Alok Industries: The debt bells ring loud

Standalone debt excluding current liabilities stands at Rs 13,650.2 cr and consolidated at Rs 16,081.9 cr as on Sept 2013

The news of resignation of auditors and total debt ballooning to Rs 20,000 crore for textile major Alok Industries may have drawn readers' attention. However, the problem has already been compounding for past many years.

While the company till 2013 may have seen a revenue growth led by capacity expansion, the balance sheet had been seeing increasing stress with cash flows inadequate to match the debt.

The debt (excluding current liabilities) already stood at Rs 13,650.2 crore (standalone) and Rs 16,081.9 crore (consolidated) as on September 2013. With lower revenue growth and pressure on the operating margin, the company's ability to service debt always was questionable.

Analysts at ICICI Securities while dropping coverage on the stock in November 2013 following Alok Industries' September 2013 quarter results had then said, "With tapering down revenue growth and lower margins (owing to increasing share of a low-margin polyester business), we now fear the company will begin to face profitability issues. Also, its subsidiaries are facing losses, which will further weigh on the group."

The company's total consolidated income that was at Rs 24,792 crore for eighteen months ending September 2013 had grown well compared to Rs 10,019 crore at the end of 12 months ending March’12 led by expansions. However, growth thereafter was tepid, with sales up 11% to Rs 27,523 crore for the 18 months period ending March’15.

The profit before interest and tax (PBIT) at Rs 5,506 crore grew 9.8% and with interest coverage ratio declining to 1.13% compared to 1.39 at the end of FY13. The interest and finance charges had ballooned to Rs 3,513 crore (March’15) compared to Rs 2,814 crore (September’13) and Rs 1,235 crore in FY12 taking toll on the company's profits.

If one takes a look at the nine months period ending December’15, there has been a 13.3% year-on-year decline in net sales to Rs 9,791 crore. The operating profits have declined 81.5% to just Rs 473 crore while interest charges stand at Rs 1,836 crore. A loss of Rs 1,871 crore was bound to send the bells ringing for lenders.