2015-16 has been a challenging year for most of the Indian companies right acrossmanufacturing / infrastructure based industries and Alok Industries was no exception. Theway their business dynamics has evolved over the last few years has necessitated arecalibration of growth plans and revision of business strategies.
From a macro-economic perspective the world has not recovered fast enough from thefinancial crisis of 2008. Since then an investment led aggressive growth in China andconsumption led rapid growth in emerging economies like India had signalled a new worldeconomic order and early signs of fast recovery. Unfortunately these trends did not lastlong. In 2015-16 there have been significant slowdown in
China which was driving global growth and several other emerging economies especiallythose that were dependent on commodities faced severe headwinds. Consequently worldeconomic growth has stagnated between 3 and 3.5% and there are big pockets ofuncertainty which has affected business world-wide. In this backdrop while Indianmanufacturing companies have grown appreciably in the last few years the pressures ontheir balance sheets have also accentuated. This is especially the case for companies insectors where investments were critical for global competitiveness and largely fundedthrough debt. The whole of last year was characterised by banks facing challenges ofmanaging leveraged accounts and finding viable solutions.
These underlying industry-wide developments in India affected Alok Industries as well.Through a planned growth path supported by organic and inorganic investments in the lastfew years the Company has created world class capacities built global scale ofoperations and established strong supply relationships with a wide spectrum of globalcustomers However this capacity creation has been accompanied by a large build-up of debtand today there is a mismatch in timings of cash inflows and outflows creating severefinancial stress for the
Let me take a step back and see how we got to this stage. First there was the generalglobal economic slowdown post the financial crisis of 2008 and global markets witnessed aslowdown. Second our investments in the retail business both in India and UK did notwork. While we closed operations in India the UK business is still burning cash. Thirdthe diversification into real estate although intrinsically value creating has not beenable to encash on any asset appreciation and has essentially locked up large capital.Fourth our aggressive expansion into Polyester came on stream at a time when globalpolyester prices dropped dramatically driven primarily by sharp fall in oil prices. Fifthduring the expansion phase interest rates have gone up from around 7.50% to a little over13% which put further pressures on servicing debt and even contributed to incrementaldebt. Sixth this period also witnessed huge fluctuations in foreign exchange rates andmuch of the benefits of lower costs of foreign exchange nominated external commercialborrowings were eroded due devaluation of the Indian Rupee. Lastly the bunching ofrepayments at the parent level (Alok Industries) and at the subsidiary level guaranteed bythe parent also contributed to the liquidity crunch. Clearly these were massive headwindsand affected the scale of our operations. Under this financial stress 2015-16 was a yearwith very little working capital support that further aggravated a difficult situation andthe
Company operated at very low utilisation levels resulting in operational losses. Thelenders are undertaking various efforts to try and resolve the Companys presentsituation. Between November 2015 and January 2016 a joint forum of bankers led by StateBank of India has decided to convert the loans extended to the parent company AlokIndustries into a 65% stake by invoking the Strategic Debt Restructuring (SDR) option.SDR introduced by the Reserve Bank of India (RBI) in June 2015 allows banks to convert apart of a defaulting borrowers debt into majority equity and assume operationalcontrol and manage the Company on a lower debt platform. This process has been underabeyance for some time now due to certain developments that are sub-judice. At presentthere are also efforts to work out a long term viable deep restructuring for the Company.While the lenders will presumably focus on resolving the leveraging issues one way or theother the overall Company efforts are directed at consolidation. This includesaccelerating our efforts on selling non-core assets including real estate and overseasbusinesses. The monetization of the companys immovable assets and the proceeds fromthe sale of international business would help reduce debt. The Company has had a very goodreputation of servicing its global clients. In the last couple of years given arealisation that there were working capital constraints the Company out of its ownvolition had subdued its business with customers. We are confident though that given ourstrong relationships with these Companies quality of products and past delivery trackrecord we can bounce back in the market once the restructuring is done.
The Company has a strong home textile apparel fabric and polyester business to driveexports. It may be noted that the companys home textile business is establishedenough in the US market as to account for more than 35% of its overall exports. Meanwhilethe other Divisions of Alok are expected to yield better results in the coming years asthe demand for Indian textile is on an upswing. The company is currently exporting itsproducts to more than 90 countries and plans to take advantage of the current downtrend inyarn exports from China. The company optimism over its restoration to health sooner orlater is based largely on its ability to appreciably. grow its exports. With costsincreasing China there is adequate opportunities in the export markets and Alok with itsexisting customer relations is well positioned to leverage this. It is noteworthy thateven in a very difficult year like 2015-
16 the Company has managed an average monthly export of over Rs.100 crore. Yes theCompany is facing challenging times. Our lenders have shown faith in our business and areexploring paths of debt realignment and revival of the companys operations. In theCompany we are focused on creating excellence right across our textile business. Thereare several small level initiatives under way that is aimed solely at our core textilesbusiness and our eye is continuously on ball to revive and accelerate thisbusiness. Together with all our stakeholders including our lenders we are committed torestoring the past glory of Alok Industries.
I take this opportunity to thank our Board members whose guidance has always helped usto choose the right path in our journey. I would also like to thank our financers and ourshareholders who put faith in our dreams and generously continue to provide us the capitalto fund it. My thanks go out to our employees our customers our vendors and ourwell-wishers for your continued support. I urge you all to continue to repose faith inour business model and partner with us as we work hard to turn the corner and embark on anew journey of growth.