Alok Industry - Value Buy but debt lingers

ALOK INDUSTRIES – PAST PERFORMANCE (CMP: 24)
	2006	2007	%	2008	%	2009	%	2010	%	REMARKS
EQUITY	157	170		187		196		787		Regular Equity dilution. The lst was a rights issue
SALES	1419	1825	29	2165	19	2973	37	4311	45	Consistently increasing sales
PROFIT	109	164	50	198	21	188	-5	247	31	Consistent growth in profits
DIV	12	14		12		7.5		2.5		Consistent dividend. Fall due to increased equity
EPS	6.45	9.63	49	10.61	10	9.56	-10	3.14	-67	Though % appear dropped in 2010 , over original equity base, EPS translates into 12.60 i.e 32 % increase
DEBT	2144	3336		5767		6596		8509		Increased debt - a major concern. Implies high outflow due to interest burden
RES	650	854		1134		1400		1928
BOOK VAL	61	60	-2	71	18	82	15	32	-61	Consistently increasing Book value. Last drop was due to increased equity - rights. On earlier base it is actually around Rs 90 , an increase of 10%
DEBT/PR	20	20		29		35		34
O MARGIN	19.5	21.0		22.3		24.7		27.2		Clearly improved efficiencies yoy
CASH FLOW - OPS	70	287		155		251		173		Not consistent
OBSERVATIONS AND CONCLUSIONS
1. The management has said that profits will grow at 60 %. Assuming a conservative growth of EPS at 20 %, the Forward looking EPS could be about 3.75. A conservative EPS of 7 would mean the value for the stock is about 27 Rs. Stock is available at Rs 25. Growth of 30% possible in 01 year. A buy
2. The actual trigger will be a sale of real estate venture. It ws bought at 1200 crores. Assuming that it will be sold at 1500 crores on a conservative estimate, the companys deby would reduce to 7000 crores and saving on interest to the tune of 150 crores a year which in turn would increase the EPS to around Rs 5 and the stock could command a PE of 7 i.e rs 35
3. The dividend of 25 paise per share gives an yield at present CMP of 25 to 1 %. Not very attractive. However it is a bonus if you consider the capital appreciation also involved. I also foresee this increasing after they exit the real estate business and reduce their debt levels