Indias market is relatively small. Indians spend, on an average, USD_18.2 per person on footwear, much lower than the per capita spending in China (USD_128.6), the USA (USD_303), and Japan (USD_333.3).

Indias per capita expenditure in footwear is low, leather shoes dominate the Indian market.

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.

Rising consumer awareness and concerns

Consumers, in the 21st 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 desires and beliefs of new set of customers. With an increase in demand for transparency and security, consumers now search for footwear that is safe and made in accordance with the existing regulations. Moreover, they place enormous significance on quality and comfort, and on ensuring that the products do not cause any health hazard. Some consumers also express their concerns about the origin and manufacturing of such products causing health hazards.

Inclination towards Taiwanese manufacturers

The Footwear manufacturing industry is dominated by Taiwanese contract manufacturers that make footwear brands like Nike, Adidas, Puma, etc. India must attempt to attract more Taiwanese contract manufacturers to attract global brands and secure their manufacturing contracts.

Limited innovation in design and manufacturing

Indian footwear manufacturers often replicate existing designs instead of innovating and creating new ones. In contrast, Chinas consistent investments in Design and R&D centres enables it to create new designs, materials and technologies for shoe production. For the Indian Footwear industry to compete on a global scale, it must focus on improving designs and enhancing its product development skills. Investing in Design and R&D Centres, other than elevating products, would also align India to the global trend of using sustainable and eco-friendly products, and facilitate a shift from traditional manufacturing methods to more advanced, automated, and large-scale production techniques.

Other challenges

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. Moreover, the industry is challenged by fluctuations in foreign exchange rate and crude oil price. The sectors development is also deterred by absence of/or poor policies.

RISKS, CONCERNS, AND CONTINGENT LIABILITIES

Economic and political factors, both national and global, that are beyond control, and factors force majeure, may directly affect the 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. The Internal Auditors of the Company are 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 has been continuously working to advance human resources skills, competencies and capabilities within the organisation, which are critical to achieve desired results in line with its strategic business ambitions. Your Company 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 1,662 permanent employees as on March 31, 2024.

OCCUPATIONAL HEALTH AND SAFETY Commitment

Mirza International Limited 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 ensures improving employee safety, reducing workplace risks and creating better, safer working conditions in Companys operations.

MANAGEMENT ENGAGEMENT

The Company always believes that its growth is closely linked with the growth and overall development of its employees. The Company is committed to upgrading the skill 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. The Companys endeavour is to create an environment where people can use their entire capabilities in promoting the business of the Company.

FINANCIAL PERFORMANCE

The key indicators of the financial performance of the Company for the Financial Year 2023-24 are as under:

Segment-Wise Performance & Review of Operations

CAUTIONARY STATEMENT

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.