Alok Industry a safe bet for long term.

>> Thursday, January 22, 2009

CMP - 15.10
Alok Industries
is one of the largest vertically integrated Textile Companies in India is preferred as a Vendor by Global Gaints like Wal-Mart , Target, etc.
The Company announced excellent results recently where its Sales grew by 40.5% to 1241crores. Exports which make up 40% of sales, grew by 40% to 460 crores. The Net Profit should have shooted up but due to Hedging, did not reflect the Strong Dollar but this should get reflected in Dec and March results.
The Company has started to focus aggressively on Africa, Latin America and Gulf countries in order to reduce its dependence on the US and Uk.
The Company has been very active in increasing its capacities for the last four years, all of which should start to get executed by March 2009. The Company’s officials have said, that they have no funds requirement as of now and have already tied up for the same.
Alok should start extract benefit from its Capital Investment from the next fiscal.
Alok also has plans to foray into Fabrics used for Car Upholstery, etc and also wrinkle-free, stain-resitant, bullet-proof fabrics.
With the Govt of India too considering a Package to help Exporters, Alok should be major beneficiary.

It is also making the transition from a pure-play fabric manufacturer to an integrated player with a presence in all segments. Its entry into home textiles, for instance, has been successful. The segment has been a major driver of exports, which now account for about 25 per cent of sales. It is also putting up fresh spinning capacities for complete integration and recently announced that it would set up a partially-oriented yarn facility. Alok is likely to emerge as a one-stop shop for importers, which could make it a preferred vendor.

It would, however, have to build expertise in these new segments. For instance, its expansion into terry towels would complement well its home textiles portfolio.

Alok would, however, be pitted against large exporters such as Welspun India, which have already established their competence in this segment.

Alok has taken a huge beating in the Stock Markets. From a High of 103, it is now trading at around 14 -15 levels.

Valuation -
With a Book Value of 67 and at a conservative estimated EPS of 8, the stock is now trading of PE of only 2.3.

Future outlook -
Robust growth in revenues is likely to drive profits over the near term. Alok's Rs 1,000-crore expansion project, which it set in motion last year, is nearing completion. The new capacities across various segments are likely to become operational in short period of time.
The addition to capacities, post-expansion, will also be substantial. For instance, its annual capacity in garments would rise to eight-million pieces from one million. Given the strong demand, the fresh capacities are likely to be well utilised and give revenues a lift.

In addition, Alok recently took a 5 per cent stake in The Shirt Company, a garment manufacturer that is expected to tap the primary market with a public offer soon. The move was made with the intention of tying up long-term fabric supply. Operating margins, too, — now at a healthy 20 per cent — are likely to be maintained despite input cost pressures, as profitable segments such as garments and home textiles make greater contribution to profits.

Safe bet for long term.

Happy Investing!

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