CRISIL maintains fair value of Rs 29 to Alok Industries

Alok Industries Ltd’s (Alok’s) Q4FY12 standalone revenues and operating profitability were marginally above CRISIL Research’s expectations. Both domestic and export businesses boosted revenue growth, with the fabric segment contributing the most. Although we expect a slowdown in export demand, we believe that Alok will be able to withstand this slowdown given its scale of operation and backward integration; thus we maintain our fundamental grade of 3/5. However, its high debt level (~Rs 120 bn FY12) and timely exit from the real estate business remain key monitorables.

Q4FY12 result analysis (standalone)
• Revenues grew by 18% y-o-y to Rs 26 bn mainly due to the polyester and woven fabric segments. Exports grew by 40% y-o-y; domestic sales rose 8% y-o-y to Rs 17.8 bn. The share of exports in total sales rose from 26% in Q4FY11 to 31% in the current quarter.

• EBITDA margin expanded by 266 bps y-o-y to 28% on account of higher contribution from high margin apparel fabric business. The expansion in EBITDA margin was also supported by the benefits that Alok derived in the export market due to rupee depreciation.

• Despite higher revenue and healthy operating profitability, adj. PBT declined by 10% y-o-y (up 24% q-o-q) to Rs 2,293 mn due to higher interest outflow. Interest doubled to Rs 3,346 mn against Rs 1,667 mn in Q4FY11 mainly due to higher interest rate, capitalisation of assets and increase in working capital requirement.

• The company reported extraordinary income of Rs 2,276 mn on account of restatement of foreign currency asset/liabilities and derivative contract.

• Income tax charge for the quarter included Rs 491 mn on account of a permanent disallowance which resulted in higher tax outflow of Rs 1,733 mn (38% tax rate).

• PAT margins expanded to 8.8% due to healthy operating profitability. EPS stood at Rs 3.4 against Rs (0.5) in Q3FY12 and Rs 2.0 per share in Q4FY11. The company has recommended a dividend of Rs 0.3 per share. The company is yet to announce consolidated results.

Key developments
Eight floors (out of the 20) of Peninsula Business Park and three floors (out of the eight) of Ashford Centre have been sold. Alok is expected to realise Rs 4-4.5 bn through these sales.

Valuation: Current market price has strong upside
We continue to use the discounted cash flow method to value Alok. We maintain our fair value at Rs 29 per share. Based on the current market price of Rs 19, our valuation grade is 5/5.

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