alokq1fy12

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CRISIL Limited. All Rights Reserved.

Enhancing investment decisions

Q1FY12 Result Update

Alok Industries Ltd

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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process

Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental

grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The

valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to

grade 1 (strong downside from the CMP).

CRISILFundamental Grade

Assessment CRISILValuation Grade

Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)

4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)

3/5 Good fundamentals 3/5 Align (+-10% from CMP)

2/5 Moderate fundamentals 2/5 Downside (- 10-25% from CMP)

1/5 Poor fundamentals 1/5 Strong downside (

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CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 1

Alok Industries LtdGrowth momentum intact

Fundamental Grade 3/ 5 (Good fundamentals)Valuation Grade 5/ 5 (CMP has strong upside)

Indu stry Textiles, Appa rel & Luxury Goods

Fair Value Rs 31CMP Rs 24

August 04, 2011

Alok Industries Ltds (Aloks) Q1FY12 revenues and profitability were in line

with CRISIL Researchs expectations. Although we are cautious considering

rising interest rates and firming exchange rate, we maintain the fundamental

grade of3/ 5.

Q1FY12 result analysis

Revenues grew by 50% y-o-y to Rs 16,449 mn, led by the polyester yarn

(y-o-y growth of 82%) and apparel fabric (y-o-y growth of 42%)

segments. Share of the polyester yarn segment increased from 35% in

Q1FY11 to 41% in Q1FY12. This was largely on account of capacity

addition of ~300 tpd of polyester yarn in Q3FY11.

EBIDTA margin contracted by ~200 bps on account of increase in raw

material costs and rising share of the polyester business, which is a

relatively low-margin business as compared to Aloks other segments.

The decline in PAT margin was moderate because of low interest cost as a

percentage of sales, i.e. 12.1% in Q1FY12 vs. 14.3% in Q1FY11. However,

PAT increased by 24% y-o-y to Rs 578 mn backed by higher sales.

Key development: Update on expansion plans

The H&A chain of stores opened an additional 20 shops during the

quarter, taking the total number of stores to 311 (including shop-in-shop).

The board of directors has approved the amalgamation of Grabal Alok

Impex Ltd, which manufactures embroidered products, with Alok.

Earnings estimates maintainedWe maintain our revenue and earnings estimates for FY12 and FY13. We have

consolidated Grabal Alok Impex Ltd with Alok.

Valuations: Current market price has strong upside

We continue to use the discounted cash flow method to value Alok. We

maintain the fair value at Rs 31 per share. Based on the current market price,

our valuation grade is 5/5.

KEY FORECAST

(Rs mn) FY09 FY010 FY11# FY12 FY13

Operating income 31,115 44,202 75,200 97,367 116,191

EBITDA 8,017 12,704 18,434 22,438 27,357

Adj PAT (834) 927 3,307 5,174 7,964

Adj EPS-Rs (4.2) 1.2 4.2 6.4 9.8

EPS growth (%) (57.9) (58.9) 169.6 33.8 68.4

Dividend yield (%) 7.0 1.3 1.8 1.1 2.3

RoCE (%) 6.9 8.4 9.5 11.1 13.6

RoE (%) (4.9) 4.0 11.4 15.3 19.4

PE (x) (3.0) 18.9 5.3 3.5 2.3

P/BV (x) 0.1 0.6 0.6 0.5 0.4

EV/EBITDA (x) 8.4 7.8 6.3 5.2 4.2

#FY11 numbers are based on abridged financials

NM: Not meaningful; CMP: Current market price

Source: Company, CRISIL Resea rch estimate

CFV MATRIX

KEY STOCK STATI STICSNIFTY / SENSEX 5405/17941

NSE / BSE tickerALOKTEXT/

ALOKIND

Face value (Rs per share) 10

Shares outstanding (mn) 788

Market cap (Rs mn)/(US$ mn) 18,991/429

Enterprise value (Rs bn) /(US$ bn) 114/3

52-week range (Rs) (H/L) 35/18

Beta 1.4

Free float (%) 70.6%

Avg daily volumes (30-days) 4,250,889

Avg daily value (30-days) (Rs mn) 106.9

SHAREHOLDING PATTERN

PERFORMANCE VIS--VIS MARKETReturns

1-m 3-m 6-m 12-mAlok Industries -7% -7% -6% 16%

NIFTY -4% -3% -2% -1%

ANALY TICAL CONTACTSudhir Nair (Head) [email protected]

Arun Vasu [email protected]

Vinay Chhawchharia [email protected]

Client servicing desk

+91 22 3342 3561 [email protected]

1 2 3 4 5

1

2

3

4

5

Valuation Grade

FundamentalGrade

Poor

Fundamentals

Excellent

S

trong

Do

wnside

S

trong

U

pside

28.4% 28.4% 28.4% 29.4%

13.9% 16.9% 16.5%20.7%

21.5% 13.8% 13.4%11.7%

36.3% 40.9% 41.7% 38.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sep-10 Dec-10 Mar-11 Jun-11

Promoter FII DII Others

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Alok Industries Ltd

Q1FY12 Result Summary(Rs mn) Q1FY12 Q4FY11 Q1FY11 q-o-q (% ) y-o-y (% )

Net sales 16,449 22,029 10,990 (25.3) 49.7Raw materials cost 8,060 12,289 5,130 (34.4) 57.1

Raw materials cost (% of net sales) 49.0% 55.8% 46.7% -678bps 232bps

Employees cost 550 556 416 (1.2) 32.1Other expenses 3,317 3,606 2,176 (8.0) 52.5

EBITDA 4,522 5,578 3,268 (18.9) 38.4EBITDA margin 27.5% 25.3% 29.7% 217bps -224bpsDepreciation 1,650 1,600 993 3.1 66.1

EBIT 2,873 3,978 2,275 (27.8) 26.3Interest and finance charges 2,004 1,591 1,571 26.0 27.6

Operating PBT 868 2,387 704 (63.6) 23.3Other income 7 9 1 (24.7) NM

PBT 875 2,396 705 (63.5) 24.2Tax 297 796 239 (62.6) 24.2

PAT 578 1,601 465 (63.9) 24.2Adj PAT 578 1,601 465 (63.9) 24.2

Adj PAT margin 3.5% 7.3% 4.2% -375bps -72bpsNo of equity shares (mn) 787.8 787.8 787.8 - -

Adj EPS (Rs) 0.7 2.0 0.6 (63.9) 24.2

Source: Company, CRISIL Resea rch

Revenue up while EBITDA margin down y-o-y Net margin declines y-o-y

Source: Company, CRISI L Research Source: Company, CRISIL Research

Contribution of polyester yarn on an uptrend Share price movement vs. NIFTY

-indexed to 100

Source: Company, CRISI L Research Source: NSE, CRISIL Research

9,

758

10,8

25

14,7

11

10,9

90

14,5

15

16,1

26

22,0

29

16,4

49

29.9%29.8%

29.1%

29.7%

28.6%28.9%

25.3%

27.5%

22%

23%

24%

25%

26%

27%

28%

29%

30%

0

5,000

10,000

15,000

20,000

25,000

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

(Rs mn)

Revenue EBITDA margin (RHS)

572 581 953 465 798 905 1,601 578

5.9%

5.4%

6.5%

4.2%

5.5%5.6%

7.3%

3.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

(Rs mn)

PAT PAT margin (RHS)

49195

50 110 44371

43

186

201

182278

273

253

235

534687

515

731865

1,031

723

313 389 353332 431 548

644

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

Cotton Yarn Home textiles Apparel Fabric Polyester Yarn

0

20

40

60

80

100

120

Jan-08

Mar-08

May-08

Aug-08

Oct-08

Dec-08

Mar-09

May-09

Jul-09

Oct-09

Dec-09

Mar-10

May-10

Jul-10

Oct-10

Dec-10

Feb-11

May-11

Jul-11

Alok Industries NIFTY

Robust revenue

grow th y-o-y

Higher raw material

costs lowered

profitability on a y-o-y

basis

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Alok Industries Ltd

KEY DEVELOPMENTS

The H&A chain of stores opened an additional 20 shops during the quarter,

taking the total number of stores to 311 (including shop-in-shop).

The board of directors has approved the amalgamation of Grabal Alok

Impex Ltd, which manufactures embroidered products, with Alok. The swap

ratio as approved by the board is 1:1 of Rs 10 each.

Two commercial floors at Peninsula Business Park have been leased out.

One floor in Ashford Centre has been sold out.

EARNINGS ESTIMATES MAINTAINED

Particulars Unit

FY12E FY13E

Old New % change Old New % change

Revenue Rs mn 95,521 97,367 1.9% 113,533 116,191 2.3%

EBITDA Rs mn 22,013 22,438 1.9% 26,731 27,357 2.3%

EBITDA margin % 23.0 23.0 0 bps 23.5 23.5 0 bps

PAT Rs mn 5,001 5,174 3% 7,780 7,964 2%

PAT margin % 5.2 5.3 7 bps 6.9 6.9 0 bps

EPS Rs 6.3 6.4 0.6% 9.9 9.8 -0.5%

Source: CRISIL Res earch

We have consolidated revenues of Grabal Alok Impex Ltd with Alok industries,

leading to marginal upside revision in revenue for FY12 and FY13. Earnings

estimate remains unchanged.

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Alok Industries Ltd

VALUATION

We continue to use the discounted cash flow (DCF) method to value the

consolidated cash flows of Aloks textile, retail and infrastructure businesses.

Based on our DCF approach, we have arrived at a fair value of Rs 31 per share.

At this fair value, the implied P/E multiples are 4.9x FY12E and 3.1x FY13E EPS.

One-year forward P/ E band One-year forward EV/ EBITDA band

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

P/ E premium/discount to NIFTY P/ E movement

Source: NSE, CRISIL Research Source: NSE, CRISIL Research.

CRISIL IER reports released on Alok I ndustries Ltd

Date Nature of reportFundamental

grade Fair valueValuation

gradeCMP

(on the date of report)

26-Jul-11 Initiating coverage* 3/5 Rs 31 4/5 Rs 26

04-Aug-11 Q1FY12 result update 3/5 Rs 31 5/5 Rs 24

* For detailed initiating coverage report please visit: www.ier.co.inCRISIL Independent Equity Research reports are also available on Bloomberg (CRI ) and Thomson Reuters.

5

10

15

20

25

30

35

40

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

(Rs)

Alok 3x 3.5x 4x 4.5x 5x

60,000

80,000

100,000

120,000

140,000

160,000

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

(Rs mn)

EV 4.5x 5x 5.5x 6x

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Premium/Discount to NIFTY Median premium/discount to NIFTY

0

2

4

6

8

10

12

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

(x)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev

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Alok Industries Ltd

FINANCIALS

Note: All ratios are computed on Adj PAT

#FY11 numbers based on abridged financials

Source: Company, CRISIL Resea rch estimate

Income statement Ba lance Sheet

(Rs mn) FY09 FY10 FY11# FY12E FY13E (Rs mn) FY09 FY10 FY11# FY12E FY13E

Operating income 31,115 44,202 75,200 97,367 116,191 Liabi li ties

EBITDA 8,017 12,704 18,434 22,438 27,357 Equity share capital 1,970 7,878 7,878 8,103 8,103

EBITDA margin 25.8% 28.7% 24.5% 23.0% 23.5% Reserves 17,280 19,482 22,807 28,857 36,950

Depreciation 2,402 3,718 5,874 6,545 7,267 Minorities - - - - -

EBIT 5,616 8,986 12,560 15,893 20,091 Net wor th 19,250 27,360 30,685 36,959 45,053

Interest 5,489 6,812 7,704 8,473 8,514 Convertible debt - - - -

Operating PBT 127 2,174 4,856 7,420 11,576 Other debt 69,565 96,726 108,726 109,926 102,926

Other income 97 40 423 302 311 Tota l debt 69,565 96,726 108,726 109,926 102,926

Exceptional inc/(exp) 1,669 444 388 (88) 602 Deferred tax liability (net) 3,064 4,030 4,778 5,033 5,229

PBT 1,893 2,657 5,667 7,634 12,489 Tota l liabi lities 91,879 128,115 144,189 151,918 153,208

Tax provision 1,058 1,286 1,972 2,548 3,923 Assets

Minority interest - - - - - Net fixed assets 38,586 62,703 67,829 77,626 75,360

PAT (Reported) 834 1,371 3,695 5,086 8,566 Capital WIP 23,770 16,914 15,914 914 914

Less: Exceptionals 1,669 444 388 (88) 602 Tota l fixed assets 62,356 79,617 83,743 78,541 76,274

Adjusted PAT (834) 927 3,307 5,174 7,964 Investments 4,233 3,812 3,812 3,812 3,812

-2.7% 2.1% 4.4% 5.3% 6.9% Current assets

Ratios Inventory 10,687 15,678 24,311 31,478 36,608

FY09 FY10 FY11# FY12E FY13E Sundry debtors 9,305 11,561 20,076 25,994 31,019

Growth Loans and advances 6,320 8,526 15,040 19,473 22,076

Operating income (%) 35.9 42.1 70.1 29.5 19.3 Cash & bank balance 4,274 14,107 10,059 10,356 5,649

EBITDA (%) 48.7 58.5 45.1 21.7 21.9 Marketable securities 526 460 460 460 460

Adj PAT (%) (214.6) (211.1) 256.7 56.5 53.9 Tota l cur rent assets 31,113 50,332 69,947 87,761 95,813

Adj EPS (%) (208.9) (127.8) 256.7 52.1 53.9 Tota l cur rent l iabil ities 6,805 7,699 15,366 20,249 24,744

Net cur rent assets 24,308 42,633 54,581 67,513 71,069

Profitabi lity Intangibles/ Misc . expenditure 983 2,053 2,053 2,053 2,053

EBITDA margin (%) 25.8 28.7 24.5 23.0 23.5 Tota l assets 91,879 128,115 144,189 151,918 153,208

Adj PAT Margin (%) (2.7) 2.1 4.4 5.3 6.9

RoE (%) (4.9) 4.0 11.4 15.3 19.4 Cash flow

RoCE (%) 6.9 8.4 9.5 11.1 13.6 (Rs mn) FY09 FY10 FY11# FY12E FY13E

RoIC (%) 7.1 8.3 9.9 10.8 12.4 Pre-tax profit 224 2,213 5,279 7,722 11,887

Total tax paid (97) (321) (1,224) (2,293) (3,727)

Valuations Depreciation 2,402 3,718 5,874 6,545 7,267

Price-earnings (x) (3.0) 18.9 5.3 3.5 2.3 Working capital changes (4,844) (8,559) (15,996) (12,635) (8,264)

Price-book (x) 0.1 0.6 0.6 0.5 0.4 Net cash from operations (2,315) (2,948) (6,066) (661) 7,164

EV/EBITDA (x) 8.4 7.8 6.3 5.2 4.2 Cash from investments

EV/Sales (x) 2.2 2.3 1.5 1.2 1.0 Capital expenditure (24,160) (22,050) (10,000) (1,343) (5,000)

D ividend payout r atio (%) 20.7 16.8 8.5 4.0 4.7 Investments and others (3,069) 487 - - -

Dividend yield (%) 7.0 1.3 1.8 1.1 2.3 Ne t c as h f ro m inv es tm ents ( 27,229) ( 21,563) (10,000) (1,343) (5,000)Cash from financing

B/S rat ios Equity raised/(repaid) 1,000 8,743 - 225 -

Inventory days 188 202 174 169 165 Debt raised/(repaid) 11,225 27,161 12,000 1,200 (7,000)

Creditors days 94 75 85 85 88 Dividend (incl. tax) (173) (230) (316) (236) (472)

Debtor days 111 96 97 96 96 Others (incl extraordinaries) 4,715 (1,330) 335 1,112 602

Working capital days 200 196 175 189 191 Net cash from financing 16,767 34,344 12,019 2,301 (6,871)

Gross asset turnover (x) 0.8 0.7 0.9 1.0 1.1 Change in cash position (12,777) 9,832 (4,048) 297 (4,707)

Net asset turnover (x) 0.9 0.9 1.2 1.3 1.5 Closing cash 4,274 14,107 10,059 10,356 5,649

Sales /opera ting assets (x ) 0.6 0.6 0.9 1.2 1.5

Current ratio (x) 4.6 6.5 4.6 4.3 3.9 Quarterly financials

Debt-equity (x) 3.6 3.5 3.5 3.0 2.3 (Rs mn) Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

Net debt/equity (x) 3.4 3.0 3.2 2.7 2.1 Net sa les 10,990 14,515 16,126 22,029 16,449

Interest coverage 1.0 1.3 1.6 1.9 2.4 Change (q-o-q) 647% 32% 11% 37% -25%

EBITDA 3,268 4,158 4,654 5,578 4,522

Per share Change (q-o-q) 663% 27% 12% 20% -19%

FY09 FY10 FY11# FY12E FY13E EBITDA margin 29.7% 28.6% 28.9% 25.3% 27.5%

Adj EPS (Rs) (4.2) 1.2 4.2 6.4 9.8 PAT 465 798 905 1,601 47

CEPS 8.0 5.9 11.7 14.5 18.8 Adj PAT 465 79 8 90 5 1,601 57 8

Book value 97.7 34.7 39.0 45.6 55.6 Change (q-o-q) -51% 72% 13% 77% -64%

Dividend (Rs) 0.9 0.3 0.4 0.3 0.5 Adj PAT margin 4.2% 5.5% 5.6% 7.3% 3.5%

Actual o/s shares (mn) 197.0 787.8 787.8 810.3 810.3 Adj EPS 0.6 1.0 1.1 2.0 0.73

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CRISIL Research Team

Senior Director

Mukesh Agarwal +91 (22) 3342 3035 [email protected]

Analytical Contacts

Tarun Bhatia Director, Capital Markets +91 (22) 3342 3226 [email protected]

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Ajay D'Souza Head, Industry Research +91 (22) 3342 3567 [email protected]

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Sridhar C Head, Industry Research +91 (22) 3342 3546 [email protected]

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Business Development

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CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are

India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks

and leading corporations.

About CRISIL ResearchCRISIL Research is the countrys largest independent and integrated research house with strong domain expertise

on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to

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