Dear Shareholders,
It gives me pleasure in sharing with you that in March 2011, , your
company, Alok Industries Limited achieved a land mark of 25 years of
its incorporation. This 25 years of journey has been very enriching,
mixed experience and we have learnt and matured in the process.
Looking back today, Alok has evolved into a integrated manufacturer and
has emerged as world class Textile solution provider in apparel fabrics
,home textiles, garments, and polyester yarns, selling directly to some
of the world''s top brands and retailers, manufacturers, exporters and
importers.,. Its core textiles business has the unique positioning of
being integrated across the cotton and polyester fibre production
chains and has the flexibilities in capacity to optimise opportunities
in the ever changing market. In addition, during this period, the
Company has established strong relationships with sales channels and
customers both in the domestic and export markets.
More particularly, your Company has utilised the last decade to create
competitive and world class capacities and capabilities, which need to
be optimally utilised in the coming years. The tree has been planted
which is ready to bear the fruits.
On 25th anniversary , there are several reasons to celebrate. We have
gained a strong footing in the global textiles and apparels market,
completed projects and commissioned capacities across products
according to plans, and grown into a Company with a turnover over of
Rs. 6,388 crore in 2010-11 and emerged as one of the largest integrated
textile manufacturing company in the global textile market. Today, it
gives me and the team at Alok even more satisfaction to look forward at
the potential for quantum growth that lay ahead. The spade work has
been done and most of the large investments are in place. The next
decade will be about sweating assets and reaping benefits while
maintaining the growth momentum.
The strategic investments into Realty and overseas retail too, are
starting to create value on their own. Alok Industries looks forward to
monetising these strategic investments as these assets are now ready
and Should yield significant revenue.
Macro-economic trends suggested that global economic growth was back on
track. You would recollect that in the calendar year (CY) 2009, global
output had actually reduced by 0.5% with advanced countries witnessing
output contraction by (-) 3.4%. Even emerging and developing economies,
who were earlier growing by over 6.5%, witnessed a reduction in growth
rate to 2.7%. By the end of 2009 we had already started observing
encouraging trends in the emerging economies of China and India, and in
the world''s largest economy – USA. Fortunately, this was no aberration
and the positive trend continued through CY2010. Most of the developed
economies bounced back – USA grew by 2.8% in CY2010 against (-) 2.6% in
CY2009; the Euro Zone grew by 1.7% in CY2010 against (-) 4.1% in
CY2009; and Japan grew by 3.9% in CY2010 against (-) 6.3% in CY2009.
The revival has been even more rapid in the emerging and developing
economies. As a group, these countries witnessed a much higher output
growth of 7.3% in CY2010. Estimates suggest that China grew by around
10% in CY2010, while India recorded a GDP growth of 8.5% in 2010-11, on
the back of 8% growth in 2009-10. And, the global economy has recovered
to record a growth of 5% in CY2010.
Estimates suggest that driven by strong demand with improvement in
economic conditions, world textile fibre consumption grew by 5% and hit
record levels in CY2010. The demand pull led to a steep price increase
in the dominant fibre – cotton. Consequently, by the end of 2010-11,
there was a move towards man-made fibres and polyester demand and
prices started to rise. There will be short term issues across
different parts of the textile value chain given changes in trends and
choices. However, over a longer term the important thing is demand is
back on a global footing.
With an anticipated CAGR of 5.7% for the five-year period 2009-2014,
the global textiles market is expected to grow to ,369.8 billion by
the end of 2014. In this growing global market, India has great
potential to grow its textiles and apparel output by serving both its
growing domestic market and exports. In fact, given its competitive
cost structures, estimates suggest that India''s US$ 70 Billion Textile
and Apparel industry has the potential to grow at 11% per annum to
reach US$ 134 Bn in 2015.
Alok has positioned itself as a large integrated player with world
class standards and production across both the polyester and the cotton
chain and as such, has ensured that it has market for its wide range of
products in any global scenario.
Your Company continued to progress in utilising all the opportunities
during 2010-11. The highlights of the financial performance, on a
stand-alone basis are:
- Net Sales increased by 48.18% from Rs. 4,311.17 crore in 2009-10 to
Rs. 6,388.43 crore in 2010-11. Growth was driven by a 51.55% increase
in domestic sales - Rs.4, 171.00 crore in 2010-11 againstRs.2,752.18
crore in 2009-10; and exports increased from Rs. 1,558.99 crore in
2009-10 to Rs. 2,217.43 crore in 2010-11 - growth of 42.24%.
- Earnings Before Interest, Depreciation, Tax and Amortisation (EBIDTA)
increased by 38.03% to Rs. 1,756.35 crore in 2010-11 against Rs.
1,272.48 crore in 2009-10. Given the high material costs, EBIDTA
margins reduced from 29.52% in 2009-10 to 27.49% in 2010-11
- Profit Before Tax (PBT) increased by 55.60% from Rs. 374.79 crore in
2009-10 to Rs. 583.19 crore in 2010-11. Profit After Tax (PAT) was
404.36 crore; a growth of 63.48% over Rs. 247.34 crore PAT generated in
2009-10
- Return on Net worth (RONW) improved from 7.92% in 2009-10 to 11.22%
in 2010-11. This was driven by the growth in sales and profits
These results primarily describe the performance of the textile
operations, which is the core business of the Company. Importantly,
all the divisions within this business across the textile value chain
have contributed positively to this growth.
The company faced challenges in terms of cost of raw materials,
especially cotton. While the company continued to focus and reduced
people costs, interest costs and other overhead costs as a ratio to
sales, it could not offset the rise in material costs completely and
profit margins were affected to same extent. We continue to make all
efforts at improving value additions, reducing operation costs and
improving efficiencies to overcome higher input costs, which is a
reality that the industry has to face in the near future. Going
forward, we believe that higher economies of scale with the added
capacities coming on stream will help in improving ROCE.
As I have said, the focus for the next round of growth is to get
greater returns from investments, generate more free cash in the system
and financially deleverage the business. On two of these fronts, ROCE
and cash generation, already there were positives in 2010-11.
- Return on Capital Employed (ROCE) was 11.53% in 2010-11, up from
9.52% generated in 2009-10
- Net cash flow from operating activities increased by 526% fromRs.
184.56 crore in 2009-10 toRs. 1,155.87 crore in 2010-11
If this trend is maintained and hopefully further improved in the
coming years, I am sure we will succeed in the third endeavour of
reducing financial debt. In this respect, it is also heartening to note
that our primary investments are also starting to move in the right
direction.
The retail operations, both at home and in UK are starting to gain
traction and moving towards profitability. The Rs.H&A chain of stores
continued to spread its stores across India with a total of 291 outlets
(including shop-in-shop) by the end of 2010-11. The target is to have
about 500 stores operational over next two years. Alok H&A Limited
recorded sales of Rs. 41.75 crore in 2010-11 and generated cash
profits. Store Twenty One'', the UK retail chain of value-format
stores did reasonably well during the year. The company for the first
time has shown a positive EBITDA of £ 0.01 mn in 2010-11. For the 12
month period ended March 2011, the stores have registered sales of £
129.73 mln as compare to £ 117.06 mln in FY 2010 - a growth of 10.83%.
Even the international operations of the Czech subsidiary - Mileta -
have turned around. Net Sales grew by 13.21% from € 18.06 million in
2009-10 to € 20.45 million in 2010-11. This revenue growth has
contributed to PBT turning around from a deficit of - € 1.98 million in
2009-10 to profits of € 4.28 million in 2010-11.
The commercial real estate projects are also completed and we look
forward to monetising these assets in the near future and use the
proceeds to repay consolidated debt.
I urge you to read the details of our operations in 2010-11 that has
been detailed out in the chapter on Management Discussion and Analysis.
Your Company also appreciates that this performance level cannot be
reached and sustained without the right quality of people. With this
belief, your Company has laid significant emphasis on its HR practices.
There are concerted efforts to ensure that the most appropriate people
are recruited into the organisation. A culture of training, people
development and meritocracy to ensure that maximum human capital
efficiency is continuously promoted across the Company and its
subsidiaries and associates. At the same time, employees have the
satisfaction of working in an organisation that encourages skill
development and learning and monitors career growth.
I would like to take this opportunity to thank each and everyone
associated with the Alok Group in its journey over the past 25 years
and going forward. Let me also extend a special word of gratitude to
all our vendors, customers, bankers and government authorities.
Finally, to you, our shareholders, thank you for reposing faith in our
business.
Yours Sincerely,
Ashok B Jiwrajka
Executive Chairman
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