Alok Industries - Textile Stock With Retail Touch

Alok Industries has emerged as a vertically integrated textile company with five core business divisions.

Divisions are Cotton spinning, polyester yarn, garments, apparel fabric and home textiles. Its subsidiary, Alok Retail operates its branded stores ‘H&A’ having 216 stores across the country. It plans to expand to 450 shops by 2011.

Over the past 4-5 years, the company has invested heavily to create large production capacities. These capacities plus its integrated business model put it in a unique position to control the raw material costs while producing high-value-added products.

This has enabled it to expand its operating profits at a CAGR of 38% in the past five years, against a 22% growth in the topline. Galloping interest costs has so far eroded its profits, but its plans to monetise its real estate assets in near future can address the problem squarely. Considering the huge entry, the company has erected against its integrated business model, the downside appears limited at a P/E multiple of 6x.

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