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CHAIRMANS MESSAGE
As per the Chairman Ashok B Jiwrajka, Alok Industries was able to identify and deliver on pockets of pportunity even in the worst of global economic condition in 2011-12. The healthy growth in revenue in 2011-12 is testimony of the same as indicated below: Domestic sales was up 41% to Rs. 5871 crore; Exports was up 37% to Rs. 3,030 crore; and total sales was up 39% to Rs. 8,901 crore Operating EBIDTA increased by 40% to Rs. 2,625 crore in 2011-12, while operating PBT increased by 22% to Rs. 762 crore in 2011-12. However, the Profit after Tax in 2011-12 was Rs. 381 crore as compared to Rs. 404 crore in 2010-11 representing a decline of 6%. This is mainly on account of Mark to Market (MTM)
Submitted By: Kanika Khandelwal Roll No - 19 losses on foreign exchange transactions taken by the Company due to the unusual depreciation in the value of the Indian Rupee (INR) against US Dollar (USD) during the year. The same has been booked as an exceptional item loss of Rs.121 crore. These losses are an accounting entry, which have not yet materialised and subsequent reverse movements in the rupee dollar exchange rate could actually wipe out this loss. So, looking at operations based parameters for the Company one finds a healthy growth in profits. By 2012, exports account for close to 34% of the Companys stand-alone sales and it has established strong relationships with leading global brands across the globe the exports are well diversified with 36% to the US, 29% in Asia, 18% in South America and 14% in Europe. The diversification helps de-risk against local market downturns. Also, the customer base is well distributed between traders, converters and final product users. Similarly, the presence in cotton and polyester, which are often treated as substitutes in the market, gives the Company the scope to best leverage market conditions. In fact, today, polyesters share in the Companys total sales has grown to 34% and the focus on value added polyester products like Cationic yarn is paying dividend. The major capex programme for developing this large integrated production capacity was completed by March 2012. Going forward, in the next few years the focus is on value added and balancing capex related capital investments. The new capital investment would, however, be limited to the extent of the annual depreciation so as to generate free cash flow. Clearly, the Company is moving from a phase of large investments to create global scale capacities to a phase of consolidation when efforts will focus on getting optimum returns from these capacities. There are three fundamental goals in this phase: Maximising ROCE (Return on Capital Employed) Monetising and exiting non-core businesses Generating free cash fl ow and deleveraging the company
Maximising ROCE The Company is specifically targeting for efficiencies in terms of optimizing cost of operations to maximize ROCE. This programme is progressing well and one expects to see substantial positive results soon. In addition, the Company is pursuing a specific strategy to improve asset turnover of the integrated cotton business by increasing the volume of value added products like yarn dyed (structured) fabrics, technical textiles and institutional work wear. There also stress at growing the share of the Polyester business where asset turnover and ROCE is significantly higher.
Exiting and Monetising non-core businesses The Company has in-principle decided to exit all non-core businesses. Active steps are being taken to sell the commercial real estate that the Company had invested in. For Ashford Centre and Peninsula Business Park, Alok industries appointed a leading global real estate consultant and had already entered into around Rs. 500 crore worth of transactions. Cash flows from these were expected by the end of the second quarter of 2012-13. New strategies are being developed for the retail businesses in India and UK to make them thin on capital intensity and bring back some of the capital invested in these ventures back into Alok. Generating free cash flow and de-leveraging the company With the intensive capex programme almost complete, the efforts at monetisation of non-core business assets and improvement in working capital cycle, one expects improved cash fl ows in Aloks system. This improved cash flow with the decision to undertake marginal incremental investments; would result in generation of free cash flow. In this way, with clear focus on operations and sweating assets they should be able to substantially reduce its debt burden and de-leverage the Company.
RATIO ANALYSIS Key Ratios For the year ended on 31-03-2012 For the year ended on 31-03-2011
5468.86/4531.47 = 1.207
LIQUIDITY RATIOS Current Ratio (CR) = Current 8339.28/6766.64 = 1.232 Assets (CA)/Current Liabilities (CL) Quick Assets (QA) = CA 8339.28-3379.91Inventories prepaid expenses 257.04=4702.33 Quick Ratio (QR) = QA/CL 4702.33/6766.64 = 0.695 LEVERAGE RATIOS Debt Equity Ratio (DER) = 7013.06/3655.5 = 1.918 long term debts (LTD)/shareholders funds Debt to Total Assets Ratio 7013.06/18238.36 = 0.384 (DTAR) = LTD/TA Proprietary Ratio (PR) = 3655.5/18238.36 = 0.2*100 Stakeholders funds/TA *100 = 20% Fixed assets turnover (FAT) = 8900.86/9466.25 = 0.94 NS/Net Fixed Assets (NFA) Sales to working Capital Ratio 8900.86/(8339.28 6766.64) = NS/(CA-CL) = 5.659 PROFITABILITY RATIO:
6051.4/14267.47 = 0.424 3097.59/14267.47 = 0.217*100 = 21.7% 6388.43/8333.76 = 0.76 6388.43/(5468.86 4531.47) = 6.815
equity in financing the assets of the firm. Interpretation: DER=1 means that creditors and stockholders equally contribute to the assets of the business. DER<1 means that the portion of assets provided by stockholders is greater than the portion of assets provided by creditors DER>1 means that the portion of assets provided by creditors is greater than the portion of assets provided by stockholders. Creditors usually like a low DER because of greater protection to their money. But stockholders like to get benefit from the funds provided by the creditors therefore they would like a high DER. DER varies from industry to industry. Different norms have been developed for different industries. Here DER for FY 2011-12 is 1.918 which means that 65.72% of the assets are provided by creditors and rest by stockholders which is not good as there is a greater risk to creditors. Similar is the case for FY 2010-11 with (1.953/2.953)*100=66.13% dependency on creditors. Rationale: It is used to determine how much debt a company has on its balance sheet relative to total assets. It measures the portion of assets of a company that are financed through debts. Debt ratio of 0.5 means that half of the company's assets are financed through debts. Interpretation: Its value ranges between 0.00 to 1.00 Here DTAR < 0.5 implies that companys assets are not financed by debts in majority. This is favorable condition. For FY 2012-11 DTAR=0.384 and for FY 2011-10 DTAR=0.424 which indicates that the dependency for company assets on debts is reduced in 2012. Rationale: PR relates the shareholders funds to total assets. It indicates the long term or future solvency position of the business. Interpretation: Higher the ratio or the share of shareholders in the total capital of the company better is the long-term solvency position of the company. A low proprietary ratio will include greater risk to the creditors. Rationale: This ratio tells us how effectively and efficiently a company is using its fixed assets to generate revenue An increasing trend in fixed assets turnover ratio is desirable because it means that the company has less money tied up in
Submitted By: Kanika Khandelwal Roll No - 19 fixed assets for each unit of sales. A declining trend in fixed asset turnover may mean that the company is over investing in the property, plant and equipment. Interpretation: For FY 2011-10 FAT is increasing as compared to FY 2010-11, this is desirable because it means company has less money tied up in fixed assets for each unit of sales. Rationale: An increasing sale to Working Capital ratio is usually a positive sign, indicating the company is more able to use its working capital to generate sales. Although measuring the performance of a company for just one period reveals how well it is using its cash for that single period, this ratio is much more effectively used over a number of periods. This ratio can help uncover questionable management decisions such as relaxing credit requirements to potential customers to increase sales, increasing inventory levels to reduce order fulfillment cycle times, and slowing payment to vendors and suppliers in an effort to hold on to its cash. Interpretation: For FY 2012-11 company is using less working capital to generate sales as compared to FY 2011-10 Rationale: Return on equity is an important measure of the profitability of a company. Higher values are generally favorable meaning that the company is efficient in generating income on new investment. Interpretation: For FY 2012-11 value of return on equity decreased which shows the profitability of the owners fund is not utilized fully.
Profitability Ratio
TREND Analysis:
Horizontal Analysis: It can be seen from the PAT graph that the profit of the company is increasing every year. Profit before tax has been Rs.761.77 crores as against Rs. 624.64 crores in the previous year. Profit after tax has been Rs. 380.53 crores in 2012 as against Rs. 247.34 in 2010.
Earnings per share for its shareholders were maximum in FY 2008-09 but decreased in FY 2012-11 which is not on the negative side of the company.
EPS
10 8 6 4 2 0 2009 2010 2011 2012 EPS
Dividend
30 20 10 0 Dividend
Submitted By: Kanika Khandelwal Roll No - 19 iv. Computer software is amortised for a period of fi ve years from the date of capitalization. 4. Investments: Investments classified as Long Term Investments are stated at cost. Provision is made to recognize a decline, other than temporary, in the value of investments. Current investments are carried at cost or fair value whichever is lower.
References:
1. Financial Year 2011-12 (zip file)
http://www.alokind.com/annualreports.html
Enclosure: Worksheet
Current Assets As on 31-03-2012 3.94 3379.91 2152.15 1294.84 1395.04 113.4 8339.28 As on 31-03-2012 4126.42 506.42 2058.2 75.6 6766.64 257.04 8514.54 37.55 914.16 9466.25 As on 31-03-2011 27.25 2002.62 1740.19 1139.85 425.03 133.92 5468.86 As on 31-03-2011 2846.19 562.92 1050.49 71.87 4531.47 324.92 7384.29 42.92 906.55 8333.76