Mirza International Q2 FY26: Sharp Profit Decline Signals Mounting Operational Pressures

The Kanpur-based company, promoted by the Mirza family since 1979, has faced a turbulent fiscal year with inconsistent quarterly performance. After posting a loss of ₹4.40 crores in Q4 FY25, the company rebounded strongly in Q1 FY26 with ₹17.81 crores profit, only to see profitability collapse again in Q2 FY26. This volatility raises serious questions about the sustainability of the company's business model and operational efficiency in an increasingly competitive footwear manufacturing landscape.

With a quality grade of "Below Average" and an overall Mojo score of just 28 out of 100, Mirza International currently carries a "Strong Sell" recommendation. The company's five-year sales growth stands at a concerning -11.54%, whilst EBIT growth has contracted by 45.83% over the same period. These structural weaknesses, combined with deteriorating near-term financials, paint a challenging picture for investors.

Financial Performance: Revenue Growth Fails to Translate into Profitability

Mirza International's Q2 FY26 financial performance presents a troubling paradox: whilst net sales improved 15.66% quarter-on-quarter to ₹164.36 crores, net profit plummeted 87.93% to just ₹2.15 crores. The year-on-year comparison proves even more discouraging, with revenue declining 18.39% from ₹201.39 crores in Q2 FY25, whilst net profit fell 63.56% from ₹5.90 crores.

The company's operating profit margin compressed to 7.71% in Q2 FY26 from 8.93% in the previous quarter, reflecting rising operational pressures. More alarmingly, the PAT margin collapsed from 12.53% to just 1.31%, indicating severe bottom-line stress. Operating profit (PBDIT excluding other income) stood at ₹12.68 crores, marginally below the prior quarter's ₹12.69 crores, suggesting stagnant operational efficiency despite higher sales volumes.

On a half-yearly basis, H1 FY26 revenue reached ₹306.47 crores, down 11.53% from ₹344.90 crores in H1 FY25. However, H1 FY26 net profit of ₹19.96 crores represents a dramatic turnaround from the ₹6.54 crores earned in H1 FY25, driven entirely by Q1's exceptional performance. This inconsistency underscores the fragility of the company's earnings profile.

Operational Challenges: Weak Return Ratios Highlight Capital Inefficiency

The company's return on equity (ROE) stands at a weak 6.43% on an average basis, significantly below industry standards for manufacturing companies. More concerning is the latest ROE of -0.96%, indicating the company is destroying shareholder value in the most recent period. Return on capital employed (ROCE) tells a similar story, averaging 9.90% but plummeting to just 0.49% in the latest period—a clear sign of deteriorating capital productivity.

These weak return metrics reflect structural challenges in the company's business model. Despite maintaining a lean balance sheet with minimal debt (debt-to-equity ratio of 0.02), Mirza International struggles to generate adequate returns on its capital base. The company's sales-to-capital-employed ratio of 1.45x suggests underutilisation of assets, whilst the five-year EBIT contraction of 45.83% points to persistent margin pressures and competitive challenges.

Employee costs rose to ₹21.89 crores in Q2 FY26 from ₹19.61 crores in Q1 FY26, representing 13.32% of net sales compared to 13.80% in the prior quarter. Whilst this indicates modest operating leverage, the absolute increase in personnel expenses without commensurate profit growth raises concerns about workforce productivity and cost management discipline.

Interest costs remained relatively stable at ₹2.27 crores in Q2 FY26 compared to ₹2.29 crores in Q1 FY26, reflecting the company's low leverage position. The EBIT-to-interest coverage ratio of 3.94x (on average) provides adequate debt servicing capacity, though this metric has weakened considerably in recent quarters. Depreciation charges of ₹7.91 crores remained consistent with prior periods, suggesting stable capital expenditure patterns.

Industry Context: Footwear Sector Faces Headwinds

The diversified consumer products sector, particularly the footwear manufacturing segment, has faced considerable headwinds over the past year. The sector has declined 25.70% over the past 12 months, making Mirza International's 1.84% decline appear relatively resilient on a comparative basis. However, this 23.86% outperformance versus the sector provides little comfort given the company's absolute negative returns and deteriorating fundamentals.

The leather footwear industry faces multiple structural challenges including rising raw material costs, intense competition from both domestic and international players, and shifting consumer preferences towards synthetic alternatives. Export-oriented manufacturers like Mirza International also contend with currency volatility, changing global trade dynamics, and stringent quality requirements from international buyers. The company's 18.39% year-on-year revenue decline in Q2 FY26 suggests it is losing market share or facing demand pressures more severe than sector averages.

Peer Comparison: Valuation Discount Reflects Fundamental Weakness

Mirza International's valuation metrics reflect the market's scepticism about the company's prospects. Trading at a price-to-book value of 0.89x, the stock trades at a significant discount to its book value of ₹40.84 per share, suggesting investors question the realisable value of the company's assets. This compares to peer average P/BV ratios around 2.0x, indicating Mirza International trades at roughly half the valuation multiple of comparable companies.

The company's ROE of 6.43% trails the peer group average of approximately 8%, whilst being significantly below high-performing peers like Somany Ceramics (11.18% ROE) and Wim Plast (10.50% ROE). This lower profitability, combined with inconsistent earnings, justifies the valuation discount. Mirza International's minimal leverage (debt-to-equity of 0.02) represents a positive differentiator, as most peers carry higher debt burdens.

With a market capitalisation of ₹515.00 crores, Mirza International ranks fifth among its peer group, positioning it as a smaller player in the diversified consumer products space. This size disadvantage may limit economies of scale and bargaining power with suppliers and customers, contributing to margin pressures evident in recent results.

Valuation Analysis: "Very Expensive" Grade Despite Price Decline

Despite trading at a discount to book value, Mirza International carries a "Very Expensive" valuation grade—a seemingly contradictory assessment that reflects the company's poor earnings quality and deteriorating fundamentals. The stock's EV/EBITDA multiple of 15.42x appears reasonable on the surface, but becomes concerning when considering the company's negative EBIT growth trajectory and inconsistent profitability.

The company's EV/EBIT ratio of 181.43x stands at an alarming level, reflecting the market's expectation of minimal sustainable operating profits. This extreme multiple suggests investors are pricing in significant execution risks and questioning whether current EBIT levels represent a sustainable baseline. The EV/Sales ratio of 0.97x indicates the market values the entire business at less than one year's revenue—a valuation typically reserved for structurally challenged businesses.

The valuation grade changed to "Very Expensive" from "Fair" in November 2024, coinciding with deteriorating financial performance. This classification suggests that even at current depressed price levels, the stock fails to offer compelling value given the magnitude of operational challenges and uncertain earnings outlook. The absence of dividends (dividend yield: NA) eliminates income support for patient investors.

Shareholding Pattern: Promoter Confidence Remains Intact

One of the few positive aspects of Mirza International's investment case is the stable and increasing promoter holding. Promoter stake has risen to 72.99% in December 2025 from 71.27% in March 2025, with a sequential increase of 1.62% in the most recent quarter. This demonstrates the promoter family's continued confidence in the business, despite near-term operational challenges.

Institutional participation remains negligible, with FII holdings at just 0.24%, mutual fund holdings at 0.00%, and insurance company holdings at 0.00%. Total institutional holding stands at a mere 0.25%, indicating virtually no institutional interest in the stock. This lack of institutional support reflects concerns about the company's scale, liquidity, and earnings quality. The absence of mutual fund and insurance participation is particularly telling, as these investors typically conduct rigorous due diligence before deployment.

Non-institutional holdings have declined to 26.76% from 28.58% over the past three quarters, suggesting retail investors are gradually reducing exposure. The promoter family, led by Tasneef Ahmad Mirza (23.39%), Tauseef Ahmad Mirza (22.02%), and other family members, maintains firm control with no pledged shares—a positive indicator of financial stability at the promoter level.

Stock Performance: Long-Term Gains Erode Amid Recent Weakness

Mirza International's stock performance presents a tale of two periods: exceptional long-term gains followed by recent deterioration. Over five years, the stock has delivered remarkable returns of 451.42%, vastly outperforming the Sensex's 63.65% gain during the same period—a stunning alpha of 387.77%. However, this long-term outperformance masks significant recent underperformance and deteriorating momentum.

The recent performance trajectory, however, tells a concerning story. Over the past two years, the stock has declined 28.26% whilst the Sensex gained 17.32%—a negative alpha of 45.58%. This sharp reversal suggests the company's earlier growth phase has stalled, with operational challenges now dominating the investment narrative. The one-year return of -1.84% against the Sensex's 7.88% gain further confirms this deteriorating trend.

The stock currently trades at ₹37.39, approximately 14.71% below its 52-week high of ₹43.84 but 42.44% above its 52-week low of ₹26.25. This mid-range positioning offers neither compelling value nor momentum support. Technical indicators present a mixed picture, with the overall trend classified as "Mildly Bullish" but recent momentum weakening. The stock trades below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating weak technical support.

With a beta of 1.25, Mirza International exhibits higher volatility than the broader market, amplifying both gains and losses. The stock's 46.25% annual volatility classifies it as "High Risk Low Return"—an unfavourable risk-reward profile. The negative Sharpe ratio confirms that investors are not being adequately compensated for the elevated risk they assume by holding this stock.

Investment Thesis: Weak Fundamentals Across All Parameters

The Mojo 4 Dots analysis framework reveals fundamental weaknesses across multiple dimensions. The company's "Negative" financial trend represents the most immediate concern, with quarterly results showing deteriorating profitability, declining ROCE, and operating losses. This negative trend has persisted since December 2024, suggesting structural rather than cyclical challenges.

Quality assessment yields a "Below Average" grade, reflecting weak long-term financial performance characterised by negative sales growth (-11.54% over five years) and sharply contracting EBIT (-45.83% over five years). Whilst the company maintains a clean balance sheet with minimal debt and no promoter pledging, these positives are overshadowed by poor capital efficiency (average ROE of 6.43% and ROCE of 9.90%) and virtually non-existent institutional participation (0.25%).

Valuation presents a paradox: despite trading below book value (P/BV of 0.89x), the stock carries a "Very Expensive" grade due to poor earnings quality and uncertain profit outlook. The extreme EV/EBIT multiple of 181.43x and the company's loss-making status on a trailing twelve-month basis justify this seemingly contradictory assessment. The market is essentially pricing in significant doubt about the company's ability to generate sustainable profits.

Key Strengths & Risk Factors

Outlook: What Lies Ahead

The path forward for Mirza International requires fundamental operational improvements rather than cyclical recovery. Management must address margin compression, restore consistent profitability, and demonstrate sustainable earnings power to rebuild investor confidence. Until these improvements materialise, the stock remains a high-risk proposition unsuitable for most investors.