Decoding Mirza International's FY23: A Deep Dive into Their Annual Report
A Snapshot of the Financials (FY2022-23)
Before we get into the story, let's look at the headline numbers. These figures give us a quick health check of the company's financial state for the fiscal year ending March 31, 2023. Think of this as the scoreboard.
A Crucial Note:
The most significant event of FY23 was the demerger of its branded business (including the popular Red Tape brand) into a new, separate company called Red Tape Ltd. This means the Mirza International we are analyzing today is a different entity from what it was a year ago. The financial numbers reflect this massive change, as a large chunk of the business was moved to the new company.
Here are the consolidated numbers for Mirza International Ltd. post-demerger:
Financial Metric What it Means FY 2022-23 Figure (in ₹ Crores)
Revenue from Operations The total money earned from selling its products and services. ₹ 628.21
Profit After Tax (PAT) The final "take-home" profit after all expenses and taxes are paid. ₹ 45.42
Total Assets Everything the company owns (factories, cash, inventory, etc.). ₹ 788.63
Total Liabilities Everything the company owes (loans, payments to suppliers, etc.). ₹ 243.15
Cash from Operations Cash generated from the core business activities. ₹ 100.95
The numbers themselves, especially revenue, might look smaller compared to the previous year. However, this is expected and primarily due to the demerger, not necessarily a drop in performance of the remaining business. The real story lies in the management’s explanation.
Management Discussion and Analysis (MD&A): The Heart of the Report
This is where the company's leadership team tells their side of the story. They explain the why behind the numbers, discuss the business environment, and share their vision for the future. For Mirza International, the FY23 MD&A is all about navigating the post-demerger landscape.
The Big Story: The Demerger Explained
Imagine a large family business that makes two things:
high-quality leather and finished, branded shoes. To unlock more value and allow each business to focus on what it does best, they decide to split.
Mirza International Ltd. (The company this report is about):
This entity now primarily focuses on the manufacturing side. It's the B2B (business-to-business) powerhouse. It operates tanneries to produce finished leather and has factories to manufacture shoes. Its main customers are international brands and the newly formed Red Tape Ltd.
Red Tape Ltd. (The new, separate company):
This is the consumer-facing business. It owns the "Red Tape" brand, manages the retail stores, handles marketing, and sells directly to you and me.
Why did they do this? The management believes this split will:
Unlock Value:
Allow investors to invest specifically in either the manufacturing business or the branded retail business.
Sharpen Focus:
Let each management team concentrate on its core strengths—manufacturing excellence for Mirza International and brand-building for Red Tape Ltd.
Improve Efficiency:
Streamline operations and create a more agile structure for both companies.
This demerger is the single most important context for understanding the rest of the report.
A Look at the Business: What Does Mirza International Do Now?
Post-demerger, Mirza International operates through two primary divisions:
Tannery Division:
This is the foundation of the business. The company processes raw hides and skins into finished leather.
They have multiple state-of-the-art tanneries located in Unnao, Uttar Pradesh.
The leather they produce is not just for their own shoe-making but is also sold to other footwear and leather goods manufacturers in India and around the world.
They are one of the largest tanners and exporters of finished leather from India.
Shoe Division:
This division manufactures footwear. They produce formal shoes, casual shoes, and boots.
A significant portion of their production is on behalf of the new "Red Tape Ltd." company, solidifying the relationship between the two entities.
They also export footwear to major international markets, selling to well-known global brands and retailers. Their key export markets are the UK, Europe, and the USA.
Performance Analysis: Management's View on FY23
The management acknowledges that the financial year was one of "transition and transformation." Here’s how they break down the performance:
Revenue:
The consolidated revenue stood at ₹628.21 crores. The decrease from the previous year is directly attributed to the hiving off of the branded and domestic retail business. The management emphasizes that the underlying performance of the continuing leather and export business remains robust.
Exports:
Exports are the lifeblood of the new Mirza International. They form a significant chunk of the revenue. The company has long-standing relationships with major global brands, which provides a stable revenue stream.
Profitability:
The Profit After Tax (PAT) was ₹45.42 crores. The management notes that profitability was impacted by global headwinds. The economic slowdown in Europe and the UK (their primary export markets) due to high inflation and geopolitical tensions (like the Russia-Ukraine war) softened demand. This means their international clients were more cautious with their orders.
Operational Efficiency:
The company continues to focus on modernizing its manufacturing facilities to improve efficiency and maintain high-quality standards, which is crucial for retaining its international clients.
What’s on the Horizon? (Opportunities & Outlook)
Management is optimistic about the future, citing several key opportunities:
"China Plus One" Strategy:
Global companies are actively looking to diversify their manufacturing away from China. As a well-established manufacturer with a reputation for quality, Mirza International is perfectly positioned to capture this new business.
Government Initiatives:
Programs like "Make in India" and the Production Linked Incentive (PLI) scheme for the leather and footwear sector are expected to provide a significant boost. These initiatives offer financial incentives for increasing domestic production, which directly benefits Mirza International.
Growing Domestic Demand:
While Red Tape Ltd. handles the direct retail, Mirza International will benefit from the overall growth in the Indian footwear market by being a key supplier.
Stable Relationship with Red Tape Ltd.:
The demerger came with a built-in, key customer. The ongoing business from the fast-growing Red Tape brand provides a baseline of stable and predictable revenue.
Focus on Sustainability:
There is a growing global demand for sustainably and ethically produced leather. The management highlights their commitment to environmentally friendly processes, which can be a key competitive advantage when dealing with major international brands.
The Hurdles Ahead (Risks & Concerns)
The management is also realistic about the challenges the company faces:
Geopolitical Risks:
The ongoing war in Ukraine and general economic instability in Europe could continue to dampen demand for their exports. A recession in the UK or Eurozone would directly impact their order book.
Currency Fluctuations:
As a major exporter, the company earns in foreign currencies (like USD, GBP, and Euros) but spends in Indian Rupees (INR). Wild swings in exchange rates can impact profitability.
Raw Material Price Volatility:
The price of raw hides, a key input, can be volatile and depends on various global factors. A sudden spike in prices can squeeze profit margins.
Competition:
The company faces stiff competition from other manufacturers in India as well as in other low-cost countries like Vietnam and Bangladesh.
Regulatory & Environmental Compliance:
The leather industry is subject to strict environmental regulations. The company must continuously invest in technology and processes to remain compliant, which involves costs.
Auditor's Report: The Independent Stamp of Approval
After the management tells their story, the independent auditors give their opinion. Think of the auditors as impartial examiners who check if the company's financial "report card" has been prepared according to the rules (i.e., accounting standards).
For Mirza International's FY23 report, the auditors issued an "unqualified opinion."
In simple terms, this is a clean chit. It means the auditors believe that the financial statements present a true and fair view of the company's financial position and performance. They found no major misstatements or discrepancies.
The auditors did highlight a "Key Audit Matter," which is something they paid special attention to because of its complexity. Unsurprisingly, this was the "accounting for the Scheme of Arrangement for the demerger." Splitting a company into two is a highly complex financial exercise, and the auditors spent significant effort verifying that all the assets, liabilities, and reserves were transferred and accounted for correctly. Their clean opinion indicates they were satisfied with how it was handled.