Buy Alok Industries； target of Rs 67.40: Ventura

“In addition Store 21 also provides Alok with a ready market for its textile products Czech company Mileta acquired in 2007 has helped the company gain access to the finest dyed yarn and hemmed technologies along with deeper penetration in European, Russian and African markets. Besides this, the company also has a presence in the realty business through its wholly owned Alok Infra Ltd subsidiary. At present the company is on the verge of completion of 641,589 sq.ft. of premium commercial property in the Lower Parel, Mumbai area. In suburban Mumbai, the company is also developing a premium residential project in JV with Ashford Investment & Trading Company Pvt. Ltd. which is expected to be ready by Dec 2013.”

“The global textile and apparel industry is slated to grow at CAGR of 6.3% to USD 1 tn in 2020 (from USD 510 bn recorded in 2009). Meanwhile, on the back of burgeoning domestic consumption and increased sourcing from developed countries, Indian textile industry is poised to grow at a CAGR of 10.5% to reach USD 140 bn by 2020 (from USD 52 bn in 2009). Alok, with its Rs 7,000 crore capacity expansion outlay across all product lines, is expected to be one of the biggest beneficiaries of this resurgent demand. Primarily driven by increased volumes, we expect Net Sales to grow at a CAGR of 28.7% to Rs 9,433.2 crore in FY13 from Rs 4,424.4 crore posted in FY10. Meanwhile, on the back of burgeoning domestic consumption and increased sourcing from developed countries, Indian textile industry is poised to grow at CAGR 10.5% to reach USD 140 bn by 2020 (USD 52 bn 010).”

“In lieu of the impending gap left by the robust domestic demand of the Chinese market, India has the potential to increase its export share in global textile and apparel industry trade to 8% (from the current 4.5%) by 2020. Majority of the growth is expected to come from the apparels category which is expected to witness a CAGR of 11% and pegged to become a $100 bn market by 2020. Augmented by increased urban household population, the Home textiles segment is also expected to grow at a CAGR of 9% till 2020 to reach USD 9 bn. On the back of growing industrial usage the textile segment is poised to grow at a CAGR of to 10% to USD 31bn by 2020.”

“On the backdrop of increased volumes and higher realizations, Alok posted a 49.0% rise in Q3FY11 Net Sales to Rs 1,612.6 crore while net profit grew by 55.7% to Rs 90.5 crore. Despite steep rise witnessed in raw cotton prices, vertical integration and good sourcing policy enabled the company to maintain its margins ~ 28.9% for Q3FY11. Net profit margin also grew marginally by 20 bps to 5.6%. For 9MFY11 net sales grew by 46.4% on yearly basis to Rs 4,163 crore while net profit grew by Rs 47.3% to Rs 216.8 crore. EBITDA margins for 9MFY11 declined marginally by 10 bps to 29.0%. Net margin for 9MFY11 stood at 5.2%. Alok has already spent a sum of Rs 6,000 crore towards capex expansion in its textile business and intends to spend another Rs 1,000 crore over the next couple of years for optimization of newly inducted capacities. We forecast Net Sales to grow at a CAGR of 28.7% to Rs 9,433.2 crore by FY2013 as newly inducted capacities get operational while earnings are expected to grow at CAGR of 67.0%.”

“At CMP of Rs 22.4, the stock is trading at 3.3x FY13 EV/EBIDTA and 2.4x its estimated earnings for FY2013E. We initiate coverage on Alok as a BUY with a 24 month Price Objective of Rs 67.4 (7.2x FY13 P/E) based on our blended valuation methodology representing an upside potential of ~200.2% over a period of 24 months.,” says Ventura research report.

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