Alok Industries has been in buzzing stock among retail investors. Therefore we have decided to cover this company in this post.
Alok Industries is a bankrupt textile company and Reliance Industries acquired it through National Company Law Tribunal (NCLT).
The lead banker SBI in Jun 2017 had initiated the insolvency proceedings against Alok Industries.
Alok Industries owed around Rs 30,000 crore to its financial creditors.
Equity Infusion in Alok Industries
Reliance Industries has infused funds into Alok Industries, comprising Rs 250 crore towards equity shares and Rs 250 crore for optionally convertible preference shares.
The National Company Law Tribunal (NCLT) in March 2019 approved the bid of RIL-JM Financial consortium for Alok for Rs 5,050 crore. Of this, RIL is looking to raise about Rs 4,550 crore through bank loans while agreeing to infuse around Rs 500 crore as equity into the bankrupt textile company.
Alok Industries Business
Alok Industries is engaged in textile fabrication for industrial and household.
- It produces finished goods such as shopping bags, handkerchief. woven fabric, knitted fabric, garments- woven and knitted and home textile products (bed linen and terry towel).
- Few of its industrial product also includes polyester texturized yarn, partially oriented yarn and fully drawn yarn
- It ships industrial products such as corrugated pallets, cotton, and blended yarn and also provides embroidery work.
- Recently, it has also started producing PPE kits for medical staff at a very low price.
Financial Information
No analysis is complete without looking at the company’s balance sheet and profit and loss statement.
Alok Industries is currently sitting on a massive debt of 26,0000 crores and it has raised another 5,000 crores which will be reflecting once the last Q4 2020 results will be out.
Though the company has been acquired by Reliance Industries it would be important to note that the company has not been managed well in the past. It has neither generated cash to run the business smoothly nor has deployed money efficiently in CAPEX which will reward in the future.
Company Dividend Information
The company has not declared any dividend in the last 7 years which makes it difficult to check that authenticity of the generation of cash from the business.
Company Sales
The company operating profit is very volatile in the last 6 quarters and it is nearly impossible to project future profits.
The sales figure is almost constant an operating margin is negative.
Profit & Loss Note Item 32
In 2019 Q3, the company has reported a profit of 7048 crores due to the reversal of interest expense accrued. Basically, it was a one time gain company has considered and it may not happen in the future.
Company Balance Sheet
The company has negative reserves in cash, which basically means the company owes around 16,000 crores to others.
Company CashFlow Statement
In the last 5 Years company has not generated any profit from its core business and instead, it has raised huge money from lenders like SBI bank.
When we have a huge debt on the balance sheet it is very difficult to run the business because debt also comes with interest cost and it adds an additional burden to the business.
Alok Industries Stock
Alok Industries’ stock price has jumped around 600% in the last 10 weeks. With so many negative things roaming around the company, the market is quite optimistic about the company.
So what got changed?
After the acquisition of the company by Reliance Industries, the company has changed its main production line.
Alok Industries has started manufacturing medical supplies such as PPE kits and COVID19 protective gear for hospital and medical staff.
The cost of manufacturing these kits is one third the cost of those imported from China.
Should you invest?
Now, taking a investment decision in a bankrupt textile company, which has been given a lifeline support by a industry major is not easy.
On one side this company still owe a massive debt of 32,000 crores. Its quarterly interest will be a huge dent in its profit and loss statement.
On the other side, we see a new business opportunity for manufacturing medical supplies. But before taking any decision we really need to gauge the demand of the market which the company will be capturing.
The present movement in stock price looks like more of speculation rather the any business growth. Due to low traded volume in the stock, it is in continuous upper circuit which gives a sense of a bubble formation.
At present, I would strictly stay away from any kind of investment decision as we neither have any information regarding the expected sales of the company nor the about of the expected profit the company will be reporting in the coming quarters.
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