Alok Industries gains over 50% in a month; Is buying now a wise decision?

Alok Industries, a textile manufacturer from the Reliance Group, has gained significant attention since the beginning of this year. This month, the share price experienced a notable upward momentum, which had been absent for a considerable period. Despite being backed by India’s largest conglomerate, Reliance Industries, as its promoter since FY2022, the company’s stocks did not perform well during the bullish market phase.

One might question whether to invest in stocks, considering the company’s subdued performance. With numerous better alternatives available that exhibit strong fundamentals and technical prowess, the decision to purchase Alok Industries stocks at this juncture might warrant careful consideration.

This article aims to delve into the company’s financials, offer a brief technical analysis, and provide an overview of its business operations. Such insights may assist investors in making informed decisions.

Financial Overview 

In terms of the company’s quarterly performance, the revenue has registered a back-to-back decline for the past five quarters. In the second quarter of FY24, it stood at Rs 1,359 crore, reflecting a 20% decline from Rs 1,699 crore in the same quarter last year. The operating profit was recorded at Rs 36 crore, while the bottom line reported a net loss of Rs 175 crore, down from Rs 192 crore.

If we analyse the annual performance, the revenue declined by 5% to Rs 6,937 crore from Rs 7,310 crore. However, the sales growth over the last five years has been at 28%. Furthermore, the company has been reporting consecutive losses for the past three years and is struggling to generate profits. Neither the sales growth nor the company’s profits are consistent.

Stock Performance: 

Undoubtedly, the company’s stock has generated impressive returns in both the past week and the last three months, a feat that’s challenging for many stocks to achieve. Over the last three months, it has doubled investors’ money, yielding over a 100% return, and within just a month, it has shown a remarkable 58% increase. Those who have held the stock might have found some relief from these gains, although it’s possible that many investors exited the stock during this sudden upsurge.

Analysing the monthly timeframe chart reveals a trendline resistance, as depicted in the image below, which could potentially hinder the ongoing momentum. The optimal buying area is estimated to be between Rs 31 to Rs 33, where the previous resistance is expected to act as a support level. Should there be a breakthrough this week, the momentum might not be as robust due to the absence of a retracement.

However, a retracement or consolidation around its current price could instil confidence for a stronger upward momentum.

Business Overview 

Alok Industries Limited is an India-based integrated textile company primarily engaged in textile manufacturing, encompassing mending, and packing activities. The company operates with integrated business operations in two main verticals: cotton and polyester. It functions through four divisions: spinning, polyester, home textiles, apparel, and fabric.

With a broad customer base worldwide, including global retail brands, importers, private labels, domestic retailers, garment and textile manufacturers, and traders, the company offers various product categories such as accessories, apparel fabric, corrugated pallets, cotton and blended yarn, embroidery, garments (woven and knitted), home textiles, and polyesters. Alok Industries Limited’s subsidiaries include Alok Infrastructure Limited, Alok Worldwide Limited, and Alok Singapore Pte Limited.

Conclusion 

Looking at the company’s financials, it doesn’t exhibit robust financial health, which might dissuade investors from buying at any available price. Relying solely on the strength of the promoter and recent developments and news might not be a prudent decision. On the technical side, the stocks are trading above key moving averages like the 20/50/100/200 period moving averages, signalling a positive trend. However, waiting for a retracement might provide a better risk-reward ratio.

It could be wiser for investors to wait for the company to announce a good quarterly result before making significant investments. Alternatively, investing only a modest portion, say 10% to 20% of the projected investment, could be a more conservative approach. Personally, I prefer the former option where the company demonstrates and presents a better quarterly result, often considered as the report card of the recent performance of the company.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.