Buy Alok Industries; target of Rs 36: Hem Securities

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Buy Alok Industries; target of Rs 36: Hem Securities

Hem Securities is bullish on Alok Industries and has recommended buy rating on the stock with a target of Rs 36 in its December 14, 2010 research report.

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Hem Securities is bullish on Alok Industries and has recommended buy rating on the stock with a target of Rs 36 in its December 14, 2010 research report.

"Alok Industries has earmarked a capital expenditure of Rs 900 crore capex over the next two years. An investment of Rs 450 crore has been envisaged for each year for capacity expansion of terry towels, bed sheets, polyester capacity and technical textiles. The company has already invested Rs 70 billion in the past six years for its expansion program and in the coming two years, is expected to invest another Rs 4 billion to Rs 4.5 billion every year for the expansion program that is still continuing."

"The Company has put together a strategy to decrease the debt equity ratio to 1.81 over the next few years. The main strategy is to sell off large amounts of real estate currently being held by the company and generate higher profits through its retail businesses in India and the UK. Alok, holding a 51 per cent stake, is planning to set up a spinning unit of 68,000 spindles in Burkina Faso. Currently, Alok Industries imports 3,500 tones of yarn to fulfill its own clothing requirements. A facility in Burkina Faso will give it an option to make 600 tones of yarn every month."

"Alok Industries has reported a profit of Rs 79.80 crore for the second quarter ended September 30, 2010, against Rs 57 crore in the same quarter last year. Revenues have risen to Rs 1451.50 crore from Rs 974.79 crore. The operating profits also increased by 42.93% from Rs 290.90 crore same quarter last year to Rs 415.79 crore in Q2FY11. The company is fully geared in terms of technology, capacity, product development, and human capital to tap the emerging opportunities. At the CMP of Rs 25.35, the stock is trading at a consolidated PE of 4.51x and 3.51x to its FY11E and FY12E EPS of Rs 5.61 and Rs 7.22, respectively. Since the stock offers good opportunity, we initiate a 'BUY' signal on the stock with a target price of Rs 36 in medium to long term investment horizon expecting an appreciation of about 42.01%," says Hem Securities research report.

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