Friday, May 25, 2012

>ALOK INDUSTRIES: Real estate monetisation: A small beginning

And the dilution continues…

Alok Industries’ (Alok) Q4FY12 numbers were broadly in line with our estimates with operating margins beating our estimates by over 200 bps. Alok reported one of the slowest growth in sales in over four years on the back of lower domestic sales. While exports grew 40.3% YoY (on the back of rupee depreciation) to | 814.9 crore, domestic sales grew only 10.3% YoY to | 1,780.5 crore. Going forward, we expect the company’s revenues to grow at a lower pace as compared to the last four years as the company has not planned any major capacity addition and also due to the impact of a higher base. While we expect revenues to grow at a CAGR
of 22.8% during FY12-14E, PAT is expected to increase at a CAGR of 39.3% on the back of savings in interest costs. Considering the delay in land monetisation and the ongoing dilution, we have downgraded Alok from BUY to HOLD.

Real estate monetisation: A small beginning
Alok has closed two deals (a) eight floors out of 20 floors of Peninsula Business Park, Lower Parel have been sold and the token consideration for the same has been received and (b) three floors out of eight in Ashford Centre, Lower Parel have been leased and the earnest money deposits have also been received.

Dilution dilemma
The Board has approved a preferential allotment of up to 2.75 crore equity shares and up to five crore warrants to promoters/promoter group company. In the past also, the promoters have diluted their stake to fund the capex requirements. While the CAGR in revenues and equity during FY07-12E has been ~45%, profits have only grown at a CAGR of 17.6% due to the burgeoning debt, which led to higher interest outgo.

The stock is likely to witness a multiple re-rating when the company reduces its debt through land monetisation and, thereby, saves on interest expenses. We have valued the stock at | 21 (based on an average arrived at by assigning a multiple of 0.4x FY14E book value and 2.5x
FY14E EPS). Considering the ongoing equity dilution and high debt levels, we remain cautious on Alok. Therefore, we have, downgraded Alok Industries from BUY to HOLD with a revised target price of | 21.

To read report in detail: ALOK INDUSTRIES