Alok Inds: Robust growth in core business, says CRISIL
CRISIL Research has come out with its report on Alok Industries. According to the research firm, local procurement of fabric is expected to decline in the future, which will result in moderate growth.
March 15, 2013 / 17:14 IST
CRISIL Research has come out with its report on Alok Industries. According to the research firm, local procurement of fabric is expected to decline in the future, which will result in moderate growth.
Alok Industries' (Alok's) Q3FY13 results were above CRISIL Research's expectations. Domestic revenues increased 75% y-o-y, driven by the fabric business, while export revenues decreased 9% y-o-y. The fabric division's revenues doubled y-o-y as the company procured fabric locally and sold it under its brand in the domestic market. Further, Alok has sold 90% of its two major real estate properties and is also proposing a rights issue of Rs 5,510 mn. We expect its core textile business, and cash flow from real estate and the rights issue to improve its financial profile in times of tight liquidity. Following strong performance in the reported quarter, we have raised our revenue and operating profitability estimates for FY13 and FY14. We maintain our fundamental grade of 2/5.Strong performance in textilesTotal revenues grew by 47.5% y-o-y to Rs 35.2 bn mainly due to an increase in sales of fabric procured from local job workers and sold under Alok brand name. The domestic business' revenues jumped 75% y-o-y to Rs 28 bn (80% of total revenues). Revenues from apparel fabric more than doubled y-o-y to Rs 22 bn, while the home textile and polyester segments' revenues remained flat compared to Q3FY12. We expect local procurement of fabric to decline in the future, which will result in moderate growth.Exports declined by 9% y-o-y largely due to the polyester business; exports of home textiles (HT) were flat y-o-y. The revenue share of exports fell to 20%.EBITDA margin remained stable y-o-y and q-o-q at 27.1%. With higher share of locally procured fabric, average raw material cost increased while other expenses as a percentage of revenue declined from 23% in Q3FY12 to 12% in Q3FY13.PBT doubled y-o-y to Rs 3,564 mn on account of higher revenues and stable operating profitability. Depreciation and interest charges as a proportion to revenues declined on account of higher outsourcing. Adjusted EPS was Rs 3.2 compared to Rs 1.8 in Q3FY12. Sold 90% of two commercial real estate properties but yet to receive full payment Alok has further sold 4.5 floors, after selling 15 floors (out of 20 floors) during the quarter, of its largest real estate venture Peninsula Business Park and four floors (out of the eight floors) of the Ashford Centre (it sold four floors in H1FY13). Estimated deal size of these two projects is ~Rs 10 bn. The company has not received full payment, but only Rs 3 bn. Realisation of full payment will help it to reduce the debt burden; payment delay will affect profitability.Fair value reduced to Rs 18 due to dilution
We continue to use the discounted cash flow (DCF) method to value Alok and revise our fair value to Rs 18 as we factor in dilution through the rights issue. At this value, the implied P/B multiples are 0.55x FY14E and 0.45x FY15E book value.Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
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