Stock of this RIL-owned company has jumped 600% from March low

Even as the parent company Reliance Industries (RIL) recalibrated its strategy and attracted global marquee investors to invest in its telecom vertical, Jio Platforms, another Mukesh Ambani – controlled company was silently gaining ground at the bourses.

The stock of Alok Industries has zoomed over 600 per cent to Rs 37 levels since March 23 low of Rs 5.29 when the market hit its recent low. In comparison, the S&P BSE Sensex has gained around 48 per cent. The rally in Alok Industries also eclipsed the rise in S&P BSE Mid-cap and S&P BSE Small-cap indices, which gained 50 per cent and 57 per cent during this period, ACE Equity data show.

Reliance Industries (RIL), according to the latest data on shareholding pattern available, held nearly 71 per cent stake (on diluted share capital) in the textile company. Headquartered in Mumbai, Alok is an integrated textile manufacturer with interests in polyester and cotton segments.

Earlier in 2020, the National Company Law Tribunal (NCLT) had approved the joint bid by Reliance Industries Ltd-JM Financial Asset Reconstruction Co Ltd for Alok Industries. The RIL-JM Financial ARC combine had bid Rs 5000 crore for the company, close to the latter's liquidation value of Rs 4000-4500 crore. READ MORE HERE

The rally, some analysts argue, comes on the back of the company’s change in focus from being a textile play to manufacturing protective gear in battling the Covid-19 pandemic. Earlier this year, the company redeployed its manufacturing facilities in Silvassa, Gujarat for exclusively manufacturing personal protective equipment (PPE) to safeguard doctors, nurses, medical staff and other frontline workers engaged in fighting the Covid-19 pandemic. The capacity at the manufacturing site was scaled up to produce more than 100,000 PPE kits per day and cost has been slashed to nearly Rs 650 per unit from the about Rs 2,000 apiece imported price. READ ABOUT IT HERE

“Alok Industries was not doing too well before RIL took a controlling stake. Moreover, the shift in focus to manufacturing PPE kits and other protective gear at a time when the world was hit by the Covid-19 pandemic was taken well by the Street and the stock was re-rated. That apart, the parent company – RIL – was on a roll and secured funding from global investors for its telecom venture. That, too, aided sentiment,” explains A K Prabhakar, head of research at IDBI Capital.

The other PPE manufacturers – JCT Ltd and Gokaldas Exports – though have beaten the rise in frontline indices with a gain of 94 per cent and 66 per cent, they lag behind the phenomenal rise seen in Alok Industries during this period.

After a sharp rally since March low, Prabhakar suggests investors would be better off avoiding this stock and look for safer investment options in the markets.

G Chokkalingam, founder and chief investment officer at Equinomics Research, too, echoes this view. “There is low floating stock available for the retail investors and moved up based on a perception-driven rally after a shift in focus of the products it manufactures. That apart, retail investors have been dabbling in penny stocks over the past few months, which could also have fueled the rally. It is a good idea to exit this stock now,” he says.

On Friday, Alok Industries hit the lower circuit of 5 per cent on the BSE at Rs 35.35 levels.