Alok to focus on value-added products

Textile major Alok Industries is trying to enhance its product profile, besides opting for currency hedging and borrowing in foreign currency, to negate the impact of the rising rupee, which has appreciated by over 15 per cent over the last year.

The company is focusing on value-added products such as organic cotton fabric, yarn-dyed fabric for premium shirting, and specialised work wear such as fire-retardant fabric, which can fetch higher margins, CFO Sushil Khandelwal told Business Standard.

For instance, yarn-dyed fabric used for premium shirting sells for Rs 125-150 a metre against dyed fabric which sells for Rs 75-80 a metre.

Similarly, the company will also make more of work wear with specialised finishing such as aroma finish, infra-red suits for military, boiler suits for refining, hospital wear.

''We are trying to see if we can make more value-added products using the same machines,'' said Khandelwal. Going forward, it hopes that apparel fabric will bring in half its revenues, home textiles will contribute a quarter (up from 18 per cent today) while polyester yarn and textile will bring another quarter.

The company is also doing forward and backward integration, banking on treasury operations for hedging, and taking loans in foreign currency (PCFC, FCNR and ECBs), which provides a natural hedge against the rising rupee.

Alok is also expanding capacities in two phases (phase three costing Rs 1,100 crore by March 2008 and phase four for Rs 1,180 crore by March 2009) to target a topline of Rs 4,000 crore by 2010, making it among the largest textile companies in India.

''This expansion will give us the scale, and by focusing on more value-added products, we will be able to maintain an EBITDA of 24 per cent plus and cope with the rising rupee,'' said Khandelwal.

Alok Industries is also planning to expand its retail business to capture strong growth at home and diversify risks. It has 18 H&A stores around Mumbai, which sell home textiles and apparels. Alok plans to have 500 stores by 2010, and target a turnover of Rs 400 crore or 10 per cent of its topline by then.

''The domestic market is growing rapidly. Barring a few players, there's not much organised retailing in textiles. As incomes grow, people tend to spend more on clothing. This will help us diversify risks,'' explained Khandelwal.

It has also forayed into real estate. Its two buildings, to be ready by December 2008 and March 2010, will offer 675,000 sq ft of commercial space. It is also setting up an 183 acre SEZ in Gujarat and has formed a joint venture with NTC to revive two ailing mills.

Analysts tracking the company said that Alok Industries could try to unlock value by bringing in investors in its real estate/ infrastructure business, which has been hived off as a separate business unit. The stock closed at 80.05, up 5.40 per cent on the Bombay Stock Exchange after failing to move much in the last two years.

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REAR GUARD

The company is focusing on value-added products such as organic cotton fabric, yarn-dyed fabric for premium shirting, and specialised work wear

The company is also doing forward and backward integration, banking on treasury operations

The company is expanding capacities in two phases

Alok is also expanding its retail business to capture strong growth at home and diversify risks