Strong operational performance lifts Alok Industries

Despite tough market conditions, sales growth was healthy both in Q4 and for FY12 at 18% and 39% respectively

Alok Industries closed with gains of 3.3 per cent even as broader markets were flattish. 

Despite tough market conditions, sales growth was impressive (especially exports) for both March 2012 quarter (Q4) and full year ended FY12 at 18 per cent and 39 per cent respectively. While operating profit margin improved by 293 basis points to 28 per cent in Q4, the same was maintained at 29 per cent in FY12. Interest costs to operating profit zoomed 16 percentage points to 46 per cent in Q4 and was up 500 basis points (to 45 per cent) in FY12 but substantial exchange related gains helped the company report 77.7 per cent jump in net profit in Q4 though the same fell marginally by 6 per cent in FY12. Adjusting for the exchange impact, net profit is down 71 per cent in Q4 but up 12.6 per cent in FY12.

Though performance on final profitability was not impressive, market was enthused about the management’s optimistic outlook for the current fiscal and its plan to reduce the huge debt (consolidated Rs 12,500 crore as on FY12). Says Dilip Jiwrajka, managing director, of the company, “I expect FY13 to be better than FY12 and am hopeful of maintaining margins.” Capacity expansion of 1, 00,000 tonnes per annum (TPA) in polyester from the current 4, 00,000 TPA will be completed in the next 3-4 months.

In addition to healthy cash flow from operations and normal debt repayment schedule, real estate deeds and equity raising will help reduce the debt burden. The company has sold 8 out of 20 floors in Tower B of Peninsula Business Park and leased three out of eight  floors in Ashford Centre despite slump in the real estate market. It has received token consideration and deposits respectively. Sale deeds would be executed against full payment. The business is likely to touch revenues worth Rs 2,000 crore in next three years.

Besides, the company plans to raise equity in the coming months. Apart from $150 million equity raising approved by the board in the previous quarter, there will also be a preferential allotment of 2.75 crore equity shares and upto 5 crore warrants to promoters/promoter group company.  Says Jiwrajka, “We will raise money when markets are favourable but promoter’s holding will be maintained.” Further, the company will be undertaking only normal capex to the tune of Rs 300-500 crore for the coming years, which will also aid in controlling the rise in debt. In addition to the company’s efforts, general softening of interest rate scenario will also help in reducing interest cost burden.

Meanwhile the stock factors in the interest rate risk at 3 times FY13 estimated earnings.