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  • ICRA EQUITY RESEARCH SERVICE ALOK INDUSTRIES LIMITED Initiating Coverage Industry: Textiles September 19, 2011 ICRA Online Grading MatrixFundamental and Valuation Grades Valuation Assessment A B C D E FundamentalICRA Online has assigned the Fundamental Grade ‘3’ and the Valuation Grade ‘A’ 5 Assessmentto Alok Industries Limited (Alok). The Fundamental Grade “3” assigned to Alok 4implies that the company has “good fundamentals” relative to other listed 3securities in India. The Valuation Grade ‘A’ assigned to Alok implies that the 2company is “significantly undervalued” on a relative basis (as on the date of the 1grading assigned).  Fundamental Grading of ‘3/5’ indicates “Good Fundamentals”Alok Industries Limited (Alok), promoted by the Jiwrajka family, is a vertically  Valuation Grading of ‘A’ indicates “Significantly Undervalued” on a relative basisintegrated leading textile manufacturer having presence across the value chain fromcotton spinning, polyester yarn, apparel fabrics, home textiles and garments Key Stock Statisticsmanufacturing to retailing of garments and accessories. The company has 16 Bloomberg Code Alok Inmanufacturing plants located at Silvasa, Vapi and Navi Mumbai. Current Market Price (Rs.) 18.4Besides textile operations in India, Alok holds 100% stake in ‘Mileta a.s.’, an integrated Shares Outstanding (crore) 78.8textile company with established distribution network in Czech Republic. On Market Cap (Rs. crore) 1445.6completion of the recently approved merger with ‘Grabal Alok Impex Limited’, Alok 52-Week High (Rs.) 35.0would hold ~90% stake in ‘Grabal Alok (UK) Limited’ - a garments and accessories 52-Week Low (Rs.) 15.6retailing chain having 219 stores across England, Scotland and Wales. Besides, Alok 70.6% Free Float (%)has also made one time investments into commercial and residential real estate Beta 1.2business through its wholly owned subsidiary, ‘Alok Infrastructure Limited’. Althoughthe retail investments of the company may take time to yield results, we expect the 6 Month Avg Daily Volumes (Rs Cr) 22.6company to actively monetize its investments in real estate business to improve the Source: Bloomberg, as on 16th September, 2011capital structure and the return indicators over the medium term. Alok Industries: Current ValuationsGrading Positives 8.00 6.9The key grading positives in our view are: 1) Well diversified client base and strong 5.9 6.00 4.9domestic business 2) Aggressive capacity expansions and strong domestic 4.1 3.4 3.3consumption demand could result in healthy volume growth going forward 3) Efforts 4.00 1.9to move up the value chain could further improve realizations 4) Vertically integrated 2.00 1.3operations leads to operational efficiencies; focus on improving capacity utilisation -and asset turnover to help maintain profitability margins 5) Potential exit from the FY11a FY12e FY13e FY14enon-core businesses (Real Estate & Retail) to improve capital structure and returnindicators over the medium term Price/Earnings EV/EBITDAGrading Sensitivities Shareholding Pattern (30th June, 2011)The key grading sensitivities in our view are: 1) Sustainability of the global economicrevival remains to be seen 2) Vulnerability to regulatory policies and foreign exchange Promotersrates 3) Steep decline in cotton prices could impact margins in near term due to high Non- 29% Institutionscost inventories 4) Competitive pressures from other low cost destinations could 38%worsen incase of relapse in global demand outlook 5) Consolidation of UK retailbusiness to moderate margins and weaken capital structure in near term 6) Delays inmonetization of non-core assets could impact the capital structure and returnindicators of the company. FIIsTable 1: Alok’s key financials indicators (Consolidated) DIIs 21% 12% FY10A FY11A FY12E FY13E FY14EOperating Income (Rs. crore) 4,423 6,612 9,038 11,203 13,888EBITDA Margin (%) 28.7% 27.4% 23.2% 22.9% 22.0% Share Price Movement (18 months)PAT Margin (%) 3.1% 6.6% 4.8% 7.0% 7.7% 175%EPS (Rs.) 1.75 5.39 5.55 9.89 13.66 150%EPS Growth (%) 86.0% 208.1% 3.1% 78.1% 38.1% 125% 100%P/E (x) 10.50 3.41 3.30 1.86 1.34 75%P/BV (x) 0.53 0.52 0.43 0.36 0.29 50%RoE 5.9% 15.7% 14.1% 20.9% 23.8% Oct-10 Mar-11 Sep-10 Sep-11 May-11 Feb-11 Dec-10 Apr-11 Jan-11 Jul-11 Aug-11 Jun-11 Nov-10RoCE 9.5% 10.3% 11.1% 14.0% 16.8%EV/EBITDA 7.71 6.88 5.93 4.85 4.08 Alok Industries Ltd Nifty indexSource: Company, ICRA Online estimates Source: Bloomberg, ICRA Online Estimates 1
  • ICRA Equity Research Service Alok Industries LimitedINVESTMENT SUMMARYDiversified and integrated nature of operations with strong domestic business Alok Industries : Revenue Break-up (FY11) Alok Industries : Revenue Break-up (FY11) Garments Spinning & 3% Trading 9% Exports Sales % Polyester 35% 26% Domestic Apparel Sales % Home Fabric 65% Textiles 47% 15%Source: Company; ICRA Online EstimatesWhile the near term outlook for the domestic textile industry remains uncertain due to renewed fears of globaleconomic slowdown, volatility in cotton prices and exchange rate fluctuations; we expect the large diversified playerslike Alok to be better placed due to integrated operations and relatively strong domestic business. Alok’s textileoperations are vertically integrated with in-house spinning, weaving, knitting, designing, processing and garmentingunits making it one of the few large scale organised players in India. For its apparel fabrics and home textiles segment,backward integration into manufacturing of cotton yarn (spinning) and in-house processing of grey fabric for fashionwear / technical textiles has enabled the company to garner higher operating margins. Apart from presence across thecotton value chain, the company also has presence in synthetic fibre through its polyester texturising capacity,backwardly integration into Partially Oriented Yarn (POY). Further, large scale of operations enables procurementefficiency through bulk raw material purchases and diversified client base enables stable demand and betterrealizations even during uncertain times.Capacity expansions and strong domestic consumption demand could result in healthy revenue growth;Improving capacity utilisation / asset turnover and focus on value-added products to maintain profitabilityAlok is currently undergoing capacity expansions accoss its spinning, apparel fabric and home textiles segments.Besides, we expect the company to aggressively expand its polyester yarn capacity from ~200,000 MTPA in FY11 to~500,000 MTPA in FY12e and ~900,000 MTPA in FY14e; inorder to leverage upon the rapidly increasing manmadefibre demand due to limited land availability for cultivation of natural fibres, high dependence on agro-climaticconditions and higher domestic spending in the price sensitive rural markets. As a result, polyester division willemerge as the largest revenue contributor for Alok with revenues increasing from 25% of Alok’s overall sales in FY11to 42% of sales in FY14e. Overall, aggressive capacity expansions across business segments (more so in polyesterdivision) along with continuing strong domestic consumption demand are expected to result in a healthy 28% CAGRin the consolidated revenues for the company over the FY11-FY14e period. 2
  • ICRA Equity Research Service Alok Industries LimitedExhibit 1: Installed Capacities Units FY09a FY10a FY11a FY12e FY13e FY14eSpinning 000 MT 33.3 58.5 69.0 80.0 80.0 80.0 (000 Spindles) 252.1 300.1 343.8 411.8 411.8 411.8 Rotors 936 3,792 3,792 5,680 5,680 5,680Apparel FabricsProcessing Woven Mn. Mtrs 105.0 105.0 105.0 126.0 126.0 126.0Weaving Mn. Mtrs 70.0 93.0 93.0 170.0 170.0 170.0Knits 000 MT 18.2 18.2 18.2 25.0 25.0 25.0Home TextilesProcessing Mn. Mtrs 82.5 82.5 82.5 105.0 105.0 105.0Weaving Mn. Mtrs 47.0 68.0 68.0 92.0 92.0 92.0Terry Towels 000 MT - 6.7 6.7 13.4 13.4 13.4Polyester YarnDrawn Texturised yarn (DTY) 000 MT 77.0 114.0 114.0 170.0 170.0 170.0Fully Drawn Yarn (FDY) 000 MT - - 70.0 70.0 70.0 70.0Partially Oriented Yarn (POY) 000 MT 182.5 182.5 200.0 500.0 700.0 900.0Garments Mn. Pcs. 15.0 22.0 22.0 22.0 22.0 22.0Source: Company; ICRA Online EstimatesAlthough the company has industry leading operating margins, the company plans to further improve capacityutilizations and optimise product portfolio by focusing on higher value-added products such as yarn-dyed fabrics andtechnical textiles. Yarn-dyed fabrics are used in fashionable shirting / womenswear and command better prices thanits current range of products, while technical textiles owing to their specialised nature carry higher margins than theconventional textiles. Besides, competition is relatively moderate in the technical textiles segment as there are fewestablished domestic players in this import dependent segment. In polyester yarn segment, Alok’s fresh capacityadditions are aimed at higher value-added yarns such as cationic, dope-dyed, bright and black-dyed yarns. Overall,despite the steep correction in raw material prices, we expect the company to maintain ~34% EBITDA margins inapparel fabrics, ~28% in home textiles and ~18% polyester segments. With increasing contributions from polyesterbusiness, overall EBITDA margins are expected to decline by ~4% over the next three years, although the returnindicators are expected to improve considerably due to higher asset turnover and RoCEs in polyester segment.Potential exit from the non-core businesses (Real Estate & Retail) could improve capital structure; returnindicators to get futher fillip from with increasing contribution from polyester segmentAlok had entered the real estate business and invested ~Rs. 1,500 crore in FY07 to take advantage of the real estateboom witnessed during 2004-2008. These investments however did not yield desired results and the management isnow pursuing monetisation of these investments and exit the real estate business to improve the capital structure ofthe company going forward. Besides, the retail ventures (‘H&A’ & ‘Store Twenty One’) too being B2C businesses havedifferent and complex business models from Alok’s core spinning, weaving, processing based B2B businesses. Theseinvestments, although require significant management time and energy, currently contribute little to the overallprofitability. Hence, the management may look at exiting the retail ventures too at an appropriate time, inorder toimprove the financial profile and focus on the core profitable businesses of apparel fabrics, home textiles andpolyester yarn. Besides, the large capital expenditures incurred across segments over past five years are expected tostabilize and improve the return indicators for the company going forward. Again, the overall return indicators areexpected to improve with increasing contribution from polyester segment, as the latter is less working capitalintensive and higher asset turnover (~2.5 times) in comparison to cotton based businesses (~0.5 times). 3
  • ICRA Equity Research Service Alok Industries LimitedCompetition remains intense across segments; international competition could worsen incase of renewedeconomic slowdownIn the apparel fabric segment, Alok is present in mid to premium segment where price competition pressures remainhigh owing to fragmented nature of industry and consumer price consciousness in the domestic markets. In the hometextiles segment, Alok is mainly present in the exports markets (>95% revenues) where it continues to face stiffcompetition from Chinese manufacturers with higher economies of scale and from manufacturers based out of otherlow cost destinations like Pakistan. In the polyester yarn segment, domestically the company faces competition fromlarger and fully integrated players like Reliance Industries; while internationally Alok faces stiff competition fromchinese manufacturers that account for close to 70% of global production capacity. While increasing domesticdemand, rising finance cost and reducing labour cost arbitrage in China are likely to aid long-term prospects forleading Indian manufacturers like Alok; faultering global economic growth and weakening discretionary spendingscould intensify competitive pressures due to lower capacity utilizations over the near term.Exhibit 2: Intense competitive pressures across segmentsKey Segments Key Competitors  Competitors from the organized segment include Arvind Mills, Vardhman Textiles, NaharApparel Fabrics Industrial Enterprises and Bombay Rayon Fashions  Abhishek Industries, Indo Count Industries, Himatsingka Seide, Bombay Dyeing and WelspunHome Textiles India are some of the major Indian players in the bed linen segment.  Stiff competition with manufacturers based out of China and Pakistan  Competition from established domestic players like Reliance Industries, JBF Industries, Indo Rama Synthetic, Garden Silk Mills, Futura Polyesters and Century EnkaPolyester Yarn  Competition from Chinese polyester yarn manufacturers that dominate the global polyester market with ~ 70% market shareSource: Company; ICRA Online EstimatesBesides, the merger of Grabal Alok Impex Ltd and thereby consolidation of Grabal Alok UK (retail business)could moderate margins and weaken capital structure at the consolidated levelExhibit 3: Estimated Merger Impact Alok’s board of directors have recently approved the FY12e proposal for amalgamation of Grabal Alok Impex LimitedAlok (Ex Grabal Alok UK) (GAlok), engaged in manufacturing wide range ofRevenues (Rs Cr) 8,012 embroidered fabrics. GAlok had reported ~Rs. 235 croreEBITDA (Rs Cr) 2,057 revenues with ~21% EBITDA margins in FY11. Besides,EBITDA Margin (%) 25.7% since GAlok holds 48.7% in Grabal Alok (UK) Limited (GAUKL), Alok’s effective shareholding in this UK basedGrabal Alok UK retail chain will increase from ~41.3% to ~90%, making it aRevenues (Rs Cr) 1,026 subsidiary of Alok Industries.EBITDA (Rs Cr) 41EBITDA Margin (%) 4.0% We expect the consolidatation of GAUKL to adversely impact the financials of Alok industries in near term, as the retailAlok (Consolidated) chain has recently achieved EBITDA breakeven and is yet toRevenues (Rs Cr) 9,038EBITDA (Rs Cr) 2,098 breakeven at net profit levels. Considering the weak outlookEBITDA Margin (%) 23.2% for retail sales in UK, we have assumed ~9% revenue growth and ~4% EBITDA margins for GAUKL in FY12e. Overall, theEBITDA Margin Impact -2.5% merger is expected to reduce the consolidated EBITDASource: Company; ICRA Online Estimates margins by ~2.5% and weaken the capital structure by additional debt burden of ~Rs. 600 crore, in the near term. 4
  • ICRA Equity Research Service Alok Industries LimitedValuation seems quite attractive even after factoring the near term headwindsDespite the near term headwinds faced by the textile industry, Alok’s current valuation multiples (~3.3 times FY12earnings, ~0.43 times FY12 book value) seems quite attractive considering Alok’s integrated and diversified businessmodel with lower dependence on textile exports. The valuation multiples are are expected to further moderaterapidly from the FY12e levels due to strong earnings growth over the next three years contributed by large capacityadditions and improvement in the capital structure through exit from non-core businesses. Overall, we expect thecompany to report a robust 28% CAGR revenue growth and 36% CAGR EPS growth over the FY11a-FY14e period,aided by robust capacity expansions and healthy domestic consumuption demand going forward. Hence, we assign avaluation grade of “A” to Alok on a grading scale of ‘A’ to ‘E’, which indicates that the company is “significantlyundervalued” on a relative basis.Exhibit 4: Relative Valuations Vs Equity Indices: Alok NIFTY CNX 500 CNX MIDCAP ICRA Estimates Industries Ltd INDEX INDEX INDEX FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E Price/Earnings 3.30 1.86 13.98 11.88 13.27 11.09 11.31 9.39 EV/EBITDA 5.93 4.85 9.48 8.22 9.35 7.92 9.70 7.91 Price /Sales 0.16 0.13 1.58 1.43 1.30 1.16 0.82 0.74 Price /Book Value 0.43 0.36 2.32 2.03 2.09 1.81 1.51 1.31 Price/Cash Flow 1.36 0.99 10.26 8.85 9.53 8.00 7.01 5.76Source: Bloomberg, ICRA Online Estimates * Bloomberg Consensus Estimates as on 16th September, 2011Exhibit 5: Relative Valuations Vs Industry Peers: Alok S. Kumars JBF Provogue Vardhman ICRA Estimates Industries Ltd Nationwide Ltd Industries Ltd (India) Ltd Textiles Ltd FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13EPrice/Earnings 3.30 1.86 3.61 2.43 2.68 2.21 7.96 6.85 3.49 3.38EV/EBITDA 5.93 4.85 3.94 3.32 3.24 2.88 10.87 9.39 4.57 4.77Price /Sales 0.16 0.13 0.23 0.19 0.13 0.12 0.57 0.51 0.28 0.29Price /Book Value 0.43 0.36 0.44 0.36 0.57 0.49 0.46 0.43 0.45 0.41Price/Cash Flow 1.36 0.99 2.69 NA 1.85 1.62 5.69 4.89 1.89 1.90Source: Bloomberg, ICRA Online Estimates * Bloomberg Consensus Estimates as on 16th September, 2011 5
  • ICRA Equity Research Service Alok Industries LimitedOPERATING PROFILE Snapshot: One of the largest integrated textile companies in India with presence across the value chain from cotton spinning to manufacturing polyester yarn, apparel fabrics, home textiles and ready-made garments. The company has 16 manufacturing plants located at Silvasa, Vapi and Navi Mumbai. Besides, Alok holds 100% stake in Mileta a.s., an integrated textile company with established distribution network in Czech Republic and will hold ~90% stake in Grabal Alok UK Ltd., a leading garments and accessories retailing chain having 219 stores across England, Scotland and Wales. Alok also made onetime investments into commercial and residential real estate business through its wholly owned subsidiary, Alok Infrastructure Limited.Alok’s textile operations comprise of five divisions that span the entire textile value chain. The company is verticallyintegrated with in-house spinning, weaving, processing and garmenting units making it one of the few large scaleintegrated and organised players in India. Besides, the company, through its subsidiaries and joint ventures haveentered into retailing of garments and accessories as well as real estate construction businesses. The table belowgives break up of operating revenues and EBITDA margins by business segment on consolidated basis:Exhibit 6: Segment-wise revenues and marginsRevenues (Rs Cr) FY08a FY09a FY10a FY11a FY12e FY13e FY14eSpinning & Trading 294 111 327 574 402 409 430Apparel Fabric 895 1,610 1,943 2,967 3,107 3,585 4,008Home Textiles 389 499 707 986 1,087 1,263 1,442Polyester 493 619 1,193 1,664 2,592 3,905 5,864Garments 100 139 141 175 175 191 210Others 123 136 111 212 1,675 1,849 1,936Total 2,294 3,113 4,423 6,578 9,038 11,203 13,888Revenues Contributions (%) FY08a FY09a FY10a FY11a FY12e FY13e FY14eSpinning & Trading 13% 4% 7% 9% 4% 4% 3%Apparel Fabric 39% 52% 44% 45% 34% 32% 29%Home Textiles 17% 16% 16% 15% 12% 11% 10%Polyester 21% 20% 27% 25% 29% 35% 42%Garments 4% 4% 3% 3% 2% 2% 2%Others 5% 4% 3% 3% 19% 17% 14%Total 100% 100% 100% 100% 100% 100% 100%EBITDA Contributions (%) FY08a FY09a FY10a FY11a FY12e FY13e FY14eSpinning & Trading 5% 1% 3% 4% 2% 2% 1%Apparel Fabric 54% 66% 56% 57% 50% 47% 44%Home Textiles 22% 19% 20% 16% 15% 14% 13%Polyester 16% 13% 18% 17% 22% 27% 33%Garments 3% 3% 3% 2% 2% 1% 1%Others -1% -2% 0% 4% 9% 9% 7%Total 100% 100% 100% 100% 100% 100% 100%Source: Company; ICRA Online Estimates 6
  • ICRA Equity Research Service Alok Industries LimitedSpinning / Cotton Trading Divison Snapshot: Alok’s Cotton Spinning business has lower revenue contribution (~9% in FY11a) as 80-85% cotton yarn manufactured is utilized for captive consumption by the fabric and home textiles divisions of the company. Alok has the largest spinning facility in India at a single location (Silvassa); further capacity expansion planned from 343,840 to 441,840 spindles (58,750 tons) and 3,792 to 5,424 rotors (20,210 tons) in FY12 to support expansions at the in-house weaving and knitting capacities in the fabric and home textiles segment Procurement of raw cotton in bulk and during harvest remains crucial to the division’s overall profitability; steep volatility in cotton prices driven by global demand-supply scenario could squeeze operating margins Cotton Trading business remains opportunistic as it gains from temperory mispricings in the market, however EBIDTA margin remain lower due to the trading nature of businessLower revenue contribution as 80 to 85% of cotton yarn produced is used for captive consumption; EBIDTAmargins lowered by cotton trading activityAlok has an in-house spinning unit for cotton yarn, which not only mitigates the risk of reliance on outside supplierbut also enhances margins through the value chain. Besides, the division also trades in raw cotton and cotton yarn toleverage upon the managment’s deep understanding of domestic and international demand-supply conditions andgain from temperory mispricings seen the market.In FY11, the spinning and cotton trading division accounted for Rs. 574 crore or ~9% of operating income for thecompany. Volumes and hence revenue generated by spinning & cotton trading activity increased by ~75% in FY11,primarily on account of low base effect in the previous years and increase in cotton trading activity to encash upon therise in cotton prices in the open market.Exhibit 7: Spinning & Cotton Trading Division – Key Operating IndicatorsProduct mix Compact yarn, dyed yarn, blended yarn and organic cotton from coarse to fine counts  Primarily captive consumption by fabric and home textiles division (~75 to 80%)Target segment  18 to 25% of cotton yarn production is sold to traders, distributors and manufacturing units in the domestic as well as export marketsHighlights  Largest capacity at a single location in India (Silvassa)  Volatility in raw cotton costs due to uncertain demand-supply situationIndustry Scenario  Sustained high prices could result in further substitution by polyester  Steep fall could result in company left holding high cost inventories  The company does not generate significant revenue from sale of cotton yarn as large part of the produce is utilized for captive consumption.Competition  Cotton trading operations of the company are opportunistic, primarily to benefit from spurt in cotton prices and the company remains a very small player in the said segment.  Thus competition from other spinning mills and cotton traders is not applicable to the company  44,980 tons ring spun yarn (343,840 spindles)Current Capacity  13,520 tons open-ended yarn (3,792 rotors)  Capacity expansion for ring spun yarn to 58,750 tons (411,840 spindles) and open-ended yarn to 22,250 tons (5,680 rotors) at total cost of Rs. 400 crore in a phased manner till FY12.Future plans  Expansion to be funded through term loans Rs. 315 crore and internal accruals of Rs. 85.0 crore.  Expanded capacity too will be used primarily for captive consumption for fabric and home textiles segmentSource: Company; ICRA Online Research 7
  • ICRA Equity Research Service Alok Industries LimitedBulk buying during harvest season leads to high inventories risks; however, trading operations gains in caseof favourable price movementsAlok mitigates the risk of cotton price fluctuations to an extent by purchasing cotton in bulk quantities during thebuying season; when the quality, availability and costs are favourable. Alok procures raw cotton from the openmarket, primarily from states of Gujarat, Maharshtra and Andhra Pradesh; though there are no long-term contracts. Itmaintains an average nine months inventory of raw cotton primarily for yarn manufacturing resulting in highinventory holding period. In rising cotton price scenario, the company gains as the benefits of low cost inventory maynot be completely passed on to the customers; however the situation reverses and margins decline if the raw cottonprices fall steeply in short duration leading to high cost inventories.Capacity expansions to aid growth in spinning reveneus in FY12, Cotton trading revenues and margins areexpected to moderate after a strong performance over the last two yearsAlok is expanding its spinning capacity for manufactring ring-spun yarn to 58,750 tons (411,840 spindles) and open-ended yarn to 22,250 tons (5,680 rotors) at total cost of Rs. 400 crore in a phased manner till FY12. The expandedcapacities too are expected to be used primarily for captive consumption, while open market sales may continue uptothe tune of ~10-15% annually. Besides, we expect the growth in cotton trading revenues and overall margins for thedivision to moderate marginally, after a strong performance over the last two years.Exhibit 8: Spinning & Cotton Trading Division – Key Financial IndicatorsKey Estimates FY09a FY10a FY11a FY12e FY13e FY14eSpinning Capacity MT 33,300 58,500 69,040 80,000 80,000 80,000Cotton Yarn Sales* MT 8,348 10,259 10,356 9,600 8,000 8,000Cotton Yarn Revenues* Rs Cr 59.1 71.6 101.1 70.3 61.5 64.6Growth % 21% 41% -30% -13% 5%Trading Revenues Rs Cr 52.0 255.5 473.2 331.2 347.8 365.2Growth % 392% 85% -30% 5% 5%Total Revenues Rs Cr 111.1 327.1 574.3 401.6 409.3 429.8Growth % 194% 76% -30% 2% 5%Source: Company; ICRA Online Research * Cotton Yarn Sales refers to open market sales post captive consumption 8
  • ICRA Equity Research Service Alok Industries LimitedFabric Division Snapshot: Key business segment for the company contributing ~45% to revenues and ~57% to EBDITA in FY11 One of the largest and most profitable fabric manufacturer in the country with revenues of ~Rs. 2,967 crore and EBITDA of Rs. 1,080 crore in FY11 Higher value addition through processing of grey fabric, with inputs from in-house designing team, differentiates the company’s fashion wear and technical textile product range; presence in high-end fabric effectively eliminates competition from unorganised market Growth momentum to continue going forward due to the planned increase in annual weaving capacity to 170.0 million meters, knitting capacity to 25,000 MT and processing capacity to 126.0 million meters by FY12 While the dependence on the fabric division is expected to reduce going forward in the wake of large capacity enhancement in the polyester division, it is estimated to remain the largest EBIDTA generating segment for AlokExhibit 9: Fabric Division – Key Operating Indicators  Diversified product mix with cotton / cotton blends of yarn-dyed / piece-dyed fabrics in knits /Product mix woven for daily wear, fashion wear, industrial or technical textiles  Garment converters in India who in turn sell in the domestic as well as export markets  Wholesalers, retailers and traders in the domestic marketTarget segment  Garmenting companies and large format retailers in export market  Institutions/corporate customers for technical textiles  One of the largest players in the apparel fabric segment  Alok’s largest revenue segment (47% of FY 11 sales) with high EBDITA margin of 36% on account ofHighlights in-house spinning, designing and processing capacities; increasing share of value added fabric range; diversified and quality conscious customer base  India’s fabric production was estimated at 54,966 million sq. meters in 2009, strong growth in recent years as the Indian fabric industry is becoming increasing more competitive globallyIndustry Scenario  The current market size for technical textiles in India is estimated at close to Rs. 40,000 crore with demand estimated to grow at 11% CAGR to reach about Rs. 66,000 crore by FY 2013  The unorganized / largely fragmented nature of industry makes estimation of market share difficultCompetition  Competitors from the organized segment include Arvind Limited, Vardhman Textiles, Nahar Industrial Enterprises and Bombay Rayon  Processing Capacity of 105.0 million meters (segregated into three continuous processing lines and one batch processing line)Current Capacity  Weaving capacity of 93.0 million meters (808 weaving looms)(p.a.)  Knitting capacity of 18,200 tones  Yarn Dyeing Capacity of 5,000 tones  Processing capacity – 126.0 million meters  Weaving capacity – 170.0 million metersFuture plans  Knitting capacity – 25,000 tones(capacity p.a.)  Capacity expansion to be completed in FY12 at an estimated cost of Rs. 225.0 crore through external debt (~80%) and internal accruals (~20%)Source: Company; ICRA Online Research 9
  • ICRA Equity Research Service Alok Industries LimitedOne of the largest fabric manufacturer in India with high end processing capabilitiesAlok, one of the largest player in the apparel fabric segment, has presence in yarn-dyed fashion wear fabrics andtechnical textile fabrics. The company has an in-house weaving capacity of close to 93.0 million meters (to beincreased to 170.0 mn meters) per annum and knitting capacity of 18,200 tones (to be increased to 25,000 tonnes)per annum. Entire processing of grey fabric (output from weaving and knitting operations) is carried out at its in-house facility at Vapi which has an annual processing capacity of 105.0 million meters (to be increased to 126 Mnmeters) per annum. The value addition through processing of grey fabric and the company’s in-house designing teamare crucial high margin generators and differentiator for the company’s fashion wear and technical textile productrange. Besides, Alok has benefited in terms of technology absorption for high-quality yarn-dyed fabrics, which areused for fashionable shirting and high end women’s wear and command premium prices in the market, through itsacquisition of Mileta.High competitive pressures due to fragmented nature of industry and price consciousness in the domesticmarkets; however, presence in value-added fabrics mitigates competition from the unorganised segmentIn the apparel fabric segment, Alok is present in mid to premium segment where price competition pressures remainhigh owing to fragmented nature of industry and consumer price consciousness in the domestic markets. Alokcompetes with organised players like Vardhaman, Arvind, JCT, Nahar Industries and Bombay Rayon. However,presence in value-added fabrics mitigates competition from the unorganised players that mainly cater to thecommodity fabric or the economy end of the fabric segment. Current installed weaving and processing capacities ofsome of the major competitors is given below:Exhibit 10: Fabric Division – Competitve ScenarioCompany Installed capacity (FY10) Actual production (FY10)*  Weaving Capcity: 93 million meters (808 weaving looms)  192.3 million meters of woven fabricAlok Industries Limited  Knitting Capacity: 18,200 tonnes  7,200 tons of knitted fabric  Processing Capacity: 105 million meters  Weaving capacity: 52.8 million meters (with 453 looms)  83.5 million meters of grey and processedNahar Industrial Enterprises  Processing Capacity: 58.4 million fabric meters  Weaving Capacity: 34 million meters of woven shirting fabric, 21  29 million meters of woven fabricArvind Limited million meters of Khakhi fabric, 33  38 MT of grey fabric million meters of voiles  Knitting Capacity: 10,000 tonnes  Weaving Capacity: 82 million meters of fabrics (900 looms)Vardhman Textiles Limited  108 million meters processed fabric  Prcessing Capacity: 90 million meters  Weaving Capacity: 220 million  78.2 million meters (large part of capacity wasBombay Rayon Fashions meters under commissioned in FY10)Source: Company Websites; ICRA Online Research *Actual production includes production through third party contractors outsourced production) 10
  • ICRA Equity Research Service Alok Industries LimitedTechnical textiles to gain focus in wake of increasing demand and potential for higher EBIDTA marginUnlike conventional textile industry, the technical textile industry (market size estimated to reach Rs. 66,000 crore byFY13e) is an import intensive industry with few companies in India having expertise to manufacture speciality fabricssuch as fire retardant fabric, water repellent, soil release fabric and high visibility fabric. These are widely used inindustrial, aerospace, military, marine, medical, construction, transportation and high technology applications. Alok isin talks with several international players for technology tie-ups and plans to considerably increase exposure to thissegment to gain from the lower competitive pressures and garner higher margins from the same.Reputed and diversified customer base helps mitigate client specific risks; strong backward integration helpsminimize the impact of yarn price fluctuationsThe apparel fabric division has a highly diversified and reputed customer base which includes garmenting companieslike Shahi Exports and Madura Garments in domestic market (~65-70%), garmenting companies in internationalmarket (~15-20%), institutional sales to armed forces and government organisation (~5-7%) and work wear ortechnical textiles (~5-10%). The company manufactures fabric primarily against orders which helps mitigate the riskof unsold inventory, while the pricing takes into account prevailing market price of raw material (yarn) and foreigncurrency rate for exports. Besides, strong backward integration with in-house cotton and polyester yarn productionhelps minimize the impact of any adverse fluctuations in yarn prices.Strong revenue growth expectations on account of healthy domestic demand and capacity augmentation;margins expected to be maintained through migration to high value-added and fashion fabricsThe apparel fabric division has witnessed strong growth over the years driven by increase in volumes on the back ofhealthy demand and capacity augmentation. The segment generates EBDITA margin of close to 36% on account ofbackward integration into yarn production, high-end processing and increasing presence in the fashion wear andtechnical fabric. Going forward, the shifting production base to Asian countries like India, along with increasingdemand for higher quality fashion apparel and ready-to-wear apparels in India, is likely to benefit established textilemajors like Alok. Besides, the focus on technical textiles along with increasing share of yarn-dyed fashion wear fabricsis likely to drive realizations and revenue growth for the company. Operating margins too are estimated to remainstrong despite volatile raw material prices as the company, being a large integrated player, benefits from economies ofscale and has demonstrated its ability to pass on increase in input costs to its customers. Overall, we expect thedivision to report ~11% CAGR revenue and 34-35% EBITDA margins over the FY12e-FY14e period.Exhibit 11: Fabric Division – Key Financial IndicatorsKey Estimates FY09a FY10a FY11a FY12e FY13e FY14eInstalled CapacitiesProcessing Woven Mn Mtrs 105 105 105 126 126 126Weaving Mn Mtrs 70 93 93 170 170 170Knits MT 18,200 18,200 18,200 25,000 25,000 25,000ProductionWoven fabrics Mn Mtrs 168 205 240 275 306 331Knitted fabric MT 6,693 6,802 9,135 12,789 16,625 19,950Total Revenues Rs Cr 1,610 1,943 2,967 3,107 3,585 4,008Growth % 21% 53% 5% 15% 12%Source: ICRA Online Research 11
  • ICRA Equity Research Service Alok Industries LimitedHome Textiles DivisionSnapshot Home Textiles division accounted for ~15% of overall revenues and 16% of EBITDA in FY11; Integrated operations & presence in mid-premium export segment enables high margins (31% EBITDA margin in FY11) Alok is mainly present in the exports markets (>95% revenues) where it continues to face stiff competition from Chinese manufacturers with higher economies of scale and from manufacturers based out of other low cost destinations like Pakistan Presence in the relatively high end home textiles (300 to 500 counts product category) enable higher price realisation and helps mitigate competition from other low cost manufacturing locations and domestic companies Established and reputed multinational clientele results in strong customer profile; periodic pricing resets to protect marings in case increase in input costs Integrated operations with spinning / processing capabilities enables better control over product quality Planned increase in processing capacity to 105.0 million meters and terry towel capacity to 13,400 MT to drive revenue growth going forwardExhibit 12: Home Textiles Division – Key Operating Indicators Alok produces wide range of bed sheets sets, comforters, blankets, quilts, curtains and terry towels. Bed sheetsProduct mix account for close to 80% of the division’s sale while bed spreads and terry towel account for 10% each  Export to overseas retailers and brands like Walmart, J.C. Penny, Kohl and Target (exports accounting for ~Target 95% of overall division’s sales and 45% of total exports of Alok)segment  Domestic retailers and brands  Largest Indian player in export of bed sheets (Received various export awards from Government of India)  Top five player for terry towelsHighlights  Strong integration with Alok’s spinning division, which supplies close to 80% of its raw material (cotton yarn) requirement and in-house processing unit enabling control over end product quality  Home Textiles segment is estimated at around US$ 22 - 27 billion, accounting for 5-6% of the total global textile marketIndustry  India currently the largest supplier of terry towels and bed sheetsScenario  Spend on home textiles is price sensitive in nature with demand vulnerable to economic slowdowns; however, demand may shift to lower value segment within home textiles  Abhishek Industries, Indo Count Industries, Himatsingka Seide, Bombay Dyeing and Welspun India are someCompetition of the major Indian players in the bed linen segment.  Stiff competition with manufacturers based out of China and Pakistan  Bed sheets – 17.5 million piecesCurrent  Processing - 105.0 million metresCapacity  Weaving - 68.0 million metres  Terry towels - 6,700 tons  Capacity expansion for processing of fabric to 105.5 million meters, weaving of fabric to 93.0 million metres and terry towels to 13,400 tons at a cost of Rs. 175.0 crore, to commissioned by FY12.Future plans  The capacity expansion will be funded through Rs. 140.0 crore external debt & balance through internal accrualsSource: Company Websites; ICRA Online Research 12
  • ICRA Equity Research Service Alok Industries LimitedLargest home textiles exporter from India with significant presence in high count bed sheets and terry towelsAlok is the largest manufacturer and exporter home textiles from India with Rs. 986 crore in sales in FY11, growing at36% CAGR over the last three years on account of increase in capacities, diversification in product mix and improvedrealisation per unit on account of higher value add products. The product mix consists of 80% bed sheets, while 10%is bed spreads and rest are terry towels. Around 10% of terry towel products of Alok are yarn-dyed providing highermargins while the rest is solid or piece dyed. Alok has limited presence in the domestic market mainly consisting ofeconomy segment (less than 300 thread counts) and dominated by large number of unorganised players. Thecompany mainly focuses on export markets (>95% of products are exported) with 300 to 500 thread count products,where competition is moderate and realizations / margins are relatively higher.Stiff competition from other low cost destinations; however, presence in the relatively higher count helpsmitigate competitionIn the home textiles segment, Alok is mainly present in the exports markets (>95% revenues) where it continues toface stiff competition from Chinese manufacturers with higher economies of scale and from manufacturers based outof other low cost destinations like Pakistan. However, presence in the relatively high-end home textiles (300 to 500counts product category) enable higher price realisation and helps mitigate competition from other low costmanufacturing locations and domestic companies (products from Pakistan are estimated at 8-12 USD/unit FOB valuewhile that from Alok are priced at 15-20 USD/unit). Besides, the shift in procurement strategy of large global retailersfrom high cost US / European destinations to low cost destinations like India and increasing demand for textileproducts in China’s domestic market augurs well for the large Indian players like Alok. The installed capacity ofcertain organised players is given below:Exhibit 13: Home Textiles Division – Competitive ScenarioCompany Installed Capacity (p.a)Hanung Toys & Textiles Bed Sheets - 6.85 million pieces Bed Sheets - 2.96 million Pieces, Weaving Capacity - 15.7 million metres, Processing Capacity - 20.9Himatsingka Seide million metresAbhishek Industries Terry Towels -41,500 tons Bed Sheets - 17.5 million pieces, Terry towel - 6,700 tonsAlok Industries Weaving capacity – 92.0 million meter and processing capacity – 105.0 million metersWelspun Industries Weaving capacity – 45.0 million metres, Terry Towel - 41,500 tonsSource: Company Websites; ICRA Online ResearchEstablished and reputed multinational clientele results in strong customer profile; periodic pricing resets toprotect marings in case increase in input costsThe customer portfolio for the home textiles division includes retail giants like Walmart, Target, Kohl’s and JC Penneyin the export market and Pantaloons in the domestic market. The client portfolio for the company is quite diversified,with top four to five customers accounting only 40% of revenues for the division. In terms of geographies North &South American markets comprise ~80% of the total sales, Europe contributing ~15% and domestic customersaccounting for balance 5% of the segment’s revenue. Besides, ~95% of products are sold as private labels in thesemarkets and only 5% are sold as branded products. 13
  • ICRA Equity Research Service Alok Industries LimitedThe company’s customer base consists primarily of organised retailers in the US and European market, where averagespend on and replacement of home textile products is relatively higher than that in the other parts of the world, thusmaking it a steady business for retailers. This generates steady order book for large integrated companies like Alokwho can deliver large quantities of higher value add home textile products at reasonable rates and meeting stiffdelivery schedules. Besides, the company has volume-based contracts with its customers where prices are negotiatedevery three months based on the input (cotton yarn) prices, thus allowing Alok to hedge its raw material risk.Capacity enhancements to drive volume growth going forward; however, realizations and margins remainvulnerable due to significant uncertainities in global demand outlook over the near termAlok is expanding its Terry Towels capacity, a relatively new segment for the company, from 6,700 MT to 13,400 MTin FY12. Besides, the company is increasing its in-house weaving capacity from 68.0 to 92.0 million meters per annumand processing capacity from 82.5 to 105.0 million meters per annum in FY12, inorder to maintain the quality offinished product. While capacity enhancements are expected to result in robust volume growth going forward, weexpect the operating margins of the division to remain vulnerable to renewed uncertainities over global demandoutlook in the near term. The revenue growth could also be impacted by declining cotton prices and resulting lowerrealisations.However, we expect the price corrections to be buffered by presence in higher count products and high value addition(i.e. lower raw material costs / realizations) by the division. Besides, the impact on operating margins are expected tobe somewhat mitigated by operating efficiencies resulting from higher economies of scale, integrated nature ofoperations, high-end designing capabilities and diversified client base of the company. Overall, we have assumed thecontribution from terry towels to increase to from ~10% in FY11 to ~20% in FY14e and the division to report ~13%CAGR revenue and 28-29% EBITDA margins over the FY12e-FY14e period.Exhibit 14: Home Textiles Division – Key Financial IndicatorsKey Estimates FY09a FY10a FY11a FY12e FY13e FY14eInstalled CapacitiesProcessing Mn. Mtrs 82.5 82.5 82.5 105 105 105Weaving Mn. Mtrs 47 68 68 92 92 92Terry Towels MT 0 6700 6700 13400 13400 13400ProductionMade-ups 000 Sets 4,073 4,948 5,690 6,401 7,041 7,569 000Made-ups 2,456 3,737 4,297 4,835 5,318 5,717 PiecesTerry towels MT - 1,703 2,555 3,704 5,186 7,001Total Revenues Rs Cr 499 707 986 1087 1263 1442Growth % 42% 39% 10% 16% 14%Source: ICRA Online Research 14
  • ICRA Equity Research Service Alok Industries LimitedPolyester Yarn DivisionSnapshot Polyester Yarn division is the second highest revenue generating segment, with close to 25% revenue contribution and 17% EBITDA contribution in FY11, the division is expected to become highest revenue contributor by FY14e on the back of large capacity enhancement being undertaken by the company Demand scenario likely to remain robust due to increasing substitution of natural fibres; considerable increase in capacity across sub-segments to meet captive & open market demand to drive volumes growth going forward Strong competition from Chinese manufacturers, large Indian peers & unorganised domestic texturisers; however large scale of operations enables supporting high volumes at competitive prices Relatively moderate EBDITA margins due to commodity nature of business; significant volatility in raw material (MEG & PTA) prices may dampen profitability margins if not hedged or passed through adequately; however RoCE is expected to remain relatively healthy due to lower working capital intensity and capex requirementsExhibit 15: Polyester Yarn Division – Key Operating Indicators Present mainly in commodity segment; manufactures Partially Oriented Yarn (POY), Fully Drawn YarnProduct mix (FDY), Drawn Texturised yarn (DTY)Target segment Domestic power loom weavers, Direct exportsHighlights Among top three polyester yarn manufacturing company in India  Competition from established domestic players like Reliance Industries Ltd, JBF Industries Ltd, Garden Silk Mills Ltd, Futura Polyesters Ltd, Indo Rama Synthetic Ltd., Century EnkaCompetition  Competition from Chinese polyester yarn manufacturers that dominate the global polyester market with ~ 70% market share  The global production of Polyester fibre grew by 5.3% in CY10, Polyester Filament Yarn recordedIndustry Scenario strong growth of 5.7% to 19.3 million tons and Polyester Staple Fibre grew by 4.6% to 12.6million Tons. On the other hand, cotton fibre showed a de-growth of 4.8%.Current Capacity* POY : 200,000 tons, FDY : 70,000 tons, DTY : 114,000 tons Capacity expansion for DTY to 170,000 tons per annum and to 500,000 tons for POY at an estimated costFuture plans of ~Rs. 860 crore by FY12eSource: Company; ICRA Online Research *POY - Partially Oriented Yarn; FDY- Fully Drawn Yarn (FDY), DTY - Drawn Texturised yarn;Strong competition from Chinese manufacturers, large Indian peers & unorganised domestic texturisers;however large scale of operations enables supporting high volumes at competitive pricesThe polyester yarn segment faces competition from larger & fully integrated players like Reliance Industriesdomestically and stiff competition from chinese manufacturers (that account for close to 70% of global production)internationally. However, Reliance Industries is mainly present in Polyester Staple Fibres (~62% market share) andhas lower presence in Polyester Filament Yarn (~29% market share) segment catered by Alok. Besides, increasingdomestic demand, rising finance cost and reducing labour cost arbitrage in China are likely to aid long-term growthrates for leading Indian manufacturers like Alok over the medium term. 15
  • ICRA Equity Research Service Alok Industries LimitedExhibit 16: Polyester Yarn Division – Competitive Scenario: Company Installed Capacity* Reliance Industries Limited 800,000 tons Indo Rama Synthetics Limited 303,600 tons JBF Industries 201,200 tons Garden Silk Mills Limited 230,400 tons Alok Industries 200,000 tonsSource: Company Websites; ICRA Online ResearchSignificant volatility in raw material prices may dampen margins if not hedged or passed through adequately Purified Terephthalic Acid (PTA) and Mono Ethylene Polyester Division - Raw Material Price Trend Glycol (MEG) are the primary raw materials constituting 1800 ~50-70% of the total sales value for polyester yarn. Being 1600 petrochemical products, prices of PTA and MEG fluctuate 1400 1200 in line with fluctuations in crude oil prices in the long 1000 term. Domestic refining companies like Reliance and IOC 800 600 cater to ~75% of Alok’s PTA requirement while the 400 balance is imported. MEG is completely imported by the 200 0 company. Volatility in raw material prices remain a key challange for the company in view of the commodity Nov-09 Nov-10 May-10 May-11 Jul-09 Jul-10 Mar-10 Mar-11 Sep-09 Jan-10 Sep-10 Jan-11 nature of the business. PTA (US$ per ton) MEG (US$ per ton) Source: EmergingTextiles.comPolyester Yarn division is expected to become highest revenue contributor by FY14e on the back of largecapacity enhancement being undertaken by the companyAlok’s Continuous Polymerisation plant with 200,000 TPA POY capacity became full operational in FY11. We expectthe division to further expand aggressively ~500,000 TPA in FY12e and ~900,000 TPA in FY14e; inorder to leverageupon the rapidly increasing artificial fibre demand due to limited land availability for cultivation of natural fibres, highdependence on agro-climatic conditions and higher domestic spending in the price sensitive rural markets. Besides,Alok plans to shift from semi-dull polyester yarn to relatively higher end products like bright black/cationic yarnscurrently being produced by Reliance Industries, JBF Industries and Indo Rama Synthetics. As a result, we expect thepolyester yarn division to report a robust ~52% CAGR revenue growth and emerge as the largest revenue contributorfor Alok, with its revenue contribution increasing from 25% of Alok’s overall sales in FY11 to 42% of sales in FY14e.While the EBITDA margins for the division are expected to remain moderate (around ~18%); the division generateshigher ROCE on account of relatively lower working capital intensity / capex requirements and higher asset turnover(~2.5 times) in comparison to cotton based businesses (~0.5 times).Exhibit 17: Polyester Yarn Division – Key Financial IndicatorsKey Estimates FY09a FY10a FY11a FY12e FY13e FY14eInstalled CapacitiesDTY 000 MT 77 114 114 170 170 170FDY 000 MT 0 0 65.7 65.7 65.7 65.7POY 000 MT 182.5 182.5 200 500 700 900 16
  • ICRA Equity Research Service Alok Industries Limited FY09a FY10a FY11a FY12e FY13e FY14eProductionDTY 000 MT 71 104 108 125 131 137FDY 000 MT - - 16 36 43 49POY 000 MT 10 28 56 140 279 488Total Revenues Rs Cr 619 1193 1664 2592 3905 5864Growth % 93% 39% 56% 51% 50%Source: ICRA Online Research Note: DTY - Drawn Texturised yarn; FDY- Fully Drawn Yarn (FDY), POY - Partially Oriented YarnGarments DivisionSnapshot Currently low level of activities at Alok’s garmenting division; large part of garmenting activity outsourced Garment division accounted for close to 3% of total operating income and 2% of EBITDA in FY11 Division unlikely to contribute significantly higher revenues due to lower management focus currentlyGarments currently a small divisionGarment division of Alok is currently the smallest in terms of revenue and capacities. During FY11 the divisionrecorded sales of Rs. 175 crore, an increase of 24% over the previous year. Exports contributed to the majority shareof sales for this division. The garments division increased production capacity to 22 million pieces per annum from 15million pieces per annum in FY09. The capacity utilisation at present constrained as availability of workers at currentfactory location of Silvassa is a problem due to transportation issues for workers. Hence, further capacityenhancement (7 million pieces) was done at Daman where there is ample availability of labor which is expected toimprove capacity utilisation of the segment in future.Though opportunities are available in workwear segment for this division to grow, Alok has no plans to aggressivelyexpand the garmenting facilities further at present however it is considering outsourcing opportunities especially inBangladesh, where quality garments can be produced at competitive prices. However, going forward too, the divisionis expected to remain a minor contributor to Alok’s overall sales.Exhibit 18: Garment Division – Key Financial IndicatorsKey Estimates FY09a FY10a FY11a FY12e FY13e FY14eInstalled Capacities Mn. Pcs. 15.0 22.0 22.0 22.0 22.0 22.0Production Mn. Pcs. 4.7 3.7 4.4 5.1 5.9 6.8Total Revenues Rs Cr 139 141 175 175 191 210Growth % 39% 2% 24% 9% 10% 11%Source: ICRA Online Research 17
  • ICRA Equity Research Service Alok Industries LimitedReal Estate BusinessSnapshot Foray into real estate in FY07, through separate subsidiaries, to be part of the high growth of this sector Large accumulation of debt on account of projects under implementation, resulting in pressure on capital structure despite equity infusion from promoters and institution investors (though QIPs) Commercial complex (Penninsula Business Park) project nearing completion; Joint venture in the residential real estate segment likely to yield results only in the coming years Succesful exit from real estate segment likely to aid recovery in overall profitability, capital structure and liquidity profile of the companyEntry into real estate business to encash the upturn in the real estate industry four years back; lookingactively to exit the business after execution and sale of current projects at handAlok had entered the real estate business and invested ~Rs. 1,500 crore in FY07 to take advantage of the real estateboom witnessed during 2004-2008. The management is aggressively pursuing monetisation of these investments andexit the real estate business to improve the capital structure of the company going forward. Except the residentialproject at Nahur (Mumbai) which may take around three-four years for completion, the company plans to exit fromother real estate ventures by March 2012.Ashford Center - Four floors to be retained for corporate use, remaining four to be sold by March 2012Alok, through its subsidiary Alok Infrastructure Limited, had purchased Ashford Center (commercial building, 8floors, 60,000 sq. ft.) at Lower Parel at ~Rs. 125 crore in 2006. Alok intends to retain four floors for corporate. Thecompany has recently sold one floor (7,500 sq. ft) at the rate of Rs. 21,000 per sq. ft. while the other three floors is areexpected to be sold at similar rates by March 2012.Peninsula Business Park - Tower ‘B’: Lease agreements to be signed soon, complete sell off expected laterThe company, through its wholly owned step-down subsidiary Alok Realtors Limited, had invested ~Rs. 1,275 crore inPeninsula Business Park (Tower B, 20 floors, 641,000 sq. ft) in 2006. The site is located at Lower Parel (near PhoenixMills) in Mumbai and is being developed by Peninsula Lands Limited with civil work carried on Shapoorji PallonjeeGroup. The building is located in close proximity to the Lower Parel and Currey Road stations, 5-star hotels like ITCand Four Seasons and other major commercial complexes like Indiabulls, DLF, HDFC Bank House & Ambit RSM. Theproposed project is exposed to market risks on account of significant upcoming commercial space in its vicinity. Alokis scouting for potential lessees to rent out the premises and plans to sell the property to real estate funds after theproperty is completely lease out. The company has recently lease out two floors to an FMCG at a rate Rs. 225 per sq.ft.We have assumed 50% occupany by March 2012, 100% by H1 FY13e and complete sell-off / exit from the venture at~17,000 Rs/sq. ft. during FY13e in our projections.Land at Silvassa (500 acres) – SEZ plans shelved, to be sold at more than five times cost priceAlok had acquired 500 acres of industrial land for at a total cost of Rs. 50 crore (Rs. 10 lakh per acre) at Silvasa in2006, with the intention of developing Textile SEZ. However, the company has shelved its development plan andintends to sell the same at Rs. 60-70 lakh per acre. The company in advanced talks to sell around 73 acres for aconsideration of Rs. 50 crore. We have assumed the remaining land to the monitized in various phases for ~Rs 300crore by FY14e. 18
  • ICRA Equity Research Service Alok Industries LimitedAshford Royale Residential Complex : ~1.1 msf to be developed in Nahur by December 2013The company, through Alok Infrastructure Limited, has entered into 50:50 joint venture for developing a residentialcomplex on a 7 acre plot (CEAT factory) at Nahur1. The plot is being developed by Ashford group into two 42 storeyand two 37 storey buildings (total 608 flats) with landscaped garden, club house, gymnasium and swimming pool anda total saleable area of 1.1 mn. Sq.ft.. The civil contract has been awarded to Talati, Panthaki & Associates. The projectis estimated to be completed by December 2014.Exhibit 19 : Alok’s Real Estate BusinessesKey Projects Major Updates / Expected monitization  Commercial building at Lower Parel : Saleable area 60,000 sq. ft.1) Ashford Center  The company plans to retain ~30,000 sq. ft. for corporate use (100% Subsidiary)  We expect remaining ~30,000 sq. ft. to be sold off at ~21,000 Rs/sq. ft. during the current fiscal year  Commercial building at Lower Parel: 20 floors, Saleable area 641,000 sq. ft.  Recently leased out two floors at a rate Rs. 225 per sq.ft.; we expect 50%2) Peninsula Business Park - occupany by March 2012 and 100% by H1 FY13eTower B (100% Subsidiary)  We have assumed complete sell-off and subsequent exit from the venture at ~17,000 Rs/sq. ft. during FY13e in our projections  500 acres industrial land at Silvassa  The company in advanced talks to sell around 73 acres for a consideration of3) Land at Silvassa Rs. 50 crore (100% Subsidiary)  We have assumed the remaining land to the monitized in various phases for ~Rs 300 crore by FY14e.  Residential Project: ~1.1 million sq ft to be developed in Nahur (Mumbai) by Dec 20144) Ashford Royale  We have assumed sales booking in 8,500 – 10,500 Rs/sq. ft. range; Land cost at (50:50 Joint Venture) Rs. 137 crore, construction costs at ~ 4500 Rs / sq. ft.  Our assumptions regarding sales bookings and revenue / cost recognitions for the complete project are as follows: FY11a FY12e FY13e FY14e FY15eTotal Area Mn Sq Ft 1.1 1.1 1.1 1.1 1.1Market Rate Rs/Sq Ft 8500 9000 9500 10000 10500Sales Booking (%) % 25% 50.0% 75.0% 100.0% 100.0%Constuction Completion (%) % 25% 50.0% 75.0% 100.0%Sales / Cost Recognition % 0% 13% 38% 75% 100%Revenue Recognition Rs. Crore 127.19 254.38 381.56 254.38Cost Recognition Rs. Crore 79 158 237 158Source: Company, ICRA Online Research1 Nahur is a North Eastern suburb of Mumbai and is located between Mulund and Bhandup. 19
  • ICRA Equity Research Service Alok Industries LimitedUK Retail Business – Grabal Alok UK Snapshot  Foray into UK retail market through acquisition of ~90% stake in ‘Grabal Alok UK’ through its subsidiary – ‘Alok Industries International Ltd’ and associate company – ‘Grabal Alok Impex Ltd’  Consolidatation of ‘Grabal Alok UK’ post the proposed merger with ‘Grabal Alok Impex’, likely to adversely impact the financials of Alok industries in near term  Rebranding of stores and operational improvements to aid turnaround of the ailing UK retailer; achieved cash breakeven in FY11 and expected to achieve net breakeven in FY13e  The management may look to divest it post turnaround, if Alok makes decent returns on the investmentWith an intention to enter the garment and accessories retail market in the UK, Alok, through its subsidiary acquired~41.3% equity stake its associate company Grabal Alok Impex, through its subsidiary, acquired close to 48.71% stakein British retailer, Grabal Alok (UK) Limited (GAUKL) in 2007. Recently, Alok’s board has approved the merger ofGrabal Alok Impex with Alok, which will make GAUKL a 90% subsidiary of Alok Industries.Rebranding of stores and operational improvement measures to aid turnover of the ailing UK retailerGAUKL has 219 stores across England, Scotland and Wales, where it retails value-for-money and quality fashion forwomen, men, girls, boys and infants. It also sells accessories like artificial jewellery, shoes and leather bags. Afteracquiring the company, Alok’s management undertook a re-branding exercise, re-naming the outlets from ‘QS’ to‘Store Twenty One’. The stores are now being repositioned from being a discount retailer to a value retailer andopportunities for setting up ‘shop-in-shop’ in large format stores are also being looked upon. A series of othermeasures such as shifting of sourcing to Asian countries, improving quality of merchandise, cost reduction initiativesbeen initiated to reduce losses and increase operational efficiencies, which has resulted in a cash breakeven in FY11.Operations of the UK company are yet to achieve break even and are likely to require further financial and operationsupport from Alok. Consolidatation of ‘Grabal Alok UK’ post the proposed merger with ‘Grabal Alok Impex’, likely toadversely impact the financials of Alok in near term. The management considers all real-estate and retail businesses ofthe company as non-core businesses and may plan to divest the stake in the UK retailer once the operations turnpositive and the company makes decent returns on its investment.Domestic Retail Business - Alok H&A LimitedThe company, through its wholly owned subsidiary Alok H&A Limited, has ventured into retail of garments, hometextiles and accessories through exclusive brand outlets (EBOs) and is positioned as an affordable lifestyle brand withpresence across 75 cities in 22 different states of India. At the end of March 2011, Alok operated close to 290 H&Astores in India. The stores are operated on asset-light franchisee model, where the company incurs no capital or rentalcost. Apart from the standard format stores, which are usually 800 square feet to 1,000 square feet in size, thecompany is also looking at larger format stores up to 2,500 square feet to accommodate all categories – men’s, ladies,children’s clothes, home furnishings and accessories such as footwear, sun glasses and perfumes. Though Alok islooking to expand store count to 500 by March 2012 using the franchiese model, the retail business is not estimated toaccount for more than 5% of its overall (consolidated) operating revenues for the company. Besides, the managementmay look to spun-off the venture into a separate company incase they turn more aggressive on the domestic retailbusiness. 20
  • ICRA Equity Research Service Alok Industries LimitedOTHER SUBSIDIARIES AND ASSOCIATESGrabal Alok Impex Limited - Presence in embroidered products; to be merged with Alok in FY12Grabal Alok Impex Limited (GAlok) was incorporated in 1993 through technical collaboration with Grabal AlbertGrabher GmbH & Co, Austria and is engaged in manufacturing wide range of embroidered fabrics having applicationin the home textiles, apparel fabrics and garmenting. GAlok one of the largest domestic manufacturers of embroideredfabric with a capacity of 34 billion stitches a year. The company has presence in both international and domesticmarkets with customers including domestic traders and garment manufacturers, international branded apparelcompanies and international home textile retailers. GAlok had reported ~Rs. 235 crore revenues with ~21% EBITDAmargins in FY11. Besides, the company indirectly holds 48.71% in British retailer, Grabal Alok (UK) Limited (GAUKL).Alok’s board of directors have recently approved the amalgamation of GAlok into Alok though a 1:1 swap ratio. Thiswill result in ~2.6% equity dilution and marginal increase in promoter holding from 29.37% to 29.71% in Alok. GAlokhas ~Rs. 600 crore external liabilites on its balance sheet, which consists of bank term loans, working capital loans,FCCBs, Convertible Debentures and redeemable preference shares. Overall, the merger of Grabal Alok Impex Ltd andthereby consolidation of GAUKL is expected to reduce the consolidated EBITDA margins for the company by ~2.5% inFY12e and weaken the capital structure by additional debt burden of ~Rs. 600 crore, in the near term.Mileta a.s –synergies through transfer of advanced yarn dyeing technologies to Alok’s fabric division;Exhibit 20: Mileta a.s – Operating ProfileProduct mix Shirting fabrics, table linen and bed linenTarget segment Exports mainly to Europe, North Africa, the Americas, the Middle East, the Far East and the Asia Pacific regionsKey brands Mileta’s brands – Mileta, Erba, Cottonova, Lord Nelson and Wall StreetSource: Company, ICRA Online ResearchAlok holds ~100% stake in Mileta a.s, an integrated textile entity based out of Czech Republic. The acquisition hasbenefited by way of technology inputs from the Czech entity, especially in value added yarn dyed fabrics. Post theacquisition Alok has been able to make quality yarn-dyed fabrics, which are priced at ~Rs. 130-140 per meter, asignificant premium to its earlier realisations, although the same forms less than 10% of its fabric sales currently. Alokalso stands to gain access to Mileta’s well-established distribution network in the USA and Europe. Besides, Alok haslaunched some of the Mileta brands – Erba (for handkerchiefs) and Lord Nelson (for premium shirting) – in the Indianmarket. Cottonova a home textile brand of Mileta is manufactured in Alok’s home textile plant and being exported.Alok was able to turnaround Mileta’s performance through production efficiencies, optimising headcount and othercost rationalisation efforts in FY10. Thus despite the slowdown in the European markets, Mileta generated cashprofits of the company of Euro 0.30mn. (Rs. 1.83 crores) during FY 2010 as against cash loss of Euro 4.17 mn. (Rs.25.26 crores) during the previous year. 21
  • ICRA Equity Research Service Alok Industries LimitedIndian Textiles Industry Outlook Snapshot  Global economic growth outlook weakens, recent rupee depreciation to provide some respite to exporters  Steep decline in raw cotton prices could impact industry margins in near term due to high cost inventories  However, textile & apparel industry expected to grow healthy ~10-12% over the long term due to favourable demographics domestically and shifting of manufacturing base to lower cost destinations globallyGlobal economic growth outlook weakens, recent rupee depreciation to provide some respite to exportersAfter a strong recovery in 2009 and relatively healthy growth in 2010, the US GDP growth rate has again startedslowing signs of a slowdown. Besides, the gradual unwinding of fiscal stimulus, persistantly high unemployment rate,falling home prices, lower consumer spending and increase in personal savings rate has weakened the medium termeconomic growth outlook for US. Moreover, budget cuts / austerity plans by eurozone countries to combat sovereigndebt crisis and high reconstruction costs post massive earthquake / tsunami in Japan could further impact consumersentiments and reduce discretionary spends on Textiles & Apparels (T&A) over the medium term. Indian Rupee Vs. USD Indian Rupee Vs. Euro 54.00 75.00 52.00 70.00 50.00 48.00 65.00 46.00 60.00 44.00 55.00 42.00 40.00 50.00 Nov-09 Nov-10 Nov-09 Nov-10 May-09 May-10 May-11 May-09 May-10 May-11 Jul-09 Jul-10 Jul-11 Jul-09 Jul-10 Jul-11 Mar-09 Mar-10 Mar-11 Mar-09 Mar-10 Mar-11 Jan-09 Sep-09 Jan-10 Sep-10 Jan-11 Sep-11 Jan-09 Sep-09 Jan-10 Sep-10 Jan-11 Sep-11 Indian Rupee Vs. Chinese Yuan Indian Rupee Vs Pakistan Rupee and Bangladesh Taka 7.80 0.80 7.60 0.75 7.40 7.20 0.70 7.00 0.65 6.80 0.60 6.60 0.55 6.40 6.20 0.50 6.00 0.45 Mar-09 Nov-09 Mar-10 Nov-10 Mar-11 5.80 May-09 May-10 May-11 Jul-09 Jul-10 Jul-11 Jan-09 Sep-09 Jan-10 Sep-10 Jan-11 Sep-11 Nov-09 Nov-10 May-09 May-10 May-11 Jul-09 Jul-10 Jul-11 Mar-09 Mar-10 Mar-11 Jan-09 Sep-09 Jan-10 Sep-10 Jan-11 Sep-11 INR / PKR INR / BDTSource: Bloomberg; ICRA Online EstimatesOn the other hand, the domestic currency has been appreciating steadily over the last 18 months due to relativelystronger domestic growth and interest rate hikes by the reserve bank. While the Indian rupee has appreciated againstthe currencies of key target markets (like US, Europe), it had also appreciated against competing currencies (ChineseYuan, Pakistan Rupee and Bangladesh Taka) over the last 18 months, as evident in the graphs above. However, therecent steep rupee depreciation provides some respite and is expected to boost the competitiveness of the IndianTextiles Exports Industry. 22
  • ICRA Equity Research Service Alok Industries LimitedSteep decline in raw cotton prices could impact industry margins due to high cost inventories; regulatoryinterventions remain key monitorables International Cotton Prices (USD/lb.) Domestic Cotton Prices (Sankar -6; Rs/Candy) 160 70,000 140 60,000 120 50,000 100 40,000 80 30,000 60 20,000 40 10,000 20 0 0 Mar-10 Mar-11 Nov-09 Nov-10 May-10 May-11 Jul-09 Jul-10 Jul-11 Sep-09 Sep-10 Jan-10 Jan-11 Apr-09 Apr-10 Apr-11 Oct-09 Oct-10 Jul-09 Jul-10 Jul-11 Jan-09 Jan-10 Jan-11Source: EmergingTextiles.com; Bloomberg, ICRA Online EstimatesAs shown in the graphs above, international cotton prices had increased significantly from ~75 USD/lb. in June 2010to ~135 USD/lb. in May 2011 on account of strong recovery in global demand and supply shortages due tounfavourable climatic conditions in major cotton producing countries like China, Pakistan and United States. In syncwith the global trend, domestic raw cotton prices for the Sankar-6 variety had increased from ~30,000 Rs/candy (1candy = 355 kg) in June 2010 to ~62,000 Rs/candy in March 2011.The Government of India (GoI) had initiated several measures in order to ensure cotton availability for the domesticindustry and easing of cotton yarn prices. In April 2010, GoI restricted yarn exports by withdrawing incentives like dutydrawback (4.0%) & Duty Entitlement Pass Book Scheme (7.7%). In December 2010, GoI further restricted yarn exports byfixing the quantitative export quota of 72.0 crore kgs for FY11 (~22% higher than actual export volume in FY10) andcompressed export window allowing exports only upto 15 January 2011. While there was no export of cotton yarn for overtwo-and-a-half months, the industry continued to produce yarn using high-cost cotton in anticipation of strong realisationsfrom the global markets after the removal of the export ban in April 2011. Besdies, simultaneous closure of several dyeingunits in Tirupur on environmental concerns resulted in a huge pile-up of large unsold cotton yarn stock.Exhibit 21: Policy Level Changes in CY10 Export of Export of Export benefits cotton capped cotton yarn on cotton and September December April 2010 at 55 lakh bales capped at 72 cotton yarn 2010 2010 for 2010-11 crore Kg. for withdrawn cotton season 2010-11 Aimed at de-incentivizing exports; Export restrictions on Indian cotton No significant impact due to the however, high realisations on pushed up the global cotton prices quantitative cap; export volume account of strong export demand and in turn yarn realisations was hit due to time line restriction kept exports attractive to 15 January 2011Source: ICRA Research 23
  • ICRA Equity Research Service Alok Industries LimitedAs anticipated, GoI lifted restrictions on cotton yarn exports effective 1st April 2011. In addition, it was listed under ‘freelist’ category, implying that contracts for cotton yarn exports were required to be registered only with the DirectorateGeneral of Foreign Trade (DGFT) and that shipments could go ahead without verification by the Indian customs. However,overseas customers had started sourcing cotton yarn from alternate global suppliers when the ban was enforced. Hence,post removal of the export ban, cotton and cotton yarn prices in export market have crashed due to significant additionalsupply on account of accumulated stock and weak global demand scenario.Exhibit 22: Policy level changes in CY2011 - DEPB benefits on Export Additional cotton and restriction 10 lakh bales cotton yarn April June restored on cotton of cotton July 2011 2011 2011 yarn export - Export removed allowed restriction on cotton removed Sudden spurt of supply in the No significant impact on cotton Export benefit expected to provide global market amidst demand prices due to sufficient availability relief to spinners; no significant slowdown led to a crash in cotton of cotton and weak demand impact on cotton prices yarn pricesSource: ICRA ResearchThe fall in cotton prices was accentuated by robust production estimates for the 2011-12 cotton season (runs fromOctober to September) globally. As per International Cotton Advisory Committee (ICAC), driven by higher prices inthe past one year, global cotton production is expected to increase to 26.9m tons in 2011-12 cotton season, an 8%increase over previous year. A total surplus of 1.8m tons is expected in 2011-12, helping global stocks to recover byabout 20% to 10.9m tons and boosting the stocks-to-use ratio to 43%, up from 37% in 2010-11. Indian cottonproduction too is expected to increase to 35 mn bales (1 Indian bale = 165 kg) in 2011-12 cotton season, an 9%increase over previous year, aided by higher acreage, better yields on higher Bt cotton adoption & normal monsoons.We expects the cotton prices to remain near current levels until November / December 2011, as the mills may take time toconsume their current stock of cotton. Subsequently, fresh purchases of cotton are likely to be made at more reasonablerates upon arrival of fresh cotton in the market. Overall, we expect the steep fall in cotton prices over the last fourmonths to result in high cost inventories across the industry, the impact of which would have to be partly absorbed bythe domestic textile manufacturers considereing the slackening of global demand recently.However, lower cotton prices aurgers well for the medium term demand outlook and operating margins for thedomestic textile industry. We expect the demand to improve in the domestic market with the onset of festival season in H2,2011-12 and in the export markets as well in order to fill the gradually depleting pipeline inventory. Moreover, the recentdecision by GoI to reinstate the DEPB benefits on export of cotton yarn and cotton with retrospective effect from 1 April2011 and 1 October 2010, respectively; and removal of quantitative cap on cotton exports, may arrest the downwardpressure and help stabilise the prices of cotton and cotton yarn over the near term. 24
  • ICRA Equity Research Service Alok Industries LimitedLonger term outlook remains healthy due to favourable demographics domestically and shifting ofmanufacturing base to lower cost destinations globallyOver the longer term, the domestic growth is expected remain healthy due to increasing population, rising disposableincomes, rapid urbanization, favorable demographics with a large working class population and increased organizedretail penetration. Additionally, rising disposable income in the hands of rural consumers due to rising agricultureIncome, increased employment generation through National Rural Employment Guarantee Act (NREGA) and PradhanMantri Gram Sadak Yojana (PMGSY) is likely to boost demand for low-ticket items. On the other hand, the exportsmarkets are expected to grow due to shift of manufacturing bases from developed to low-cost Asian countries as theyare losing their competitiveness for commoditised products to the Asian countries.Apparel Fabrics – large potential exists for the organised sector in cotton fabrics segmentThe Indian fabric market is highly fragmented, comprising of cotton, blended, 100% non-cotton, wool, silk and khadi.As per the textile ministry, the total fabric production is estimated to be 60,333 mn sq mtrs. Of this, the cotton fabricmarket is the largest market estimated at 47.9% of the total fabric market; while the 100% non-cotton, 100% blended& Khadi, Silk & Wool account for 37.9%, 12.9% & 1.3% respectively. The cotton fabric market has grown at a CAGR of4.9% over FY05-10, with the organised sector growing at a CAGR of 5.3%. The organised sector in cotton fabricsaccounts for 5.1% of total cotton fabrics production & contributes less than 2.5% of the total fabric production inIndia. The share of organised sector is expected to increase with increasing demand for higher quality fashion appareland ready to wear apparels in India and Alok is expected to gain owing to its presence in the mid to high valuesegment.Home Textiles - Healthy growth supported by global retailers looking to de-risking their vendor base awayfrom China and China unable to meet exports demand because of strong domestic growthGlobal home textiles market is estimated at around US$ 23 - 26 billion, accounting for 5-6% of the total global textilemarket. The home textiles market includes ‘Household textiles’ (Rugs, bed linen, table linen, bathroom and kitchenlinen, etc) and ‘Furnishing textiles’ (Curtains, bedspreads and other furnishing articles for home interiors, etc.). In bed sheets, quilts and terry towel categories, India faces stiff Market Share in Bed Sheets by Value competition from Pakistan and China. India and Pakistan 38% have been gradually gaining ground in the share of US 32% 30% imports at the expense of China and other smaller 29% 26% 26% 26% exporting countries such as Israel, Brazil in home textiles. 22%22% 19% Growth in share of India’s market share is driven by 16%14% decreasing competitiveness of China in low value-added textiles, strong domestic demand in China causing business to be partly diverted towards other countries and global retailers who are looking at de-risking their India China Pakistan Others vendor base currently concentrated in China. These trends are expected to continue in future too and we believe CY 2009 CY 2010 March YTD 2011 companies such as Alok having large manufacturing capacities in place are expected to benefit the most.Source: Office of Textiles and Apparel (OTEXA), USA 25
  • ICRA Equity Research Service Alok Industries LimitedPolyester segment - Significant potential in the domestic market due to current low consumption levels All fibres per capita consumption (per kg) Polyester Fibre per capita consumption (per kg) 12 10.6 18 16.5 16 10 14 8 7.1 12 10 6 8 4 6 4.7 4 2.3 2 2 0 0 World India World China IndiaSource: Saurer, Industry EstimatesGlobal all fibre per capita final consumer demand in 2010 is estimated at 10.6 kg, while that of India is at 7.1 kg. Incomparison, per capita consumption in China is at 16 kg, North America is 31 kg and West Europe is at 22 kg.Domestic polyester fibre per capita consumption is half that of world average of 4.7 kg and way below China. Weexpect the polyester penetration levels to improve considerably going forward due to 1) Improving spending on textiles in rural areas 2) Increased non-apparel Domestic Fibre consumption breakup applications like automobiles and home furnishing 3) Other fibres Versatility & high compatibility with natural fibre 4) (Viscose, Decline in cultivating land combined with uncertainty of Acrylic, PP, Nylon) natural fibre. The proportion of synthetics vs. cotton 6% fibre in global fibre consumption worldwide is 57:43 whereas it is the opposite in India where cotton accounts Polyester for 61% of the total fibre consumption. Higher 33% Cotton proportion of cotton is mainly because of past 61% government policies favouring such trend, fiscal policy such as excise duty de-incentivised man-made fibres. However, the uniform national fibre policy to be launched by the government soon is expected to correct this anomaly.Source: Industry, Company annual reports Polyester Vs. Other YarnsAs per various industry reports, PFY is expected to lead 300the domestic demand growth in the overall textile chain. 250High prices of cotton likely to result in substitution by Rs. Per Kg. 200man-made fibres. The price gap between polyester and 150cotton is widening and good quality cotton is becoming 100increasingly difficult to source. Even after a sharp 50correction in cotton yarn prices, price gap remains 0substantial. On the other hand the price gap between Apr-08 Apr-09 Apr-10 Apr-11 Oct-08 Oct-09 Jul-08 Jul-09 Jul-10 Jan-08 Jan-09 Jan-10 Oct 10 Jan 11polyester and other alternate fibre like viscose/ acrylicsare also widening. This may lead to strengthening ofpolyester demand going forward. Cotton Yarn Polyester yarn Viscose yarn Source: Emerging textiles 26
  • ICRA Equity Research Service Alok Industries LimitedFINANCIAL OUTLOOK Snapshot  Robust revenue growth over the past five years; growth momentum likely to continue on account of aggressive capital expansions planned in certain segments going forward.  Healthy EBDITA margins on the back of integrated operations and diversified product portfolio; however margins expected to moderate with increasing contribution from polyester yarn business;  However, ROCE likely to witness improvement as polyester segment is relatively less capital intensive when compared with cotton based segmentsExpansion in Polyester Yarn division to drive revenue and EBITDA growth going forwardWe expect Alok to remain a leading intergrated player in the domestic textile industry with strong presence acrossproduct segments. We expect the company to exit its non-core real estate and retail ventures in due course andremain focussed on apparel fabric and home textiles division, along with significant thrust on the rapidly growingpolyester yarn division. While the fabric division is estimated to grow at 11% CAGR over the FY11-FY14e period,home textiles is expected to growth at 13% CAGR and polyester yarn division to grow at a robust 52% CAGR duringthe period, backed by significant capacity expansions planned by the company. As a result, the revenue contributionfrom polyester division is expected to rise from ~25% in FY11 to ~42% in FY14e, making it the largest revenuecontribution segment for Alok. Although the EBITDA margin of the polyester segment is expected to remain moderateat ~18%, significant increase in scale of polyester operations is expected to reduce the dependence on apparel fabricdivisin, whose EBITDA contribution is expected to decline from ~57% in FY11 to ~44% in FY14e. Alok Industries: Revenue Contributions Alok Industries: EBI TDA Contributions 100% Others 100% Others 16% 13% 18% 17% 80% 21% 20% 27% 25% Garments 80% 22% 27% 33% Garments 22% 19% 20% 16% 60% 17% 16% 16% 15% 29% 35% 42% Polyester 60% 15% 14% 13% Polyester 12% 11% Home Textiles 40% 40% 10% 54% 66% 56% 57% 50% Home Textiles 39% 52% 44% 45% 47% 44% 20% 20% 34% 32% 29% Apparel Fabric Apparel Fabric 0% 0% Spinning & Trading Spinning & Trading -20% FY08a FY10a FY11e FY13e FY09a FY12e FY14e FY08a FY10a FY12e FY13e FY09a FY11e FY14eSource: Company ICRA Online Estimates;Aggressive capacity expansions to drive revenue growth; however higher polyester contribution andconsolidation of UK retail business to reduce margins going forwardAggressive capacity expansion across business segments (more so in polyester division) along with relatively stablerealisations are expected to result in a healthy 28% CAGR in the consolidated revenues for the company over theFY11-FY14e period. Despite the steep correction in raw material prices, we expect the company to maintain ~34%EBITDA margins in apparel fabrics, ~28% in home textiles and ~18% polyester segments. With increasingcontributions from polyester business, overall EBITDA margins are expected to decline by ~4% over the next threeyears. Besides, the EBITDA margins are expected to be further impacted by ~2.5% due to the consolidation of UKbased retail business, which has only recently achieved cash breakeven. However, with higher operating leverage,non-operating incomes stemming from exit of real estate ventures and debt-repayments post exit from non-core 27
  • ICRA Equity Research Service Alok Industries Limitedbusinesses, the consolidated EBIT is expected to report 22% CAGR growth and consolidated net profits are expectedto report a robust 36% CAGR growth over the same period (consolidated net margins for the company are expected toimprove from ~6.6% in FY11 to ~7.7% in FY14e). AILs Consolidated Revenue Growth AILs Trend in Profitability Margins 4,000 40% 16,000 60.0% 14,000 50.0% 12,000 3,000 30% 40.0% Rs Crore 10,000 Rs Crore 8,000 30.0% 2,000 20% 6,000 20.0% 4,000 2,000 10.0% 1,000 10% 0 0.0% 0 0% FY11a FY13e FY10a FY12e FY14e FY11a FY14e FY10a FY12e FY13e Total net revenue Revenue Growth % (RHS) EBITDA PAT EBITDA Margin (RHS) PAT Margin (RHS)Source: Company ICRA Online EstimatesProfitability indicators to improve from the lows in FY11a; gearing to moderate from FY14e onwardsWhile the polyester division has lower EBITDA margins, it has higher RoCE due to lower capex and working capitalrequirements and higher asset turnover for the business. Hence, even through the consolidated EBITDA margins areexpected to moderate from ~28% in FY11 to ~22% in FY14e, consolidated RoCE for the company is expected toimprove from ~10% in FY11 to ~17% in FY15e and consolidated RoE to improve from ~16% to ~24% during thesame period. The improvement in RoCE is also accentuated by exit from the non-core and capital intensive real estateventures of the company, which along with healthy cash accruals are expected to reduce the consolidated debt /equity for the company from ~4.4 times in FY11 to ~2.1 times in FY14e. Overall, we expect a robust 36% CAGRgrowth in EPS for the company over the FY11a-FY14e period, aided by robust capacity expansions and our relativelystable pricing / realizations assumption going forward. AILs Return Indicators & Gearing AILs EPS Growth 25% 5.0 16.0 250% 14.0Return indicator (%) 20% 4.0 12.0 200% Rs / Share 10.0 150% 15% 3.0 8.0 10% 2.0 6.0 100% 4.0 50% 5% 1.0 2.0 0.0 0% 0% 0.0 FY10a FY14e FY11a FY12e FY13e FY10a FY11a FY13e FY12e FY14e RoE ROCE Debt/ Equity (RHS) EPS EPS Growth (RHS)Source: Company ICRA Online Estimates 28
  • ICRA Equity Research Service Alok Industries LimitedCOMPANY PROFILEAlok Industries Limited (Alok), promoted by the Jiwrajka family, is a vertically integrated and a leading textilemanufacturer having presence across the value chain from cotton spinning, polyester yarn, apparel fabrics, hometextiles and garments manufacturing to retailing of garments and accessories. The company has 16 manufacturingplants located at Silvasa, Vapi and Navi Mumbai. At present, apparel fabrics is the largest segment of the company,accounting for 46.6% of Alok’s standalone sales, followed by polyester yarn (26.1%), home textiles (15.5%), cotton &cotton yarn trading (9.0%) and balance share(2.7%) comprised by garments.Alok has international presence through two companies, Mileta a.s. located in Czech Republic in which it holds 100%stake and Grabal Alok UK Ltd. in which it has 41.7% stake. Mileta a.s. is an integrated textile company with establisheddistribution network in Europe, North Africa, USA, the Middle East, the Far East and the Asia Pacific regions. TheMileta acquisition has proved synergistically beneficial for Alok by way of technology inputs for producing value-added yarn dyed fabrics. Grabal Alok UK Ltd is a leading garments and accessories retailing chain having 216 storesacross England, Scotland and Wales. Alok is also present in domestic retail through its wholly-owned subsidiary, AlokH&A Limited under which it retails apparel and accessories and home textiles through 291 franshisee stores.Besides, Alok has also diversified into commercial and residential real estate business through its wholly ownedsubsidiary, Alok Infrastructure Limited. Although the retail investments of the company may take time to yield results,we expect the company to actively monetize its investments in real estate business to improve the capital structureand the return indicators of the company.Exhibit 23: Company FactsheetName of the Company Alok Industries Limited (Alok)Year of Incorporation 1986Registered Office Village Rakholi /Sayli, Silvassa, Union Territory of Dadra and Nagar HaveliNature of Businesses Textiles– Spinning, Weaving & Garmenting Apparel fabrics, home textiles, polyester yarn, cotton yarn and garments. Retail, real estate and embroideryProducts through subsidiary companiesManufacturing Locations Silvasa, Vapi and Navi MumbaiAuditors Gandhi & Parekh Mr. Ashok B. Jiwrajka - Executive Chairman Mr. Dilip B. Jiwrajka - Managing Director Mr. Surendra B Jiwrajka - Joint Managing Director Mr. Chandrakumar Bubna - Executive Director Mr. Ashok Rajani - Non-Executive Director (Independent) Mr. K R Modi - Non-Executive Director (Independent)Board of Directors Ms. Thankom. T. Mathew - Non-Executive Director (LIC Nominee) Ms. Ms. Maya Chakravorty - Non-Executive Director (IDBI Nominee) Mr. M.V. Muthu - Non-Executive Director (IFCI Nominee) Mr. Debashish Mallick - Non-Executive Director (IDBI Nominee) Mr. David Rasquinha - Non-Executive Director (EXIM Nominee) Mr. Timothy Ingram - Non-Executive Director (Independent) Alok Infrastructure Limited Alok H&A Limited Alok Industries International Ltd.Key subsidiaries/ Joint Alok Land Holdings Private LimitedVentures/ associate companies Mileta, a.s.(incorporated in the Czech Republic) Grabal Alok (UK) Ltd. Grabal Alok Impex LimitedSource: Company, ICRA Online Research 29
  • ICRA Equity Research Service Alok Industries Limited Governance structure: Alok is managed by a 12 member Board, which includes seven independent directors, one non-executive director and three members from the Jiwar family. While the Jiwarajka family is closely involved in running Alok’s business, the company has a professional management structure across the company. The promoter group holds 29% equity stake in the company and the rest is widely held and includes institutional investors with . The disclosures in Alok Annual Report are adequate and have been broadly in line with that followed by the industry. Alok’s Corporate Structure (March 2011): Alok Industries Limited Integrated Textiles Manufacturer Apparel Fabrics Polyester Yarn Home Textiles Other Holdings Plant Locations: Silvassa Plant Location: Vapi, Silvassa Subsidiaries:Market Share: ~14% Alok H&A Limited Capacity: 270,000 tonnes per Capacity: Weaving -68.0 mn. Alok Infrastructure LimitedPlant Location: Vapi, Silvassa annum Mtrs., Processing – 82.5 mn. Alok Realtors Private Limited Mtrs. Alok Land Holdings LimitedCapacity: Weaving -93.0 mn. Planned Expansion: 300,000 Mileta a.s.Mtrs., Processing – 105.0 mn. tonnes Planned Expansion: Processing Alok Industries International LimitedMtrs. – 22.5 mn. Mtrs, Weaving – 24.0 Springdale Information and Key Competitors: mn. Mtrs. Technologies Private LimitedPlanned Expansion: Reliance Industries, Kesham Developers & Infotech PrivateProcessing -21.0 mn. Mtrs., Indo Rama Synthetics, Key Competitors: LimitedWeaving – 77.0 mn. Mtrs. JBF Industries, Welspun, Garden Silk Mills Himatsingka Seide, Joint Ventures:Key Competitors: Hanung Toys & Textiles Ashford Royale Residential ComplexVardhaman Textiles,Nahar Industrial Enterprises,SKumars’ Nationwide Limited Associates: Grabal Alok (UK) Limited Grabal Alok Impex Limited Alok H&A Limited Grabal Alok (UK)Limited- Alok Realtors Pvt Ltd Ashford Royale Ashford Centre, Lower (Domestic Retailing) Associate (Comercial Real Estate) Residential Complex- JV ParelSales: Rs. 80 crore Store Count: 216 Total saleable area: Total saleable area: ~1 Total saleable area: 60,000Store Count: 291 Products: Value retailing of 641,000 sq.ft. mn.sq.ft. mn.sq.ft. (8 floors)Products: Apparels and apparels and accessories Total cost: Rs. 1,275 crore Total Cost: ~Rs. 600 crore, Total Cost: ~Rs. 125 crore,accessories Planned expansion: 20 Status: Possesion by June, Alok’s share ~ Rs. 300 crore Project Status: OccupancyPlanned expansion: 500 stores per year 2011 Project Status: Excavation certificate receivedstores by FY 2012, mainly Exit plan: Broken even, Future plan: Exit in near- started, Future plan: Sell half theworking capital funding plan to exit by FY 2013 at term Expected completion: area and retain the rest for cost December, 2014 its corporate office Source: Company, ICRA Online Research 30
  • ICRA Equity Research Service Alok Industries LimitedVALUATION GRADINGIn assessing a companys valuation, various parameters are looked at including the companys earnings and growthprospects; its ability to generate free cash flows and its capacity to generate returns from the capital invested. Thevaluation is also benchmarked against an appropriate peer set or index. The opinion on a companys relative valuationis expressed using the following five-point scale as follows:Exhibit 24: ICRA Equity Research Service—Valuation GradesValuation Grade Grade Implication While assessing a companys relative valuation, A Significantly Undervalued the historical price volatility exhibited by the B Moderately Undervalued stock, besides its liquidity, is also taken into C Fairly Valued account. The extent of overvaluation or undervaluation is adjusted for the relative D Moderately Overvalued volatility displayed by the stock. E Significantly OvervaluedSource: ICRA Online ResearchDespite the near term headwinds faced by the textile industry, Alok’s current valuation multiples (~3.3 times FY12earnings, ~0.43 times FY12 book value) seems quite attractive considering Alok’s integrated and diversified businessmodel with lower dependence on textile exports. The valuation multiples are are expected to further moderaterapidly from the FY12e levels due to strong earnings growth over the next three years contributed by large capacityadditions and improvement in the capital structure through exit from non-core businesses. Overall, we expect thecompany to report a robust 28% CAGR revenue growth and 36% CAGR EPS growth over the FY11a-FY14e period,aided by robust capacity expansions and healthy domestic consumuption demand going forward. Hence, we assign avaluation grade of “A” to Alok on a grading scale of ‘A’ to ‘E’, which indicates that the company is “significantlyundervalued” on a relative basis.Exhibit 25: Relative Valuations Vs Equity Indices: Alok NIFTY CNX 500 CNX MIDCAP ICRA Estimates Industries Ltd INDEX INDEX INDEX FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E Price/Earnings 3.30 1.86 13.98 11.88 13.27 11.09 11.31 9.39 EV/EBITDA 5.93 4.85 9.48 8.22 9.35 7.92 9.70 7.91 Price /Sales 0.16 0.13 1.58 1.43 1.30 1.16 0.82 0.74 Price /Book Value 0.43 0.36 2.32 2.03 2.09 1.81 1.51 1.31 Price/Cash Flow 1.36 0.99 10.26 8.85 9.53 8.00 7.01 5.76Source: Bloomberg, ICRA Online Estimates * Bloomberg Consensus Estimates as on 16th September, 2011Exhibit 26: Relative Valuations Vs Industry Peers: Alok S. Kumars JBF Provogue Vardhman ICRA Estimates Industries Ltd Nationwide Ltd Industries Ltd (India) Ltd Textiles Ltd FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13EPrice/Earnings 3.30 1.86 3.61 2.43 2.68 2.21 7.96 6.85 3.49 3.38EV/EBITDA 5.93 4.85 3.94 3.32 3.24 2.88 10.87 9.39 4.57 4.77Price /Sales 0.16 0.13 0.23 0.19 0.13 0.12 0.57 0.51 0.28 0.29Price /Book Value 0.43 0.36 0.44 0.36 0.57 0.49 0.46 0.43 0.45 0.41Price/Cash Flow 1.36 0.99 2.69 NA 1.85 1.62 5.69 4.89 1.89 1.90Source: Bloomberg, ICRA Online Estimates * Bloomberg Consensus Estimates as on 16th September, 2011 31
  • ICRA Equity Research Service Alok Industries LimitedANNEXURESAlok Industries Limited – P&L Estimates (Consolidated)Rs. Crores FY10A FY11A FY12E FY13E FY14ENet sales 4,315.5 6,460.4 8,831.3 10,945.9 13,570.2Other related income 107.1 151.5 207.1 256.6 318.2Total net revenue 4,422.6 6,611.8 9,038.3 11,202.6 13,888.3EBITDA 1,267.9 1,809.8 2,098.0 2,563.1 3,050.8Depreciation 366.9 531.0 627.2 676.1 707.7EBIT 901.0 1,278.8 1,470.8 1,887.0 2,343.2Other Income -37.0 -25.1 116.4 207.7 170.2Interest Expenses 598.8 737.1 939.7 941.2 920.2PBT 265.2 516.6 647.5 1,153.5 1,593.2Tax Expense 128.2 81.2 210.1 374.3 517.0Minority Interest 0.6 -11.2 0.0 0.0 0.0PAT 137.7 424.2 437.4 779.2 1,076.2Number of shares (in Cr) 78.77 78.77 78.77 78.77 78.77EPS 1.7 5.4 5.6 9.9 13.7CEPS 6.4 12.1 13.5 18.5 22.6DPS 0.3 0.3 0.8 1.5 2.0Alok Industries Limited – Balance Sheet Estimates (Consolidated)Rs. Crores FY10A FY11A FY12E FY13E FY14ENet worth 2,732.5 2,792.1 3,400.8 4,063.2 4,977.9Total Debt 9,744.3 12,200.3 12,151.9 10,754.5 10,356.3Deferred Tax Liability 403.0 500.3 500.3 500.3 500.3Trade Creditors 598.3 818.8 1,353.2 1,684.5 2,113.1Other Current Liabilities and Provisions 171.6 376.1 226.0 280.1 347.2Total liabilities 13,671.3 16,712.4 17,636.8 17,287.2 18,299.4Net fixed assets 7,218.6 7,706.0 9,856.8 8,680.7 8,673.0Capital Work in Progress 948.4 2,263.6 763.6 663.6 563.6Other Long-Term Investments 416.9 479.0 254.0 254.0 254.0Cash and Bank Balances 1,410.7 1,202.3 952.3 702.3 452.3Receivables 1,198.2 2,057.1 2,310.0 2,829.2 3,445.0Inventories 1,567.8 2,167.1 2,596.4 3,037.2 3,522.7Loans & Advances 789.8 687.0 903.8 1,120.3 1,388.8Other Current Assets 120.7 150.4 0.0 0.0 0.0Total Assets 13,671.1 16,712.4 17,636.8 17,287.2 18,299.4 32
  • ICRA Equity Research Service Alok Industries LimitedAlok Industries Limited – Cash Flow Estimates (Consolidated)Rs. Crores FY10A FY11A FY12E FY13E FY14EPAT 137.7 424.2 437.4 779.2 1,076.2Depreciation 366.9 531.0 627.2 676.1 707.7Change in net working capital (856.7) (896.3) (342.5) (791.0) (874.2)Cash flow from operating activities (352.1) 58.9 722.1 664.3 909.7Investments 47.1 (62.1) 225.0 0.0 0.0Capital expenditures (2,200.1) (2,333.3) (1,278.2) (700.0) (600.0)Cash flow from investing activities (2,153.0) (2,395.4) (1,053.2) (700.0) (600.0)Equity Raised / (Buyback) 762.6 0.0 20.6 0.0 0.0Loans Raised / (Repaid) 2,701.4 2,455.9 (48.3) (1,397.4) (398.2)Others (Including Extra-ordinaries) 41.6 (304.9) 197.4 1,300.0 0.0Dividend (17.3) (22.9) (88.6) (116.9) (161.4)Cash Flow from Financing activities 3,488.3 2,128.1 81.1 (214.3) (559.7)Cumulative cash flow 983.2 (208.4) (250.0) (250.0) (250.0)Opening Cash Balance 427.4 1,410.7 1,202.3 952.3 702.3Closing Cash Balance 1,410.7 1,202.3 952.3 702.3 452.3Alok Industries Limited – Key Financial Ratios (Consolidated)Rs. Crores FY10A FY11A FY12E FY13E FY14EGrowth indicatorsSales Growth 43.4% 49.7% 36.7% 23.9% 24.0%EBITDA Growth 57.9% 42.7% 15.9% 22.2% 19.0%EPS Growth 86.0% 208.1% 3.1% 78.1% 38.1%Cash EPS Growth 60.6% 89.3% 11.4% 36.7% 22.6%Profitability indicatorsEBITDA Margin 28.7% 27.4% 23.2% 22.9% 22.0%EBIT Margin 19.5% 19.0% 17.6% 18.7% 18.1%PAT Margin 3.1% 6.6% 4.8% 7.0% 7.7%RoE 5.9% 15.7% 14.1% 20.9% 23.8%ROCE 9.5% 10.3% 11.1% 14.0% 16.8%Liquidity ratiosDebtor (days) 100 114 94 93 91Creditors (days) 71 66 75 75 75Inventory (days) 208 184 153 144 133Net working Capital/Sales 67.7% 58.8% 46.8% 44.8% 42.5%Capitalization RatiosTotal Debt/ Equity 3.6 4.4 3.6 2.6 2.1Interest coverage 2.1 2.5 2.2 2.7 3.3Total Debt/EBITDA 7.7 6.7 5.8 4.2 3.4Valuation RatiosPrice/Earnings 10.50 3.41 3.30 1.86 1.34EV/EBITDA 7.71 6.88 5.93 4.85 4.08Price/Sales 0.33 0.22 0.16 0.13 0.10Price/Book Value 0.53 0.52 0.43 0.36 0.29Source: ICRA Online Estimates 33
  • ICRA Equity Research Service Alok Industries Limited ICRA Limited CORPORATE OFFICE CHENNAI HYDERABAD Building No. 8, 2nd Floor, Mr. Jayanta Chatterjee Mr. M.S.K. Aditya Tower A, DLF Cyber City, Phase II, Mobile: 9845022459 Mobile: 9963253777 Gurgaon 122002 Mr. D. Vinod 301, CONCOURSE, 3rd Floor, Ph: +91-124-4545300, 4545800 Mobile: 9940648006 No. 7-1-58, Ameerpet, Fax; +91-124-4545350 5th Floor, Karumuttu Centre, Hyderabad 500 016. 498 Anna Salai, Nandanam, Tel: +91-40-23735061, 23737251 REGISTERED OFFICE Chennai-600035. Fax: +91-40- 2373 5152 1105, Kailash Building, 11th Floor, Tel: +91-44-45964300, E-mail: adityamsk@icraindia.com 26, Kasturba Gandhi Marg, 24340043/9659/8080 New Delhi – 110 001 Fax:91-44-24343663 Tel: +91-11-23357940-50 E-mail: jayantac@icraindia.com Fax: +91-11-23357014 d.vinod@icraindia.com MUMBAI KOLKATA PUNE Mr. L. Shivakumar Ms. Anuradha Ray Mr. Sameer Mahajan Mobile: 9821086490 Mobile: 9831086462 Mobile: 9881300772 3rd Floor, Electric Mansion, A-10 & 11, 3rd Floor, FMC Fortuna, 5A, 5th Floor, Symphony, Appasaheb Marathe Marg, Prabhadevi, 234/ 3A, A.J.C. Bose Road, S. No. 210, CTS 3202, Mumbai - 400 025 Kolkata-700020. Range Hills Road, Shivajinagar, Ph : +91-22-30470000, Tel: +91-33-22876617/ 8839, Pune-411 020 24331046/53/62/74/86/87 22800008, 22831411 Tel : +91- 20- 25561194, Fax : +91-22-2433 1390 Fax: +91-33-2287 0728 25560195/196, E-mail: shivakumar@icraindia.com E-mail: anuradha@icraindia.com Fax : +91- 20- 2553 9231 E-mail: sameer.mahajan@icraindia.com GURGAON AHMEDABAD BANGALORE Mr. Vivek Mathur Mr. Animesh Bhabhalia Mr. Jayanta Chatterjee Mobile: 9871221122 Mobile: 9824029432 Mobile: 9845022459 Building No. 8, 2nd Floor, 907 & 908 Sakar -II, Ellisbridge, The Millenia, Tower B, Tower A, DLF Cyber City, Phase II, Ahmedabad- 380006 Unit No. 1004, 10th Floor, Gurgaon 122002 Tel: +91-79-26585049/2008/5494, Level 2, 12-14, 1 & 2, Murphy Road, Ph: +91-124-4545300, 4545800 Fax:+91-79- 2648 4924 Bangalore - 560 008 Fax; +91-124-4545350 E-mail: animesh@icraindia.com Tel: +91-80-43326400, E-mail: vivek@icraindia.com Fax: +91-80-43326409 E-mail: jayantac@icraindia.com www.icra.inICRA ONLINE LIMITEDCorporate Office107, 1st Floor, Raheja ArcadePlot No. 61, Sector-XI, CBD Belapur, Navi MumbaiMaharashtra-400614.Ph : +91-22-67816163 (Direct); 67816100Fax : +91-22-27563057Investor Desk: equity.research@icraonline.com www. icraonline.comDisclaimer: Although reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without anywarranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness ofany such information. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any lossesincurred by users from any use of this publication or its contents. ICRA grades are not a recommendation to buy, sell or hold any securities of the gradedentity.This Report is solely for the personal information of the authorized recipient in India only. The information contained in this report shall in no way eitherdirectly or indirectly be reproduced, redistributed, communicated in any form whatsoever to any other person both within India or outside India. Nor isit permissible for the information to be disseminated or copied in whole or in part, for any purpose whatsoever.Disclosure: The ICRA Equity Research Service is a mandate-based, paid service. In this case, ICRA or ICRA Online has received both the mandate and theresearch fee from the entity reported on. 34