Mr Dilip Jiwrajka, Managing Director, Alok Industries Ltd

Alok Industries Ltd, established in 1986, is amongst the fastest growing vertically integrated textiles solutions provider in India. A diversified manufacturer of world-class home textiles, apparel fabrics, garments and polyester yarns, Alok has capacities of 82.50 mn meters of sheeting fabric and 6700 tons of terry towels for its home textiles business, 105.00 mn meters of apparel width woven fabrics, 67200 tons per annum of knitted fabrics and 22 million pieces per annum of garments. With the commencement of spinning of cotton yarn (32000 tons per annum), Alok has achieved complete integration. The company also has a strong presence in the polyester segment with a capacity of 114000 tons per annum of polyester textured yarn supplanted by 182500 tons per annum of POY and 182500 tons of PET. The company has a blue chip international customer base comprising of world renowned retailers, importers and brands.

Dilip Jiwrajka, Managing Director, Alok Industries Ltd, is a science graduate with a diploma in Business Entrepreneurship and Management., Mr Jiwrajka has 25 years experience in the manufacturing and trading of fabric for the garment industry. He is responsible for the weaving and processing divisions and overseeing the strategic planning, administration, finance functions and overall working of the company.

In a detailed reply to Anil Mascarenhas of India Infoline, Dilip Jiwrajka says, Alok?s business model is quite diversified which, while ensuring risk mitigation and stability of earning places it at a distinct competitive advantage.

The rupee did take its toll on many companies such as yours. Brief us about your financial performance.
We had a record export growth in a year when the rupee was in an appreciation mode and generally testing conditions had set in towards the latter half of the year. This proves that if one has the right size, right product, right quality and right price, then most challenges can be surmounted. We will consolidate operations this year and enhance efficiencies and endeavor to surpass expectations.

To briefly sum up, Alok Industries Limited reported net sales of Rs7.24bn for the quarter ended March 31, 2008, which is a jump of 26.25% over the same period last fiscal. Operating Net Profit for Q4 stood at Rs609mn, a growth of 24.45% yoy. The operating margin for Q4 FY08 was at 24.89% as against 23.34% recorded in Q4 FY07.

For the year ended March 31, 2008, net sales grew by 18.34% to Rs21.59bn compared to Rs18.24bn in the previous year. Operating net profit for the year ended March 31, 2008 rose by 23.79% to Rs1.67bn, as against Rs1.35bn posted in the same period of last fiscal. Earnings Per Share (EPS) for FY08 works out to Rs11.51 as compared to Rs9.70 for the same period last fiscal.

You mentioned about your record exports. Could you give the figures?
Export Sales for the fourth quarter stood at Rs3.85bn, a growth of 50.16% as compared to Rs2.56bn posted in the same period of last year. The figure of export sales for 2007-08 rose by 59.87% to Rs10.25bn as compared to Rs6.41bn in FY07.

The fire in one of your units had hit production. To what extend was your margin hit?
A fire broke out at the Sayali texturising unit with 70 machines on August 16, 2007, impacting the unit totally. The other units in the premises (weaving, knitting and POY), however, were not impacted. There was no major impact on the overall operations of the company due to a couple of reasons.

The Company has adequate Insurance Cover for its Building, Plant and Machinery and Stock. The total damage to the fixed assets is estimated at Rs2.25bn (including Rs250mn as loss of profit) and the same has been admitted by the insurance company. We have received an interim settlement of Rs1bn towards loss of assets and Rs100mn towards loss of profit. The balance claim is expected by June 2008.

Secondly, the company has rebuilt the new texturising unit in a record time of 90 days and inaugurated the new unit on 24th November 2007.

What about the impact on sales, margin and market share?
The net impact on sales of texturised yarn was expected to be in the region of Rs500 ? 550mn. However, the same has been compensated by higher revenues from other divisions like Apparel fabrics, Home textiles and POY. There has been no impact on margins.

As far as market share is concerned, Alok is amongst the market leader in the texturised yarn segment. About one third of the texturised yarn is exported and the balance is sold in the domestic market. In view of the rebuilding of new texturising unit in 90 days and inauguration of the same on November 24, 2007, there was no impact in the market share.

What impact has the currency had on your performance? What kind of hedge are you doing? How do you read the situation?
The company has adopted a multi prone strategy to improve its overall performance including appreciating rupee.

We made a shift towards value added products:

Alok has tied up for contract farming spread over 140000 acres for exclusive supply of Organic and Fair Trade Cotton (approx 175000 bales) duly certified by SKAL and ECO CERT. Organic products are now getting more popular and fetch extra premium. This would not only give company additional margins but also provide a fair price for the farmers.

Institutional work wear with special finishes like Flame Retardant, Water Repellent, Anti-Bacteria, Vitamin ?E finish, Ice Finish fabric, Anti Static, Aroma finish, Mosquito Repellent, etc., which have a distinct market and application such as Defence, Oil exploration, Hospitals, Hotels, Auto Industry, etc..

In Apparel woven fabrics, Alok is focused on manufacturing of Premium Yarn Dyed Fabrics and Bottom Weight fabrics which are always in demand and fetch higher margins.

In Home textiles, Alok is concentrating more on Higher Thread Cont bed sheets (500 TC to 1000 TC). Similarly, it is producing more quantities of quilts and comforters, where realizations and margins are high.

Alok has acquired brands from Mileta International, a Czech based company, like "Daks", "Lord Nelson", "Erba", which are being introduced in India in a gradual manner. It has also entered into licensee arrangement with Peacock Alley, a premium home textile brand of USA for distribution in India.

The second strategy was backward and forward Integration and economies of scale:

Alok has created large scale capacities with state-of-the-art technology to derive the benefits of economies of scale. It has further reduced its cost by going into backward integration into manufacturing of cotton yarn and POY. On the forward integration front, we have gone into manufacturing of finished products i.e. Garments, Bed sheets and Retailing. Further, the proportion of value added products in our overall product offering is also increasing.

The third is systematic approach of hedging:

The company has a systematic policy of hedging. The company has treasury department who take suitable heading measures from time to time and monitory it closely.

All the above strategies helped in improving the overall performance of the company and also mitigate the exchange fluctuation risk.

What is the expected utilization in your new facilities?
Normally, the machines take about 2 years for stabilization from the initial setting up. The capacity utilisation is about 70%, 80%, and 90% in the 1st, 2nd and 3rd year onwards. The company?s order booking position is comfortable and expects to achieve capacity utilisation of over 90% from the existing capacities and about 70% from the newly set up capacities i.e. capacities set up in FY2008.

What kind of value addition are you doing? What increase would it bring to your margins?

The company in order to improve its margins is concentrating on three main centers, which are as under:

1) Diversified Product Mix and Markets:

Alok has a diversified product mix and market segments. The business model of the company is briefly tabulated below:

Alok?s business model is quite diversified which, while ensuring risk mitigation and stability of earning also places the company at a distinct competitive advantage over other players in the industry. Alok has also ensured that its target market is a diverse mix of the international market, garment export trade and domestic market. The company has established itself both in the international and domestic market and has emerged as a leader in each of the product segment it operates.

The company?s sales comprise about 48% exports and 52% domestic sales. The company exports to more than 50 countries and its markets are well diversified into USA, Europe, Latin America, Africa, and Middle East.

Besides what I detailed earlier, on the domestic front, company has adopted multi prone strategy:
a)    It supplies fabric to leading domestic and export garment manufacturers.
b)    It markets through its distribution network to wholesalers, traders and retailers.
c)    It supplies to the private labels of the big retailers.
d)    It has started its own retail chain by the name ?H&A? and has opened 20 stores in Mumbai, Vapi, Bangalore and other parts of the country. The number of stores would increase to about 150 stores by FY09 and further to about 400 stores by FY10.

All these have started showing results and with the new capacities in place, the EBITDA margin is expected to improve further.

By when would we see the benefits of Alok Infrastructure on the company? Tell us more about your plans here. Two to three years down the line how do you see this business shaping up?

All the projects are expected to be commence from 2010-11. All the infrastructure related companies are subsidiaries of Alok Industries Limited (Alok) and the profits generated by these companies will be reflected in Alok in the form of dividend.

The company is into development of commercial and residential projects. It intends to develop only select projects which have good commercial viability thereby ranking amongst the top 15 developers in India.

The brief details of each of the subsidiaries are as under:

a) Alok Realtors Pvt. Ltd. (Peninsula Business Park)

• 575,000 sq ft of ultra modern office premises with world-class amenities, large open complex, landscaped gardens and water bodies
• The first level starts at a height of 80 feet from the ground, thereby offering a fabulous view of the Arabian Sea and Mahalaxmi Race Course
• 500 car parking for occupants and visitors
• 8 high speed intelligent elevators
• Club House with facilities for Gymnasium, Steam, Sauna and shower, exclusive designed lounge for CEOs, food court, coffee shop, indoor sports
• High end security systems, advanced fire detection and fire fighting systems and power back up
• Property would be professionally managed by Peninsula Facility
• Proximity to Lower Parel and Currey Road station; 5 star hotel ITC;
• Possession by March 2010

b) Ashford Infotech Pvt. Ltd (at Lower Parel & Nahur)

• 64,800 square feet of prime office space in Lower Parel

1. 8 storey with floor plate of 8,100 sq. ft
2. 40 car parks
3. Modern architecture with latest amenities
4. Proximity to Lower Parel and Currey Road station; 5 star hotel ITC
5. Possession by March 2009

• Ashford Investment & Trading Company Pvt. Ltd and Alok Infrastructure Pvt. Ltd. proposes to develop an office complex in the CEAT factory compound at Nahur

• The project is being developed in 50:50 Joint Venture with Ashford Group
• A total area of approximately 7 acres of land has been acquired out of the 30 acres plot of the CEAT factory
• Site demography ? 3 min from Nahur and 5 min from Eastern Express Highway and Goregaon Mulund Link Road
• The project to have an approximate saleable area of 10,31,100 Sq. ft.
• Multi Level car parks for 1,000 cars
• Air-conditioned lobbies on every floor
• Air-conditioned atrium entry
• Full height glass curtains
• The complex would have most modern infrastructure and world class amenities with large open complex, landscaped gardens and water bodies. The complex would be supplemented with a Club house, gymnasium, pool, sauna, steam, banquet hall, business lounge, cafeterias and indoor sports
• The project to be operational in 30 months

c) Silvassa Textile Specific Special Economic Zone (STSEZ)

• Land fully purchased
• Formal approval received for 183 acres. Notifying 145 acres in the first phase
• Company would be developing and maintaining the SEZ and would be providing world class supporting infrastructure like power sub-station, Common ETP plant, commercial centre, training centre etc.
• Strategically located with proximity to Mumbai Airport (150 Kms) and JNPT port (200 Kms)
• To be fully developed by 2011-12

d) Alspun Property, Vapi

• The company has acquired a 50% stake in Alspun Infrastructure Pvt Ltd. which in turn is developing an integrated township spread over 100 acres in Balitha, Vapi
• The township would comprise of residential, commercial, retail and entertainment area with provision for schools, hospitals, clubhouse etc.
• The township would be developed in a phased manner commencing from September 2008 and likely completion by 2012

You also have acquired land in Silvassa and Panvel. What are your plans here?
Alok Infrastructure has acquired 220 acres of land at Velugam, Silvassa for developing townships / SEZ. It is in the process of acquiring 130 acres of land at Panvel in 50% joint venture suitable for developing theme based township.      The proposed land is about 15 kms distance from the proposed new airport and 8 km from    the railway station. The project is at drawing board stage and the details would be conveyed as soon as they are finalised.

What kind of revenues do you see from the SEZ. What is the business model for the SEZ?
The company acquired 183 acres of land at Silvassa out of which 145 acres of land is being notified for SEZ in the first phase. The company proposes to provide open plots on long-term lease basis (one time lease) as well as constructed factories to textile units (on annual lease basis).

The company shall develop and maintain the SEZ and also provide world-class support infrastructure, viz, power substation, common ETP plant, commercial centre and training centre.

16 acres of open plots have already tied up for long-term lease. The SEZ is expected to be fully operational by March 2011-12.

The SEZ is expected to generate substantial revenue because of the above business model and amenities. However, the forward numbers cannot be disclosed because of SEBI guidelines.

The first tranche of warrants have been converted into equity from 28th April 2008. By when will the second tranche be converted. At what price?
The second tranche is expected to be converted on or before 31 July 2009 at a price of Rs102 (premium of Rs92 and face value of Rs10)

What is your outlook on branded retail. What is the progress with H&A? By when would this be hived off?
The increase in the per capita income, demography and penetration of economic activity in interiors of India has fuelled overall economic growth of India and it is expected to grow further. About 40% of the clothing in India is through retailing. With this background, branded retail would be the driving force going ahead.

H & A is Alok?s foray into branded retail segment targeted towards the mass market and offering ?Value for money? proposition. The company already has 20 stores and has plans to reach 40 stores by June 2008 with a two-year target of having 400 stores pan India.

The company in its board meeting held on 28th April 2008, has approved the hiving off of H&A division into a separate wholly owned subsidiary of Alok by the name ?Alok Homes and Apparel Pvt. Ltd.? The company would seek the approval of the same from its shareholders soon.

What kind of tie-ups are you looking at?
Alok has acquired brands from Mileta International, a Czech based company, like "Daks", "Lord Nelson", "Erba", which are being introduced in India in a gradual manner. It has also entered into licensee arrangement with Peacock Alley, a premium home textile brand of USA for distribution in India.

Apart from the above, the company is keen to have long-term strategic tie-ups for marketing of its diversified multi product range in overseas markets.

Your dividend policy? Your message to shareholders?
The company has been consistently paying dividend from last 15 years and would certainly share its wealth with the share holders. We would like to inform all our share holders that with the above measures being taken by the company, the share holders will be benefited.