The results reveal a company grappling with margin pressures and seasonal headwinds, with net sales declining 18.39% year-on-year to ₹164.36 crores despite a sequential recovery of 15.66% from Q1 FY26. The stock, trading at ₹37.94 as of November 07, 2025, has underperformed the broader market with an 8.00% decline over the past year compared to the Sensex's 4.62% gain.
The dramatic quarter-on-quarter profit decline reflects the normalisation from an exceptionally strong Q1 FY26, which saw an unusual profit surge to ₹17.81 crores. However, the year-on-year deterioration points to more fundamental challenges in maintaining profitability levels achieved in prior periods. The company's operating profit margin contracted to 7.71% in Q2 FY26 from 8.93% in the previous quarter and 8.38% in the year-ago period, indicating persistent pressure on operational efficiency.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 164.36 | 142.11 | 121.95 | 114.38 | 201.39 | 143.51 | 152.39 |
| QoQ Growth | +15.66% | +16.53% | +6.62% | -43.20% | +40.33% | -5.83% | — |
| Net Profit (₹ Cr) | 2.15 | 17.81 | -4.40 | -5.69 | 5.90 | 0.64 | 1.22 |
| Operating Margin | 7.71% | 8.93% | 4.61% | 2.74% | 8.38% | 7.32% | 7.89% |
| PAT Margin | 1.31% | 12.53% | -3.61% | -4.97% | 2.93% | 0.45% | 0.80% |
Financial Performance: Margin Compression Drives Profit Decline
The quarter-on-quarter revenue growth of 15.66% to ₹164.36 crores marked a recovery from the subdued Q1 FY26 base of ₹142.11 crores, but remained substantially below the ₹201.39 crores achieved in Q2 FY25. This 18.39% year-on-year sales contraction reflects both seasonal variations and potential market share challenges in the competitive leather footwear industry.
Operating profit before depreciation, interest, tax and other income (PBDIT excluding OI) stood at ₹12.68 crores, virtually flat quarter-on-quarter at ₹12.69 crores but down sharply from ₹16.88 crores in the year-ago period. The operating margin compression to 7.71% from 8.38% year-on-year suggests intensifying competitive pressures or rising input costs that the company has been unable to fully pass through to customers.
Employee costs increased to ₹21.89 crores in Q2 FY26 from ₹19.61 crores in the previous quarter, though they remained below the ₹23.99 crores recorded in Q2 FY25. Interest expenses remained relatively stable at ₹2.27 crores, marginally down from ₹2.29 crores in Q1 FY26, reflecting the company's low-leverage balance sheet with minimal debt of ₹48.74 crores as of March 2025.
The profit before tax of ₹3.08 crores represented an 85.68% quarter-on-quarter decline from the exceptional ₹21.51 crores in Q1 FY26, which appears to have been an outlier quarter. The tax rate of 30.19% in Q2 FY26 was more normalised compared to the unusually low 17.20% in the preceding quarter, contributing to the sharp net profit decline.
Operational Challenges: Weak Returns on Capital Employed
Mirza International's return on equity (ROE) averaged a modest 7.04% over recent periods, with the latest annual ROE turning negative at -0.63% for FY25, reflecting the company's loss-making position in that fiscal year. This represents a significant deterioration from historical levels and underscores fundamental profitability challenges. The return on capital employed (ROCE) averaged 10.58% but collapsed to just 0.94% in the latest period, indicating severely diminished capital efficiency.
The company's balance sheet reveals a relatively healthy financial position with shareholder funds of ₹564.36 crores as of March 2025, up from ₹552.64 crores in the previous year. Long-term debt has been virtually eliminated, standing at zero as of March 2025 compared to ₹0.46 crores in March 2024. Current liabilities of ₹132.77 crores are comfortably covered by current assets of ₹304.80 crores, providing adequate liquidity cushion.
Fixed assets increased to ₹386.28 crores from ₹362.52 crores, reflecting ongoing capital investments in manufacturing infrastructure. The company generated operating cash flow of ₹28.00 crores in FY25, though this marked a significant decline from ₹50.00 crores in FY24. The operating cash flow deterioration to ₹21.48 crores in the latest six-month period represents the lowest level in recent years, raising concerns about working capital management and cash generation capability.
⚠️ Critical Concern: Deteriorating Capital Efficiency
Mirza International's ROCE has plummeted to just 0.94% in the latest period from an average of 10.58%, whilst ROE has turned negative at -0.63% for FY25. This dramatic deterioration in returns on capital employed signals fundamental challenges in generating adequate returns from the company's asset base and raises questions about the effectiveness of recent capital investments.
Industry Context: Navigating a Challenging Consumer Environment
The diversified consumer products sector has faced significant headwinds, with the industry delivering a negative 27.90% return over the past year. Against this backdrop, Mirza International's 8.00% decline appears relatively resilient, outperforming the sector by 19.90 percentage points. However, this relative outperformance masks the company's absolute underperformance against the broader Sensex, which gained 4.62% over the same period.
The leather footwear industry remains highly competitive and fragmented, with companies facing pressure from both organised retail players and unorganised manufacturers. Rising input costs, particularly for leather and synthetic materials, have compressed margins across the industry. Additionally, changing consumer preferences towards branded athletic footwear and online retail channels have disrupted traditional distribution models.
Mirza International's export-oriented business model exposes it to global demand fluctuations and currency volatility. The company's 5-year sales growth rate of -10.96% and EBIT growth of -35.61% reflect the structural challenges in maintaining market position and profitability in an evolving industry landscape.
| Metric | 5-Year Trend | Assessment |
|---|---|---|
| Sales Growth (CAGR) | -10.96% | Declining revenue trajectory |
| EBIT Growth (CAGR) | -35.61% | Severe profitability erosion |
| Avg EBIT to Interest | 3.74x | Adequate but weakening coverage |
| Avg Debt to EBITDA | 0.80x | Low leverage provides flexibility |
Peer Comparison: Valuation Discount Reflects Weak Fundamentals
Mirza International's financial metrics position it at the lower end of its peer group in the diversified consumer products sector. With a price-to-book value of 0.93x, the stock trades at a discount to most peers, reflecting market scepticism about the company's ability to generate adequate returns on equity. The company's ROE of 7.04% compares favourably to some peers like Global Surfaces (4.98%) and Exxaro Tiles (1.30%), but lags behind Wim Plast's 9.67%.
The company's loss-making status in FY25 results in an undefined P/E ratio, making traditional valuation comparisons challenging. This loss-making position stands in stark contrast to peers like Exxaro Tiles (P/E of 78.11x) and Orient Bell (P/E of 99.26x), which command premium valuations despite modest ROEs. The market appears to be pricing in continued profitability challenges for Mirza International, resulting in the valuation discount.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity |
|---|---|---|---|---|
| Mirza International | NA (Loss Making) | 0.93x | 7.04% | 0.05x |
| Wim Plast | 10.12x | 1.13x | 9.67% | -0.58x |
| Global Surfaces | NA (Loss Making) | 1.83x | 4.98% | 0.64x |
| Exxaro Tiles | 78.11x | 1.53x | 1.30% | 0.32x |
| Orient Bell | 99.26x | 1.36x | 4.35% | 0.04x |
With a market capitalisation of ₹497.00 crores, Mirza International ranks fourth amongst its peer group, reflecting its micro-cap status. The company's low debt-to-equity ratio of 0.05x provides financial flexibility, but this advantage is offset by weak profitability and declining sales trajectory.
Valuation Analysis: Deep Discount Fails to Compensate for Weak Fundamentals
Trading at a price-to-book value of 0.93x, Mirza International's shares are valued below the company's stated book value of ₹40.84 per share, suggesting the market doubts the realisable value of the company's assets or its ability to generate adequate returns. The stock's valuation grade has deteriorated to "Very Expensive" according to proprietary metrics, an apparent contradiction given the low P/BV ratio but reflecting the company's negative earnings and deteriorating fundamentals.
The EV/EBITDA multiple of 14.41x appears reasonable on the surface, but becomes less attractive when considering the company's declining profitability trajectory. The EV/Sales ratio of 0.95x indicates the market values the entire enterprise at slightly below annual revenues, typical for low-margin, capital-intensive manufacturing businesses with uncertain growth prospects.
The absence of P/E ratio due to loss-making status eliminates a key valuation anchor for investors. The company's negative ROE of -0.63% for FY25 and collapsed ROCE of 0.94% suggest that even the current depressed valuation may not represent compelling value until operational improvements materialise.
Shareholding Pattern: Stable Promoter Base with Minimal Institutional Interest
Promoter holding in Mirza International stood at 71.37% as of September 2025, marginally increasing by 10 basis points from 71.27% in the previous quarter. This stable and substantial promoter stake, led by the Mirza family with Tauseef Ahmad Mirza (22.02%) and Tasneef Ahmad Mirza (21.76%) as the largest shareholders, provides management continuity but also limits free float availability.
Institutional interest remains negligible, with FII holdings at just 0.14% and mutual fund holdings at 0.00%. The absence of institutional investor participation signals limited confidence from professional money managers in the company's prospects. Other domestic institutional investors hold a minimal 0.01% stake, whilst non-institutional shareholders account for 28.48% of equity.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 71.37% | 71.27% | 71.27% | +0.10% |
| FII | 0.14% | 0.14% | 0.14% | 0.00% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.01% | 0.01% | 0.01% | 0.00% |
| Non-Institutional | 28.48% | 28.58% | 28.58% | -0.10% |
The minimal institutional holding of just 0.15% represents a significant concern, as it suggests sophisticated investors see limited value or growth potential in the stock. The absence of mutual fund participation is particularly noteworthy, as these investors typically seek companies with improving fundamentals and sustainable competitive advantages.
Stock Performance: Underperformance Across Timeframes
Mirza International's stock has delivered disappointing returns across most timeframes, particularly in recent periods. Over the past year, the stock declined 8.00% whilst the Sensex gained 4.62%, resulting in a negative alpha of -12.62 percentage points. The underperformance has been even more pronounced over two years, with the stock falling 19.50% compared to the Sensex's 28.14% gain, creating a stark -47.64 percentage point alpha gap.
However, longer-term performance paints a more nuanced picture. Over five years, the stock has delivered exceptional returns of 520.64% compared to the Sensex's 98.64%, generating a remarkable +422.00 percentage point alpha. This suggests the company enjoyed a period of strong operational performance in the past, from which it has since deteriorated significantly.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +1.42% | -0.86% | +2.28% |
| 1 Month | -1.89% | +1.57% | -3.46% |
| 3 Months | +9.59% | +3.22% | +6.37% |
| 6 Months | +26.47% | +3.06% | +23.41% |
| 1 Year | -8.00% | +4.62% | -12.62% |
| 2 Years | -19.50% | +28.14% | -47.64% |
| 3 Years | -3.31% | +36.01% | -39.32% |
| 5 Years | +520.64% | +98.64% | +422.00% |
The stock's high beta of 1.50 indicates significantly higher volatility than the broader market, with a volatility measure of 49.92% compared to the Sensex's 12.35%. This elevated volatility, combined with negative recent returns, results in a risk-adjusted return of -0.16 and classifies the stock in the "HIGH RISK LOW RETURN" category.
Technical indicators present a mixed picture, with the overall trend classified as "Mildly Bullish" as of October 31, 2025. The stock trades below most key moving averages, including the 5-day (₹37.19), 20-day (₹38.05), 50-day (₹37.17), 100-day (₹35.06), and 200-day (₹33.17) moving averages, suggesting weak near-term momentum despite the mildly bullish classification.
Investment Thesis: Multiple Red Flags Outweigh Positives
The investment case for Mirza International is challenged by several fundamental weaknesses that outweigh the stock's apparent valuation discount. The company's quality grade has deteriorated to "Below Average," reflecting weak long-term financial performance characterised by a -10.96% sales CAGR and a severe -35.61% EBIT CAGR over the past five years.
The financial trend is classified as "Flat" for Q2 FY26, a marginal improvement from the "Negative" and "Very Negative" trends seen in previous quarters. However, this stabilisation comes off a low base and does not indicate a sustainable turnaround. Operating cash flow has declined to its lowest level at ₹21.48 crores for the latest six-month period, whilst profit after tax of ₹4.55 crores for the half-year represents a 30.41% decline.
Key Strengths & Risk Factors
✓ Key Strengths
- Strong Balance Sheet: Virtually debt-free with long-term debt eliminated and net debt-to-equity of just 0.05x
- Stable Promoter Base: 71.37% promoter holding provides management continuity with no pledging of shares
- Adequate Liquidity: Current assets of ₹304.80 crores comfortably cover current liabilities of ₹132.77 crores
- Sector Outperformance: 1-year decline of 8.00% compares favourably to sector's -27.90% fall
- Long-Term Track Record: 5-year returns of 520.64% demonstrate past operational excellence
- Recent Sequential Recovery: Q2 FY26 revenue up 15.66% QoQ suggests seasonal stabilisation
- Established Brand: Long operating history since 1979 in leather footwear manufacturing
⚠ Key Concerns
- Severe Profit Decline: Net profit crashed 87.93% QoQ and 63.56% YoY to just ₹2.15 crores in Q2 FY26
- Negative ROE: Latest ROE at -0.63% for FY25 reflects loss-making status and poor capital efficiency
- Collapsing ROCE: ROCE plummeted to 0.94% from average of 10.58%, indicating severely diminished returns
- Declining Sales Trajectory: 5-year sales CAGR of -10.96% and 18.39% YoY decline in Q2 FY26
- Margin Compression: Operating margin contracted to 7.71% from 8.38% YoY, PAT margin at just 1.31%
- Deteriorating Cash Flow: Operating cash flow at lowest level of ₹21.48 crores for latest six months
- Zero Institutional Interest: Minimal 0.15% institutional holding signals lack of professional investor confidence
- High Volatility: Beta of 1.50 and volatility of 49.92% create high-risk profile
Outlook: Critical Monitoring Points
Positive Catalysts to Watch
- Sustained quarter-on-quarter revenue growth exceeding 15% indicating demand recovery
- Operating margin expansion back above 10% demonstrating pricing power
- Return to consistent profitability with PAT margins above 3%
- Institutional investor participation increasing above 2-3% threshold
- Operating cash flow recovery above ₹40 crores quarterly run-rate
Red Flags to Monitor
- Further year-on-year revenue declines exceeding 15% in coming quarters
- Operating margins falling below 7% indicating structural profitability issues
- Continuation of quarterly losses or PAT below ₹2 crores
- Working capital deterioration with operating cash flow turning negative
- Promoter stake reduction or any pledging of shares emerging
"Mirza International's sharp profit decline and deteriorating returns on capital suggest fundamental operational challenges that a low valuation alone cannot overcome without demonstrable turnaround evidence."
The path forward for Mirza International requires addressing core operational inefficiencies, stabilising margins, and demonstrating consistent profitability before the stock can attract meaningful investor interest. The company's strong balance sheet provides a cushion, but without improvement in return ratios and cash generation, the investment case remains unconvincing.
Investors should watch for sustained improvement in operating margins above 10%, return to quarterly profitability exceeding ₹5 crores, and year-on-year revenue growth turning positive before considering the stock. Until these fundamental improvements materialise, the significant execution risks and weak financial trends outweigh the apparent valuation discount.
The Verdict: Avoid Until Turnaround Evidence Emerges
Score: 37/100
For Fresh Investors: Avoid initiating positions in Mirza International until clear evidence of operational turnaround emerges. The company's deteriorating profitability, collapsing return ratios, and declining cash flow generation present significant risks that outweigh the low valuation. Wait for at least two consecutive quarters of improved margins and sustained profitability above ₹5 crores before considering entry.
For Existing Holders: Consider reducing exposure on any price rallies towards ₹40-42 levels. The fundamental deterioration in business quality, evidenced by negative ROE and sub-1% ROCE, suggests the company faces structural challenges requiring significant management action. Maintain positions only if you have high risk tolerance and a 3-5 year investment horizon to allow for potential turnaround, but be prepared for continued volatility and possibility of further downside.
Fair Value Estimate: ₹32-34 (15% downside from current levels), reflecting the company's below-average quality grade, flat financial trend, and absence of near-term positive catalysts. The current price of ₹37.94 appears to discount optimism that may prove premature given the weak fundamentals.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk of loss.
