Caution is the eldest child of wisdom. When a lion approaches, you would definitely stay cautious. But a lot of companies have failed in keeping up with this situation. Instead, they tried to control the lion themselves, only to see their plan ending badly.
Be it in the case of Bhushan steel or Ruchi Soya, excess debt and furious expansion plans have always landed companies in trouble. Alok industries hold a story that is similar in lines with them but with a twist no one expected.
Want to know what that twist is all about. Then, jump in to find out.
Alok Industries: History and Growth
As we have decided to decode the entire company, why not start right from the beginning? Alok industries came into existence in 1986. It is one of the leading textile industries that manufactures world-class garments. It went public in 1989. As years rolled by, the company got the taste of success and hailed a good consumer base.
It expanded its business to weaving, knitting, home textiles and garments production. The organization has manufacturing facilities in Silvassa, Navi Mumbai and Vapi. The company began to grow steadily and saw some good numbers in their profits column as well.
Alok Industries, thus, bagged numerous awards such as ‘Silver Trophy’, ‘Certificate of excellence by Kohl group', etc. All these happened to be added as a feather on their hat.
The Start of the Problem
But soon success slipped out of its hands and Alok industries found itself on the edge of bankruptcy. Let us understand how.
The case of Alok Industries was like a person who was filled with dreams and enormous potential, but just a handful of mistakes cost almost everything. The company wanted to expand further and had some big ambitious plans. And how exactly was the company planning to do this? One by use of loans and by availing credit and, two, by exploring avenues it had no idea about.
Starting in 2004, Alok Industries was kept on expanding. For this cause, it borrowed roughly around 10,000 crores. In the process, it failed to notice a lot of things which landed the company in a sea of trouble.
Instead of utilizing the already available resources to their fullest capacity, Alok Industries opened new plants. While doing so, it also failed to assess the nature of the very industry it was operating in.
While textile industries might see a huge demand at times, there are times when there is extremely less or even no demand as well. Basically, the situation in which the industry operates is volatile.
Not realizing this, the company manufactured in huge sums only to see its demand falling. As a result, it struggled to adapt to the changing situations, and its asset turnover ratio fell drastically over the period of 2004 to 2014.
Apart from that, the company had a very close fight with the competition that prevailed in the sector only to lose a huge portion of its market share. The company was choked by close competitors both in the global market and in the international market.
Did you know that there was another company which was almost declared bankrupt, but it remarkably managed to revive itself and how! Find out here: Essar Steel and its Revival.
Building up of the Trouble
While Alok Industries was already paying up for the mistakes it made in the past, it went on to make even more mistakes. It started investing in areas of which it had less knowledge about.
The company entered into the real estate sector in 2007. It acquired a commercial property in Lower Parel, which cost it much more than anticipated. By this time, the company officially started seeing huge losses.
It also set foot in the retail market sector in the name of ‘H&A’ stores in India and ‘Store Twenty One’ in the UK. It had approximately 500+ stores in both the UK and India put together.
But the train of losses, competition, and operational inefficiency caused it to shut down more than half of them. Alok Industries shut all its retail outlets in India. A few outlets in the UK which are still in functioning mode are also on the verge of shutting down.
Despite the losses and mistakes, it still had another lurking reason which was set to increase its headache - The Loans.
The company had borrowed huge loans to support all its investment and expansion activities. These loans grew over time, and so did the rate of interest. By 2013, the company was paying about 13 percent as interest on borrowed loans from 7.5 percent.
Alok Industries had about 30,000 crores worth dues to be paid to its creditors, and this placed the company in the radar of the RBI. In fact, it was the only textile company which was placed on the list of the 12 stressed units which was identified with the amendment of IBC.
The Great Escape of Alok Industries
As in the case of any company, Alok industries was also declared insolvent, and the NCLT requested plans. Reliance and JM Financial Asset Reconstruction Company placed a bid for the same. However, the NCLT rejected their claim as only 70% of the creditors backed it against the minimum requirement of 75%. This gave the company no option but to be liquidated.
Unhappy with the decision of the NCLT operational creditors, the employees and Reliance moved the NCLT to reconsider the decision. The threshold was also reduced from 75% to 66%. The Ahmedabad bench in 2019 finally gave the bid to Reliance and JM, which submitted a plan for 5000 crores.
From Rags to Riches: The Huge Twist
As per the plan, Reliance infused about 500 crores in the form of equity into the stressed unit. It acquired about 37.7% stake in the company as well. Following the epic takeover, Alok Industries, which was being dreaded by investors, soon became one among the must-buy list.
By early 2020, the company generated a return of 822%. During the period of restructuring, the share prices were less than Rs. 14. But early this year, the company is seeing its share price sore up to Rs. 36.
With everything back as expected, Alok Industries seems to be a money-bagger for most of the investors. The name Reliance itself seems to have hyped up the whole scenario. With the assistance of such a company, we can be sure that Alok industries will soon be placed once again on the ladder of fortune and success.