Stocks #2: Alok Industries & Trident

  
0:00
-23:03

In the final part of our series on Textiles, we spoke about Alok Industries & Trident.


#1 Alok Industries

Alok Industries operates in the primary stages of the textile ecosystem (i.e. weaving & yarn manufacturing) exporting about 26% of their production to 90 different countries.

This company, is one of the classic examples of what happens when you over-invest & over-produce in the textiles industry.

Why did Alok Industries fail?

It started in 2004, when the company’s management decided to rapidly expand their operations - investing > INR 100Bn over a span of 9 years to build their spinning, weaving & garmenting units.

Most of this money was borrowed & carried a pretty high rate of interest.

Expansion is great if you can increase your topline at the same time. The opposite happened for Alok. Revenues didn’t increase. Interest payments kept rising.

To add fuel to the fire, Alok Industries also diversified in the real estate biz - which requires HUGE upfront investment & has long payback periods.

Ultimately, in 2017 - RBI identified Alok Industries as one of the companies in need of insolvency proceedings. The company, was declared bankrupt.

Restructuring + Roping in Reliance Industries

Luckily for Alok Industries, Reliance Industries (RIL) & JM Financials’ ARC arm submitted a INR 5000 crore plan to revive the company.

RIL infused INR 500 crore as equity & acquired a 37% stake in the company. And once the name of Mukesh Ambani got associated with the company - what happened next was no surprise.

In early 2020 - the stock skyrocketed generating a >800% return in a few months - with no real change in the fundamental business.

Power, is power ~ Cersei Lannister

Financials & Stock Performance

Revenue increased YoY in FY21 [on the back of a lower base] - however it reported a net loss of INR 56Bn, a staggering number. The company also has a negative networth which is one of the biggest red flags for me while analyzing stocks.

The stock itself has been on a rollercoaster ride - touching a peak of 58 in July 2020 & is currently down more than 50%, trading at 26 in June 2021.

At this point, I’m not sure what the bull case for Alok Industries is.


#2 Trident

One of the most sustainable textile company in India - Trident has diversified into various lines of business like paper, chemicals, energy - with the major contributor being home textiles.

Trident’s Business

Trident started as a chemicals & fertilizer biz back in 1985 & slowly pivoted to paper, yarn & terry towels in 1990.

Rajinder Gupta, the founder of Trident - has preached the philosophy of ‘responsible manufacturing’ & he put his money where his mouth was.

For eg. Trident uses only agriculture residue to make paper - no trees are cut in the process. And, the power generated during paper production is diverted into it’s terry towel plant - saving both energy & costs.

Trident makes most of it’s money from the sale of terry towels & has international clients like Walmart, JC Penny, TJ Maxx in it’s hat.

It has a world class manufacturing plant in Budhni (see picture) - spread over 800+ acres, uses one of the most advanced technology & has best in class manufacturing processes. The plant is vertically integrated - it converts cotton to yarn & yarn to towels/sheeting.

Financials & Stock Performance

Revenue growth for the past 5 years has been flat - with marginal revenue decline witnessed in FY20 & FY21 due to COVID-19. The net margins are also quite low.

One positive, is the falling debt to equity ratio - the company has been consistently reducing their debts.

The company needs to venture into new product lines to reduce the dependency on terry towels to unlock the next phase of their growth in my opinion.

The stock has performed reasonably well in the past 5 years - registering absolute gains of >200% & is currently trading at a P/E of 27 [slightly higher than the Industry P/E of 18].

In my opinion, this stock definitely deserves a place on your watchlist.


Which other company would you like us to cover? Let us know in the comments section below!