Alok Industries - Buy (40 percent upside)
Sumpoorna
|
| |||
| |||
Alok Industries Ltd (‘Alok Ind.’) is one of the largest vertically integrated textile players in India with a presence across the entire textile value chain. The company is trading at a Price/ Book value (P/BV) of 0.51 times, a ‘Price/ Cash EPS’ of 1.74 times, and Market Cap/ Sales of 0.26 times; these valuations seem quite attractive considering Alok Ind’s integrated and diversified business model. Further, the valuation multiples are expected to further moderate rapidly due to strong earnings growth over the next three years contributed by large capacity additions and improvement in the capital structure through exit from non-core businesses. Overall, we expect the company to report a 30 percent (y-o-y) growth in revenues and EPS over the next few years. Further, we expect a PE expansion for the company due to a growing Indian economy, a booming textile sector, and a shift away from real estate sector for the company. The company has undergone capacity expansions over the past few years which are likely to propel its top line and bottom line; further, backward integration should help expand margins in the coming years. Alok Ind., is better off vis-à-vis other Indian players to capture the expected boom in the textile sector in India in coming few years; the key differentiators being economies of scale, technology modernization, level of integration across the value chain, and raw material sourcing abilities. Thus, aided by robust
capacity expansions and healthy domestic consumption demand going forward,
combined with improvements in the capital structure of the company, we
strongly recommend a ‘BUY’ for the company’s stock. We estimate the fair
value of the stock to be Rs. 28.7 (CMP Rs. 20.60; 40% percent upside),
and recommend a target time horizon of 6 months. To
read more, please click here visit our website (www.sumpoornaonline.com) | |||
Regards, Team Sumpoorna I Knowledge
Centre
|