Alok Industries: A Good Company in a Bearish Trend

[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. It will be removed from the site in the future.]

Alok Industries (BSE:521070) Ltd is one of the leading textile group and amongst the fastest growing vertically integrated textile companies in India. It offers world class integrated textile solutions. it manufacture world-class home textiles, apparel fabrics, garments and polyester yarns selling directly to manufacturers, exporters, importers, retailers and brands the world over. The company is also in retail business through its wholly owned subsidiary company.

Alok’s large customer base comprises are domestic and overseas retailers, garment exporters in India and converter countries who are vendors to major international labels, they include some of the world’s largest retailers and India’s largest manufacturers of apparel and home textiles. About 35% of Alok’s production is exported to over 90 countries with major markets being US, Europe, Latin America, Asia and Africa.

The company has manufacturing facilities at Silvassa in Dadra & Nagar Haveli, Thane and Navi Mumbai in Maharashtra and Valsad and Vapi in Gujarat. In year 2012 the company completed expansion of polyester production from 900 tons/day to 1400 tons/day.

“With slowing demand from developed economies, the global textile and apparel industry will see robust demand from developing economies that will witness higher economic growth. The global textile and apparel market is estimated at US$ 693 billion in 2012 and is projected to reach US$ 1,018 billion by 2020.” The company said in its management discussion.

It further said “The current global textile and apparel industry has evolved as distinct consumption and production hubs. Production was earlier located in developed economies such as USA and UK but over the years the manufacturing has shifted to economies such as India, China, Bangladesh etc. due to the latter’s cost advantage. Mature economies have now emerged as major consuming hubs while developing economies are still in the nascent stages of consumption.”

“By 2020, fiber is estimated to grow by CAGR of 2% to reach US$ 121 billion while yarn is expected to grow by a CAGR of 3% to reach US$ 293 billion. In volume terms, fiber is estimated to reach 62 million tons while yarn is expected to reach 88 million tons in the same period. The global fabric production volume is projected to increase by CAGR of 3% to reach 475 billion square meters and its value is projected to reach US$ 475 billion by 2020. The global garment production will reach 185 billion pieces by 2020 and its market is projected to reach US$ 650 billion by 2020.”

In May 2013 the company has successfully completed its right issue of equity shares of 55,08,46,238 Equity Shares having the face value of Rs. 10/- each for cash at par per equity share to the equity shareholders of the Company in the ratio of 2 equity shares for every 3 fully paid up equity shares.

The company has extended the Financial Year ending from March 31, 2013 to June 30, 2013 Therefore it will have five quarter instead of regular four quarters. This was due to right issue and to consolidate all domestic non-core business subsidiaries into one which it plans to exit. The company recently released its March quarterly results.

(in Million) Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Mar-12 (Annual)
Income Statement
Revenue 39,135.70 35,208.10 33,247.70 24,227.50 25,953.80 23,866.50 89,008.60
Other Income 90.5 44.4 100.3 86.6 20.1 656.8
Total Income 39,135.70 35,298.60 33,292.10 24,327.80 26,040.40 23,886.60 89,665.40
Expenditure 27,853.80 25,955.40 23,405.10 18,464.80 16,390.40 19,286.20 64,630.60
Interest 4,054.70 3,705.20 3,229.50 3,284.10 3,346.00 2,712.70 11,495.50
Depreciation 3,859.10 2,286.10 2,183.20 2,133.70 1,735.90 1,875.00 7,134.30
PBT 3,806.20 3,351.90 4,474.30 445.2 4,568.10 12.7 6,405.00
Tax 1,498.40 953.7 1,578.10 144.5 1,733.10 378.5 2,599.70
Net Profit 2,307.80 2,398.20 2,896.20 300.7 2,835.00 -365.8 3,805.30
Equity 8,262.80 8,262.80 8,262.80 8,262.80 8,262.80 7,877.90 8,262.80
EPS 2.79 2.90 3.51 0.36 3.48 -0.46 4.69

(Source: BSE)

The stock is trading at around Rs 8 with market cap for Rs 10.93 billion. Diluted earnings per share is 5.74 after the right issue translates into price to earnings of 1.38 which is very attractive verses industry average of 4.7. The company had regular capital expenditure in capacity expansion and modernization. This makes the company stand in leading position in the industry. On the other hand rising interest cost is a cause of concern. Despite having low price the stock has good volume. It has average 2 million shares traded daily. The stock is in long term bear run and now trading at its 52 week low. As the stock is in falling trend investors can wait to buy this stock for long term.