Alok Industries revival faces many challenges
Alok Industries, which underwent a corporate insolvency resolution process, has been making steady progress even if it is struggling to make profits. Its latest quarterly (April-June 2022) results show that the company has posted a 57% year-on-year growth in sales. Though the net loss of the company has increased from Rs 92 crore in June quarter of 2021 to Rs 142 crore in the same quarter in 2022.
Though the Company has incurred a loss of Rs. 92.44 crore for the quarter ended 30 June 2021 and has accumulated losses of Rs. 20,319.25 crore as on that date, its current assets exceeded its current liabilities by Rs. 401.22 crore. Also, it earned EBITDA of Rs. 60. 77 crore for the quarter ended 30 June 2022.
The auditors of the company have noted that with a view to improve the performance of Alok Industries, the re-constituted Board has adopted a business plan with specific focus on utilising the existing capacities and exploring various avenues of enhancing revenues. Accordingly, the financial results have been prepared on a going concern basis.
In its annual report for 2021-22, the management of the company has noted that under the leadership of new management, the company is steadily making progress as can be seen from the current year performance. “Despite challenges posed by COVID Pandemic and rising raw material trend during the year, the Company has grown on sales by 91.44% to Rs 7,150.91 crore and EBIDTA by 53% to Rs 611.61 crore and made a Cash Profit of Rs 160.7 crore as compared to cash loss of Rs 65.7 crore in the previous year.
Negative Net Worth
Net worth as at 31st March 2022 was negative at Rs 16,450.05 crore. Accumulated losses have resulted in the erosion of over 53.90% of peak net worth of negative Rs 10,688.68 crore during the immediately preceding four financial years.
The paid-up Share Capital of the Company as on 31st March 2022 was Rs 746.52 crore consisting of 496.52 crore Equity Shares of Rs 1 a piece and Rs 250.00 crore fully paid-up 9% Optionally Convertible Preference Shares of Rs 1 each.
As a part of the Resolution Plan approved by the National Company Law Tribunal, Ahmedabad Bench, Alok Industries had on 28th February, 2020, allotted on preferential basis to Reliance Industries Limited (RIL) 250,00,00,000, 9% Optionally Convertible Preference Shares (OCPS) of Rs 1 each for cash at par, for a total consideration of Rs 250 crore.
During 2021-22, the OCPS were due for conversion at the option of RIL. Since RIL did not exercise its option to convert OCPS into equity shares, as per the terms and conditions of the OCPS, the Company will redeem the same on 27th February, 2030 — the last day of the 10th anniversary of the date of allotment, by paying an amount at least equal to the outstanding OCPS subscription amount and there shall be no impact on Equity Share Capital of the Company.
Alok Industries Finances
| 2021-22 | 2020-21 | 2019-20 | 2018-19 | 2017-18 | |
| Sales | 7,309 | 3,847 | 3,328 | 3,352 | 5,513 |
| Other Income | 44 | 26 | 39 | 18 | 256 |
| Total income | 7,354 | 3,874 | 3,367 | 3,370 | 5,770 |
| Total Expenditure | 7,086 | 7,839 | 1,945 | -3,014 | 19,627 |
| EBIT | 267 | -3,964 | 1,422 | 6,385 | -13,857 |
| Interest | 476 | 489 | 113 | 4,308 | 4,711 |
| Tax | 0 | 1,219 | -2 | 0 | 10 |
| Net profit | -207 | -5,673 | 1,311 | 2,077 | -18,579 |
A better 2022-23?
During 2021-22, the Company operated at 76% capacity level on an average-partly due to impact of COVID-19 pandemic and due to additional time taken by the cotton downstream businesses in stabilizing the manufacturing units post completion of capex along with additional time taken for market penetration.
Yet its local sales as well as exports saw a sharp jump. Domestic sales almost doubled from Rs 2,778 crore in 2020-21 to Rs 5,451 crore in 2021-22.
Alok Industries export business has increased to Rs 1699.54 crore in 2021-22 as against Rs 957.20 crore in the previous period representing growth of 77.55%.
The company suffered from high material cost in 2021-22. Material Cost for 2021-22 was Rs 4,817.57 crore as compared to Rs 2,133.14 crore in the previous period. As a percentage of sales, material cost increased from 57.11% in 2020-21 to 67.37% in 2021-22 due to substantial increase in raw material prices both in cotton & polyester stream.
The management of the Alok Industries would be hoping that these adverse conditions improve in the current financial year, and the company cut its losses and get into profits. The global textile and apparel market is expected to grow at 4% while the local market is expected to grow at 10%. But given the predictions of recession in the US and other developed economies and slower than expected growth in India, things may not turn out for Alok Industries as its new management is expecting.
Alok Industries underwent the corporate insolvency resolution process under section 31 of the Insolvency and Bankruptcy Code, 2016. The resolution plan of Reliance Industries and JM Financial ARC was approved by the National Company Law Tribunal, Ahmedabad Bench in its order dated 8 March 2019 and the implementation of the Approved Resolution Plan was concluded in 2020 with the re-constitution of the Board of Directors of the Holding Company on 14th September, 2020.
Reliance Industries hold 40% in Alok Industries and JM Financial ARC has 35% stake in the company.
Alok Industries is an integrated textile Company with a product range comprising of both cotton and polyester. Alok’s plants are situated at Vapi (in Gujarat) and Silvassa (Union territory near Vapi) and the Company has a wide customer base across the world that includes global retail brands, importers, private labels, and domestic retailers, garment & textile manufacturers and traders.
The Company has integrated business operations for both of its verticals: cotton and polyester. Its key competitive advantage is presence across the entire textiles & apparel value chain right from sourcing the fibre to yarn production, fabric production through knitting and weaving to garmenting, sheeting and terry towels.
