Crisil assigns a fundamental grade to 3/5 to Alok Industries

Research firm Crisil has assigned a fundamental grade of 3/5

to Alok Industries in a recent report. Alok Industries, an integrated textile company and in the last five years, it recorded a growth rate of 35 per cent. It is one of the largest manufacturers of processed fabrics in India, and the grade assigned to the company is based on the healthy demand for its textile across the value chain in India. The company’s recovery pace in the global market after the meltdown was also taken into consideration by Crisil while assigning the grade.

The grade takes into account Alok’s improving financial flexibility as the company has completed its capex cycle and is now expected to focus on consolidating its newly added capacities. Improvement in debt-equity ratios over the medium term due to strong operational cash flows and exit from real estate impact our grade positively. Crisil expects that Alok’s exit from the real estate business will help it to gather Rs 16-17 billion.

According to Crisil, by 2016, India’s domestic textile industry would record a CAGR of about 5-6 per cent, expanding to over Rs 3,400 billion from Rs 2,653 billion in 2011. And by 2014, it is expected that Alok Industries would record a CAGR of 11 per cent to reach Rs 121.2 billion. However, due to the higher share of low-margin polyester business, the EBITDA margin is expected to be lower at 25.7 per cent in FY-12; 23 per cent in FY-13 and FY-14.

It also projected that in the coming years, Alok Industries will benefit from the growth of polyester segment which appears to outpace the growth in cotton segment. Moreover, in the last two years, there has been an oversupply of polyester segment with Alok increasing its production capacity.