ALOK INDUSTRIES
Textile major Alok Industries, which exports to 90 countries, diligently followed the strategy of creating globally competitive capabilities across the value chain – from yarn to specialised products. While the strategy was right, financed diversification outside its core textiles manufacturing operations in India – such as the acquisition of Mileta in Czech Republic, Store Twenty One in the UK, and real estate investments under Alok Infrastructure – marred the fortunes of the company.
The Ahmedabad bench of NCLT has already admitted SBI’s insolvency application against the company. Two years ago, the bankers failed to convert a part of the loan into equity under the SDR route. The idea was to change management control from the Jiwrajka family. Currently, the company’s debt is in excess of total equity in the system – debt of `22,075 crore against equity of `1,357 crore. Promoters’ equity is too low at 28 per cent. Out of the total debt, only `6,000-8,000 forms sustainable debt. The company, say bankers, does not fit into S4A as that requires 50 per cent debt to be sustainable. They see no point in converting debt into equity as the company has lost significant market share. The company’s revenues have crashed from over `20,000 crore two years ago to `8,000 crore.
“The debt overhang will never create value for equity shareholders,” says a banker. The only solution is to write off the debt. Demerging its businesses, especially real estate, and bringing in a strategic investor is another viable option under the Bankruptcy Act. An email sent to the company went unanswered.