ICICIdirect AlokInds QC Jan2013

January 10, 2013
ICICI Securities Ltd | Retail Equity Research

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Exiting non-core business, as planned
A leading business daily has reported that the management of Alok
Industries (Alok) is considering exiting the retail business as it wants to
focus on the core business. This news is in line with what the company
has been saying over the past few quarters. Alok has already closed 45 of
the 190 exclusive brand outlets of H&A and has time and again
emphasised on its plan to exit the retail venture as it is further worsening
the balance sheet condition. The daily further added that the company
may look at either hiving off the retail business (both H&A and Store
Twenty One) or exiting the retail businesses through a stake sale.

In our opinion, this move will be positive as the retail venture did not
contribute significantly to the companys revenues. While an average H&A
store earned revenues of | 5 crore/month, losses typically amounted to
| 2-3 crore/month. We had also mentioned in our report dated August 31,
2012 that the subsidiaries are eating into the parents profits. Therefore,
exiting the retail venture will marginally ease the pressure on the
consolidated balance sheet. Lower losses and, thereby, reduced debt
levels on a consolidated basis will lead to an improved rating for the
company and, thereby lower the borrowing cost.

Alok, one of the largest players in the Indian textile space, has been
reeling under debt pressure on the back of (a) heavy capacity expansion
over the last several years and (b) investments in some non-viable non-
core businesses like retail and real estate. The company has realised the
mistakes made in the past and is in an action correction mode. We have
not made any changes to our estimates based on the current news as we
have valued the stock based on the core textile business. Hence, we
maintain our base case target of | 8.4 based on an average arrived at by
assigning a multiple of 0.2x FY14E book value and 1.6x multiple FY14E
EPS. We maintain our SELL rating on Alok Industries.
Alok Industries (ALOTEX)
| 12.2
Rating matrix
Rating : Sell
Target : | 8.4
Target Period : 12 months
Potential Upside : -31%

Key Financials
(| Crore) FY11 FY12 FY13E FY14E
Net Sales 6,366 8,862 11,457 13,872
EBITDA 1,839 2,559 2,930 3,508
Net Profit 404 381 404 575
EPS (|) 5.1 4.6 3.1 4.5

Valuation summary
FY11 FY12 FY13E FY14E
PE (x) 2.4 2.6 3.9 2.7
Target PE (x) 1.6 1.8 2.7 1.9
EV to EBITDA(x) 5.2 4.9 4.7 4.2
Price to book (x) 0.3 0.3 0.3 0.3
RoNW (%) 13.1 10.4 8.8 11.3
RoCE (%) 10.5 11.6 10.9 12.2

Stock data
Market Capitalisation | 1004 crore
Debt (Sep-12) | 11763 crore
Cash (Sep-12) | 369 crore
EV | 12398 crore
52 week H/L (|) 24 / 11
Equity capital | 826.3 crore
Face value | 10
MF Holding (%) 11.2
FII Holding (%) 11.3

Analysts name
Bharat Chhoda
[email protected]

Dhvani Modi
[email protected]

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January 10, 2013

ICICI Securities Ltd | Retail Equity Research

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