Ongoing dilution saga…
Alok Industries’ (Alok) Board has approved a rights issue amounting to
| 551 crore. It has also withdrawn the earlier cleared proposals of equity
issuances & preferential allotment and warrant allocation to promoters.
We look at this as a negative for the company considering the past
dilution history. In the race to enhance capacities, the company has had
to leverage extensively and also had to resort to equity dilution in the
past. However, this has not worked too well for shareholders who have
not received anything significant, either in the form of dividends or share
price appreciation. Based on our estimate of a rights issue price of | 12,
we expect a ~30% haircut in the EPS. Also, the delay in closure of deals
on the real estate front has worsened the situation for the company. In
the past few years, the company has had to time and again resort to
equity dilution. Considering these factors, we downgrade Alok Industries
from HOLD to SELL with a revised a target price of | 8.
http://content.icicidirect.com/mailimages/ICICIdirect_AlokIndustries_%20EventUpdate_September2012.pdf
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