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Thursday, February 14, 2008

Grabal alok impex:-The next emperor of the indian textile industry

Poweryourinvestment call to clients given yesterday.Everybody should make money be it clients or blog visitors.Mere 20% hardly matters i guess.


Scripscan:-Grabal Alok Impex Ltd
Bse code:-532909
CMP:99
Target:200
Duration:9-12 months
Expected return:100%


Introduction:-Grabal Alok Impex Limited (Grabal Alok), part of the Alok Group, is amongst the largest global manufacturers of embroidered products. Grabal Alok is a well known name in the Indian embroidery market and is mainly an export oriented company.The company has a wide product range within the embroidered fabrics segment which includes edgings, allovers on any base fabrics and embroidery designs which find usage in dresses of African & Arabian Nationals besides Indian sarees and salwar kameez.The company is also a preferred supplier to the key garment & made-ups exporters and has presence in the indian market through wholesalers & retailers.Over the past few years Grabal has established its direct presence in Africa and some EU countries .The company has created it own markets and is also benefiting from its increased participation in international fairs.Much of the companies current production is sold to the big export houses for sale to Gulf, Africa and European countries.

Assitance of Alok industry:-Grabal Alok has close synergies with Alok Industries which currently has the best processing facilities in the country. Alok is the naturally preferred supplier of fabrics to Grabal. Besides, Grabal sends the unprocessed fabrics to Alok on jobwork basis.Grabal is uniquely placed in the international markets on accounts of its ability to manufacture the Swiss quality (of highest regard) embroidery at Indian prices. Besides the latest technology in embroidery, Grabal is also a beneficiary of the highend processing offered by Alok. The modern processing technology including the soft flow processing made available by Alok, enables Grabal to make the best quality embroidered goods.Essentially, it also has a key focus to expand on the home textiles front,thanks again to its strong pedigree in Alok Industries.The newer additions to the product portfolio serves the dual benefits of diversification as well as higher margins. Grabal certainly will be able to cater to a sizable requirements from Alok in the home textiles segment.

'QS'acquisition:-During FY 2006, the company through its wholly owned subsidiary Grabal Alok International Ltd.(GAIL.)has taken 20.09% stake in Hamsard 2353 Ltd.,(HS) a UK based retail chain having 207 retail outlets across England,Scotland and Wales.These stores are run under the brand name 'qs'.The stores offer value for money ranges of garments for women, men, children and home ware.The stake has since increased to 75% in HS in FY 2008 at an aggregate cost of GBP 16.37 mn.HS also stands renamed as Grabal Alok (UK) Ltd(Grabal- UK).

The company has adopted a multi pronged strategy to improve the performance of Grabal-UK:

i)Change the sourcing of merchandise from UK and other European countries to India, China and other low cost Asian countries.Grabal-UK has also opened sourcing offices in Mumbai, New Delhi and Tirupur in India and also in Bangladesh China and Sri Lanka.

ii) Enhancing the management band width by inducting professionals to manage the operations.

iii)Refurbishing of the stores and improving brand image.

iv) Introduction of New Products and shift towards a profitable product mix and reduction in expenses.

Locational advantage:-Grabal alok enjoys a noteworthy locational advantage as its manufacturing facilities are concentrated in the Navi Mumbai and Silvassa region.The raw materials requirements of the company are met from the Vapi - Silvassa textile belt.The export oriented company also gets the benefits of proximity to the ports.

Indian embroidery market:-Indian embroidery market is growing both on the domestic and the export fronts at an estimated CAGR of 14%. India is expected to be the second largest supplier of embroidered products after China.Embroidery being a labour intensive industry, India has the competitive advantage in terms of skilled and relatively low cost labour - for Grabal Alok Impex Ltd. and most of the Asian manufacturers cost of labor is 5% of sales; for European manufacturers it would be around 30%-40% of the sales.

Prospects:-The prospects for the domestic market are very promising with a healthy GDP growth, rapidly increasing middle income group accompanied by a rise in aspirations and purchasing power.The per capita textile consumption is expected to increase to 30 meters by 2010 from the present level of about 20 meters. The same should propel humangous growth in domestic textile market to USD 50 bn by 2010 from the present USD 33 bn(CAGR of 9% p.a).

Industry Outlook:-The Indian textile industry after long time is again being perceived as a sunrise industry, thanks to the removal of quotas in December 2004 and the booming Indian economy.Since removal of quotas, textile manufacturing is continuing to shift from high cost western economies like USA, Europe to low cost Asian countries like China and India. This is resulting in increase in global textile trade which is expected to grow from USD 480 billion in 2005 to USD 650 billion by 2010.It should be also prudent to note that,"India's exports are expected to grow from the present level of USD 19 bn to USD 45 bn by 2010".

Expansion Projects:-The company possesses amongst the most modern and versatile embroidery facilities consisting of 21 Schiffli machines, 14 Multihead machines and 1 Quilting machine out of its two plants situated at Mahape, Navi Mumbai and Vasona, Silvassa. Over a period, the company has developed goodwill for its superior quality, versatile product range and strong designing capabilities and has created a wide and niche customer base and enjoys an order book position of over 4-5 months.To meet the growing demand for its products and widen its market, the company has undertaken expansion of its embroidery manufacturing capacity in phased manner.

Phase I:-Under the Phase I of expansion project, the company has installed 4 Lasser make Schiffli embroidery machines and 16 Barudan make Multihead machines at its existing unit at Silvassa. This has increased the embroidery manufacturing capacity by 7015 mn stitches p.a. and total capacity to 16263 million stitches p.a. The total cost of project has been funded by a term loan of Rs. 20 crores from State Bank of India under TUFS and balance by internal accruals.

Phase II:-Under Phase II,company is increasing its embroidery manufacturing capacity by 17737 mn stitches p.a. at Silvassa taking the total embroidery capacity to 34000 mn stitches p.a.The company is installing 60 single deck Lasser maker Schiffli embroidery machines and 30 Multi head embroidery machines at an estimated cost of Rs.150 crores. The same is being financed by a term loan of Rs. 115 crores under TUFs and balance by internal accruals.

Entrance of Reliance:-Few months back sonata investments,a subsidary of reliance capital entered the counter by buying out huge quantities(over 10 lakh shares at a price range 118-131) through numerous bulk deals.It entails tremendous confidence as we all are aware of the brand name of reliance.With reliance looking to magic again with "Vimal",i cant rule more equity participation by the large behemoth.If that happens the company should see itself in a new orbit.Given the strong prospects of the Indian textile industry and the ideal positoning of the company, the future looks extreamly bright.

Risks and the solutions:-

Risk of Competition:The company is subject to competition both in the domestic and international market.

Solution)The company since inception focused technology, quality, innovation and attaining right size. Today it has a large and loyal customer base in domestic as well as overseas market and enjoys on an average a healthy order book position of 4-5 months.It is also geographically expanding its market reach.

Risk of Currency fluctuation:-With increasing exports, the company is subjected to adverse fluctuations in the foreign currency.

Solution)The company relies on a combination of external advise through a reputed consultant and in house treasury department to manage the currency risks.

Risk of Interest rate hike:The company's debt profile is primarily on a floating interest rate and hence vulnerable to interest rate hikes.

Solution)The company's long term borrowings for expansion projects are under Technology Upgradation Fund Scheme, at a concessional rate of interest. The company through suitable financial instruments like Foreign Currency packing credit, CP linked rates etc., reduces the interest cost on the working capital front.

Conclusion:-The company ranks amongst the large embroidery players in the world.Market diversification, capacity expansions and synergies with Alok to auger well to elevate Grabal's performance over the coming years.Grabal stands tall in terms of efficiency, reduced downtimes and quality besides being the most reputed player in the industry using the most modern machineries.Also the ambitious acquisition of UK retail chain lends an ideal platform for the company to widen its global presence.I expect the company to create considerable value by turning around the performance of Grabal -UK.

Valuation&Recomendation:-The company has de-risked its business operations over the past few years.The CMP of Rs. 99 discounts the FY09E earnings by 11x.Turnover is expected to bloster to 175-180crs in 09 from 93crs on 07.The company has been overlooked by the retail fraternity just for no reason.Textile sector on a whole never really performed over the last 2 years.But i am talking about a company which is one of the world leaders in its business.I am talking about a scrip which is doing every stuff needed to position itself in the top few league.I am recomending something which has been a institutional favourite backed by a strong pedigree with a great business model.The company has consolidated for a fairly long time in the bourses and now with things looking up,"Maybe the shareholders of grabal alok are here in for gala days".Go for it guys and enrich your lives .



Regards,
Arun
I can be reached at:arunanalyst@rediffmail.com

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