Alok Industries Ltd

Q1FY12 Result Update

Enhancing investment decisions

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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (- 10-25% from CMP) Strong downside (<-25% from CMP)

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.

Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

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Alok Industries Ltd

Growth momentum intact
Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 5/5 (CMP has strong upside) Textiles, Apparel & Luxury Goods

August 04, 2011

Fair Value Rs 31 CMP Rs 24

CFV MATRIX
Excellent

Alok Industries Ltds (Aloks) Q1FY12 revenues and profitability were in line rising interest rates and firming exchange rate, we maintain the fundamental grade of 3/5. Q1FY12 result analysis Revenues grew by 50% y-o-y to Rs 16,449 mn, led by the polyester yarn (y-o-y growth of 82%) and apparel fabric (y-o-y growth of 42%) segments. Share of the polyester yarn segment increased from 35% in Q1FY11 to 41% in Q1FY12. This was largely on account of capacity addition of ~300 tpd of polyester yarn in Q3FY11. EBIDTA margin contracted by ~200 bps on account of increase in raw material costs and rising share of the polyester business, which is a relatively low-margin business as compared to Aloks other segments. The decline in PAT margin was moderate because of low interest cost as a percentage of sales, i.e. 12.1% in Q1FY12 vs. 14.3% in Q1FY11. However, PAT increased by 24% y-o-y to Rs 578 mn backed by higher sales. Key development: Update on expansion plans The H&A chain of stores opened an additional 20 shops during the quarter, taking the total number of stores to 311 (including shop-in-shop). The board of directors has approved the amalgamation of Grabal Alok Impex Ltd, which manufactures embroidered products, with Alok.
Fundamental Grade

with CRISIL Researchs expectations. Although we are cautious considering

5 4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY / SENSEX NSE / BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs bn) /(US$ bn) 52-week range (Rs) (H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5405/17941 ALOKTEXT/ ALOKIND 10 788 18,991/429 114/3 35/18 1.4 70.6% 4,250,889 106.9

Earnings estimates maintained We maintain our revenue and earnings estimates for FY12 and FY13. We have consolidated Grabal Alok Impex Ltd with Alok. Valuations: Current market price has strong upside We continue to use the discounted cash flow method to value Alok. We maintain the fair value at Rs 31 per share. Based on the current market price, our valuation grade is 5/5.

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 21.5% 13.9% 13.8% 16.9% 13.4% 16.5% 11.7% 20.7% 36.3% 40.9% 41.7% 38.3%

KEY FORECAST
(Rs mn) Operating income EBITDA Adj PAT Adj EPS-Rs EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY09 31,115 8,017 (834) (4.2) (57.9) 7.0 6.9 (4.9) (3.0) 0.1 8.4 FY010 44,202 12,704 927 1.2 (58.9) 1.3 8.4 4.0 18.9 0.6 7.8 FY11# 75,200 18,434 3,307 4.2 169.6 1.8 9.5 11.4 5.3 0.6 6.3 FY12 97,367 22,438 5,174 6.4 33.8 1.1 11.1 15.3 3.5 0.5 5.2 FY13 116,191 27,357 7,964 9.8 68.4 2.3 13.6 19.4 2.3 0.4 4.2

50% 40% 30% 20% 10% 0%

28.4%

28.4%

28.4%

29.4%

Sep-10 Promote r

Dec-10 FII

Mar-11 DII

Jun-11 Others

PERFORMANCE VIS--VIS MARKET

Returns 1-m Alok Industries NIFTY -7% -4% 3-m -7% -3% 6-m -6% -2% 12-m 16% -1%

#FY11 numbers are based on abridged financials NM: Not meaningful; CMP: Current market price Source: Company, CRISIL Research estimate

ANALYTICAL CONTACT
Sudhir Nair (Head) Arun Vasu Vinay Chhawchharia [email protected] [email protected] [email protected]

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Alok Industries Ltd

Q1FY12 Result Summary
(Rs mn) Net sales Raw materials cost Raw materials cost (% of net sales) Employees cost Other expenses EBITDA EBITDA margin Depreciation EBIT Interest and finance charges Operating PBT Other income PBT Tax PAT Adj PAT Adj PAT margin No of equity shares (mn) Adj EPS (Rs) Source: Company, CRISIL Research Q1FY12 16,449 8,060 49.0% 550 3,317 4,522 27.5% 1,650 2,873 2,004 868 7 875 297 578 578 3.5% 787.8 0.7 Q4FY11 22,029 12,289 55.8% 556 3,606 5,578 25.3% 1,600 3,978 1,591 2,387 9 2,396 796 1,601 1,601 7.3% 787.8 2.0 Q1FY11 10,990 5,130 46.7% 416 2,176 3,268 29.7% 993 2,275 1,571 704 1 705 239 465 465 4.2% 787.8 0.6 q-o-q (%) (25.3) (34.4) -678bps (1.2) (8.0) (18.9) 217bps 3.1 (27.8) 26.0 (63.6) (24.7) (63.5) (62.6) (63.9) (63.9) -375bps (63.9) y-o-y (%) 49.7 57.1 232bps 32.1 52.5 38.4 -224bps 66.1 26.3 27.6 23.3 NM 24.2 24.2 24.2 24.2 -72bps 24.2

Robust revenue growth y-o-y

Higher raw material costs lowered profitability on a y-o-y basis

Revenue up while EBITDA margin down y-o-y

(Rs mn) 25,000 20,000 15,000 25.3% 10,000
10,825 14,711 10,990 14,515 16,126 22,029 9,758

Net margin declines y-o-y

(Rs mn) 30% 29% 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 572 581 953 465 798 905 1,601 578 5.4% 4.2% 3.5% 5.9% 6.5% 5.5% 5.6% 7.3% 8% 7% 6% 5% 4% 3% 2% 1% 0%

29.9%

29.8% 29.1%

29.7% 28.6% 28.9% 27.5%

28% 27% 26% 25%

5,000 0

16,449

24% 23% 22%

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Revenue

EBITDA margin (RHS)

PAT

PAT margin (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Contribution of polyester yarn on an uptrend

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 186 49 Q3FY10 Cotton Yarn 195 Q4FY10 201 182 50 Q1FY11 278 273 110 Q2FY11 44 Q3FY11 253 371 235 43 Q1FY12 534 687 515 731 865 1,031 723 313 389 353 332 431 548 644

Share price movement vs. NIFTY

120 100 80 60 40 20 0

Jan-08

May-08

May-09

May-10

Q1FY12 May-11 Feb-11

Mar-08

Mar-09

Mar-10

Jul-09

Jul-10

Dec-08

Dec-09

Aug-08

Q4FY11

Home textiles

Apparel Fabric

Polyester Yarn

Alok Industries

NIFTY

-indexed to 100 Source: Company, CRISIL Research Source: NSE, CRISIL Research

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Dec-10

Oct-08

Oct-09

Oct-10

Jul-11

Alok Industries Ltd

KEY DEVELOPMENTS
The H&A chain of stores opened an additional 20 shops during the quarter, taking the total number of stores to 311 (including shop-in-shop). The board of directors has approved the amalgamation of Grabal Alok Impex Ltd, which manufactures embroidered products, with Alok. The swap ratio as approved by the board is 1:1 of Rs 10 each. Two commercial floors at Peninsula Business Park have been leased out. One floor in Ashford Centre has been sold out.

EARNINGS ESTIMATES MAINTAINED

FY12E Particulars Revenue EBITDA EBITDA margin PAT PAT margin EPS Unit Rs mn Rs mn % Rs mn % Rs Old 95,521 22,013 23.0 5,001 5.2 6.3 New 97,367 22,438 23.0 5,174 5.3 6.4 % change 1.9% 1.9% 0 bps 3% 7 bps 0.6% Old 113,533 26,731 23.5 7,780 6.9 9.9 FY13E New 116,191 27,357 23.5 7,964 6.9 9.8 % change 2.3% 2.3% 0 bps 2% 0 bps -0.5%

Source: CRISIL Research We have consolidated revenues of Grabal Alok Impex Ltd with Alok industries, leading to marginal upside revision in revenue for FY12 and FY13. Earnings estimate remains unchanged.

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Alok Industries Ltd

VALUATION
We continue to use the discounted cash flow (DCF) method to value the consolidated cash flows of Aloks textile, retail and infrastructure businesses. Based on our DCF approach, we have arrived at a fair value of Rs 31 per share. At this fair value, the implied P/E multiples are 4.9x FY12E and 3.1x FY13E EPS.

One-year forward P/E band

(Rs) 40 35 30 25 20 15 10 5

One-year forward EV/EBITDA band

(Rs mn) 160,000 140,000 120,000 100,000 80,000 60,000

May-10

May-11

May-10

May-11

Feb-10

Feb-11

Feb-10

Mar-10

Dec-10

Mar-11

Mar-10

Dec-10

Feb-11

Mar-11

Jul-10

Jul-11

Jul-10

Jan-10

Jan-11

Jan-10

Jun-10

Jun-11

Jun-10

Jan-11

Sep-10

Nov-10

Sep-10

Aug-10

Aug-10

Nov-10

Alok

3x

3.5x

4x

4.5x

5x

EV

4.5x

5x

5.5x

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

P/E premium/discount to NIFTY

0% -10% -20% -30% -40% -50% -60% -70% -80%

P/E movement
(x) 12 10 8 6 4 2 0 -1 std dev

+1 std dev

May-10

May-11

Feb-10

Feb-11

Jul-10

Jun-11 Jun-11

Oct-10

Apr-10

Apr-11

Apr-10

Oct-10

Apr-11

6x

Jan-10

Mar-10

Sep-10

Dec-10

Jan-11

Aug-10

Nov-10

Mar-11

Jun-10

Apr-10

May-10

May-11

Feb-10

Mar-10

Feb-11

Mar-11

Dec-10

Sep-10

Jan-10

Jun-10

Jan-11

Aug-10

Premium/Discount to NIFTY

Median premium/discount to NIFTY

Nov-10

Jun-11

Apr-10

Apr-11

Oct-10

1yr Fwd PE (x)

Median PE

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research.

CRISIL IER reports released on Alok Industries Ltd

Fundamental Date 26-Jul-11 04-Aug-11 Nature of report Initiating coverage* Q1FY12 result update grade 3/5 3/5 Fair value Rs 31 Rs 31 Valuation grade 4/5 5/5 CMP (on the date of report) Rs 26 Rs 24

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

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Apr-11

Jul-11

Oct-10

Jul-10

Jul-11

Jul-11

Alok Industries Ltd

FINANCIALS
Income statement (Rs mn) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY09 Growth Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoC E (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days C reditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) C urrent ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY09 Adj EPS (Rs) C EPS Book value Dividend (Rs) Actual o/s shares (mn) (4.2) 8.0 97.7 0.9 197.0 FY10 1.2 5.9 34.7 0.3 787.8 FY11# 4.2 11.7 39.0 0.4 787.8 FY12E 6.4 14.5 45.6 0.3 810.3 FY13E 9.8 18.8 55.6 0.5 810.3 188 94 111 200 0.8 0.9 0.6 4.6 3.6 3.4 1.0 202 75 96 196 0.7 0.9 0.6 6.5 3.5 3.0 1.3 174 85 97 175 0.9 1.2 0.9 4.6 3.5 3.2 1.6 169 85 96 189 1.0 1.3 1.2 4.3 3.0 2.7 1.9 165 88 96 191 1.1 1.5 1.5 3.9 2.3 2.1 2.4 Quarterly financials (Rs mn) Net sales C hange (q-o-q) EBITDA C hange (q-o-q) EBITDA margin PAT Adj PAT C hange (q-o-q) Adj PAT margin Adj EPS Q1FY11 10,990 647% 3,268 663% 29.7% 465 465 -51% 4.2% 0.6 Q2FY11 14,515 32% 4,158 27% 28.6% 798 798 72% 5.5% 1.0 Q3FY11 16,126 11% 4,654 12% 28.9% 905 905 13% 5.6% 1.1 Q4FY11 22,029 37% 5,578 20% 25.3% 1,601 1,601 77% 7.3% 2.0 Q1FY12 16,449 -25% 4,522 -19% 27.5% 47 578 -64% 3.5% 0.73 (3.0) 0.1 8.4 2.2 20.7 7.0 18.9 0.6 7.8 2.3 16.8 1.3 5.3 0.6 6.3 1.5 8.5 1.8 3.5 0.5 5.2 1.2 4.0 1.1 2.3 0.4 4.2 1.0 4.7 2.3 25.8 (2.7) (4.9) 6.9 7.1 28.7 2.1 4.0 8.4 8.3 24.5 4.4 11.4 9.5 9.9 23.0 5.3 15.3 11.1 10.8 23.5 6.9 19.4 13.6 12.4 Cash flow (Rs mn) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investments C apital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing C hange in cash position C losing cash 1,000 11,225 (173) 4,715 16,767 (12,777) 4,274 8,743 27,161 (230) (1,330) 34,344 9,832 14,107 12,000 (316) 335 12,019 (4,048) 10,059 225 1,200 (236) 1,112 2,301 297 10,356 (7,000) (472) 602 (6,871) (4,707) 5,649 (24,160) (3,069) (27,229) (22,050) 487 (21,563) (10,000) (10,000) (1,343) (1,343) (5,000) (5,000) FY09 224 (97) 2,402 (4,844) (2,315) FY10 2,213 (321) 3,718 (8,559) (2,948) FY11# 5,279 (1,224) 5,874 (15,996) (6,066) FY12E 7,722 (2,293) 6,545 (12,635) (661) FY13E 11,887 (3,727) 7,267 (8,264) 7,164 35.9 48.7 (214.6) (208.9) 42.1 58.5 (211.1) (127.8) 70.1 45.1 256.7 256.7 29.5 21.7 56.5 52.1 19.3 21.9 53.9 53.9 FY10 FY11# FY12E FY13E FY09 31,115 8,017 25.8% 2,402 5,616 5,489 127 97 1,669 1,893 1,058 834 1,669 (834) -2.7% FY10 44,202 12,704 28.7% 3,718 8,986 6,812 2,174 40 444 2,657 1,286 1,371 444 927 2.1% FY11# 75,200 18,434 24.5% 5,874 12,560 7,704 4,856 423 388 5,667 1,972 3,695 388 3,307 4.4% FY12E 97,367 22,438 23.0% 6,545 15,893 8,473 7,420 302 (88) 7,634 2,548 5,086 (88) 5,174 5.3% FY13E 116,191 27,357 23.5% 7,267 20,091 8,514 11,576 311 602 12,489 3,923 8,566 602 7,964 6.9% Balance Sheet (Rs mn) Liabilities Equity share capital Reserves Minorities Net worth C onvertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets C apital WIP Total fixed assets Investments Current assets Inventory Sundry debtors Loans and advances C ash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 10,687 9,305 6,320 4,274 526 31,113 6,805 24,308 983 91,879 15,678 11,561 8,526 14,107 460 50,332 7,699 42,633 2,053 128,115 24,311 20,076 15,040 10,059 460 69,947 15,366 54,581 2,053 144,189 31,478 25,994 19,473 10,356 460 87,761 20,249 67,513 2,053 151,918 36,608 31,019 22,076 5,649 460 95,813 24,744 71,069 2,053 153,208 38,586 23,770 62,356 4,233 62,703 16,914 79,617 3,812 67,829 15,914 83,743 3,812 77,626 914 78,541 3,812 75,360 914 76,274 3,812 1,970 17,280 19,250 69,565 69,565 3,064 91,879 7,878 19,482 27,360 96,726 96,726 4,030 128,115 7,878 22,807 30,685 108,726 108,726 4,778 144,189 8,103 28,857 36,959 109,926 109,926 5,033 151,918 102,926 102,926 5,229 153,208 8,103 36,950 45,053 FY09 FY10 FY11# FY12E FY13E

Note: All ratios are computed on Adj PAT #FY11 numbers based on abridged financials Source: Company, CRISIL Research estimate

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Vinaya Dongre Ashish Sethi Head, Industry & Customised Research Head, Capital Markets +91 (22) 33428025 +91 (22) 33428023 [email protected] [email protected]

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