Stock Review: Alok Industries

 

In the past one year, the stock of Alok Industries has gained 35%, much higher than the 3% increase recorded by the ET Textile index. The stock's outperformance reflects the company's impressive growth in the past few quarters.

The company has started benefiting from its six-year long capacity expansion. During the March 2011 quarter, the company's net profit grew by a robust 67% on a year-on-year basis to . 160 crore. The net profit for fiscal 2011 grew 52% to . 376 crore. Its net sales for the full-year grew by 47% to . 6,365 crore. The company's operating margin, however, shrank by 170 basis points to 27.8% due to higher cotton prices, the major raw material used by the company.

In the coming quarters, the company's focus on synthetic textiles, including the polyester segment, may prove beneficial in reducing the impact of soaring cotton prices. The polyester segment comprises 25% of the company's total production and it expects to increase it to 50% by FY13. By the end of June 2011, it will increase its polyester capacity to 5,00,000 tonnes from 2,00,000 tonnes. Polyester-based products yield higher return on capital employed (RoCE) of over 35% than cotton-based products, which have an RoCE of 15%. Hence, an increasing focus will be lucrative for the company in the coming quarters.

In a recent analyst conference call, the management said that it has been able to negotiate a deal for its commercial property in Peninsula Business Park in Mumbai. The company is estimated to make around . 50 crore by selling a portion of the property. It has two more commercial properties (6,41,000 sq ft and 60,000 sq ft, respectively in central Mumbai) and a residential property development in the suburbs of Mumbai. With its plans to exit the real estate business, the company will be able to reduce its mammoth debt of . 10,500 crore on a consolidated basis in the coming quarters. With an improved business scenario, the company's promoter, Niraj Realtors and Shares, has increased its stake marginally to 29.1% from 28.9% through open market purchases. Given the steps taken, the company is expected to maintain its current growth momentum in the coming quarters with stable margin scenario.