Alok Industries- the company that went from being bankrupt to producing one lakh PPE kits during a pandemic, all in three years. But how?
Starting from the start, the private limited company was co-founded by Mr. Surendra Jiwrajka in 1986. It is a Silvassa based fully integrated textile company with particular prominence in the cotton and polyester segment. The company made its Initial Public Offering (IPO) or to put simply, went public, in 1993. With the New Economic Policy of 1991 in play, Alok Industries optimally utilized the removal of the cap on imports and imported yarns for its raw material.
From 2004 through 2007, Alok Industries wanted to expand and diversify. With only three ways (debt, equity or profits), the promoters of Alok Industries chose the debt way to build up weaving, spinning, processing and garmenting units as well as diversifying into Real Estate as well as the Retail market. The company’s debt amounted to more than Rs. 10,000 crores between 2004-2013.
As is now known to the world, the company’s vision of expanding did not work out very well. A variety of factors, including the Global Financial Crisis of 2008, failure of domestic retail plans and a fall in the share of exports, catalysed this. The irrelevant diversification into real estate ultimately pushed the company into bankruptcy.
Delving into the root causes of the failure of Alok Industries to maintain its market share among global companies is the diversification gone wrong and an insufficient expansion. At the peak of the financial year 2011-12, Alok Industries had 350 retail stores called ‘H&A Stores’ in India and 221 retail stores named ‘Store Twenty-One’ in the United Kingdom. Unfortunately, the strategy the company chose to venture into the retail market did not pan out as planned and they had to close all the stores in India and were left with around a 100 stores in the UK. Although they plan to retreat from this line of business as soon as they can. The company’s venture into real estate was through Alok Infrastructure Limited, commercial property in Lower Parel, Mumbai. This investment had blocked a large amount of capital for Alok Industries.
It is a known fact that businesses run with the primary motive to earn profits (revenue minus costs). For Alok Industries, the debt was an extra cost for the company that it needed to pay off along with large sums of interest, while the operating cash flow was the amount needed to keep the company running. In the initial phase as the operating cash flow exceeded the debt, the company made profits (FY 2007-2013); but as the gap between these two declined it became a difficult task for the company to even stay afloat (in FY 2015-17). Eventually, the company declared bankruptcy on the 18th of July, 2017.
The Reserve Bank of India had identified the case of Alok Industries among the top twelve biggest Non-Performing Assets for early bankruptcy proceedings. The State Bank of India, the main lender to Alok Industries, had filed an insolvency case to recover Rs. 4000 crores that the latter owed to SBI. After a two hundred and seventy day moratorium period (the 14th of April, 2018), a Resolution Plan was jointly submitted by Reliance Industries Limited and JM Financial Asset Reconstruction Company offering Rs. 5000 crores. On being put to vote, it received 70% support but was eventually rejected as it failed to meet the minimum 75% support required for a Resolution Plan to be passed. To encourage resolution over liquidation, the voting threshold was brought down to 66%. Later, on the 13th of June 2018, the Resolution Plan was again put to vote and this time it passed. In March 2019, the Ahmedabad bench of NCLT approved the sole bid jointly made by RIL and JM Financial ARC for Rs. 5,050 crores against the Rs. 30,000 crores due to the bankers which implied a collective haircut of 83%.
RIL had planned to infuse Rs. 500 crores worth equity within Alok and raise the remaining Rs. 4,550 crores via loans from the State Bank of India, ICICI Bank and IndusInd Bank. By the end of February ‘20, RIL had acquired a 37.7% stake in Alok Industries per the Resolution Plan. This revived the sentiment of financial lenders to Alok Industries as they turned hopeful and positive for receiving their dues.
The third week of March ‘20 saw a nationwide lock-down being imposed due to the first wave of COVID-19 hitting India. At this point, there was a huge demand for Personal Protective Equipment (PPE) kits required to cushion the doctors, nurses, medical staff and other workers who are on the forefront of battling this pandemic. The PPE kit - including coveralls, shoe covers, gloves, three-ply of N-95 face masks, headgear and face shield- is made using high-grade polypropylene. Initially, India had been importing PPE kits worth Rs. 2000 per unit from China. To counter the high import costs and revive its newly acquired textiles and apparel fabrics maker Alok Industries, Reliance India Limited converted it into a PPE manufacturer and brought down the costs of PPE kits to one-third the cost of kits imported from China. The capacity of Alok Industries has been amped up to produce approximately 1 lakh kits per day at a slashed rate of Rs. 650. This could also be a potential source of exports for India and help in generating foreign exchange. Alok Industries now does almost one-fifth of the production of PPE kits in India. Alok Industries has shown the potential to make good use of opportunities provided to it not only in the 90s but also now during this pandemic. It will be worthwhile to wait and watch the company’s next venture under the ownership of Reliance Industries Limited.
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Author:
Iksha Gupta (itiksha2311@gmail.com)
Iksha is an economist in the making. When she’s not dreaming about wandering off to faraway places, she likes to pick on a good read.
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