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Solar Industries: Positive consolidated performance; subsidiaries surprise positively

ICICIdirect Research 27 Jul 2022 DISCLAIMER

What’s Buzzing:

Solar Industries registered handsome numbers for the exit quarter owing to favourable macros. Top line jumped 22.7% QoQ and 95.8% YoY led by all-round performance from Coal, Housing & Infra and Exports segments.

Context:

For Q1FY23, Solar's revenue for the quarter came in at Rs 1615.9 crore, up 95.8% YoY & 22.7% QoQ.    Gross margins contracted~ 40 bps YoY & expanded 550 bps QoQ (Gross margins expanded QoQ due to higher realisation). EBIDTA margins dipped QoQ and YoY and came in at 17.5% vs 20% in Q4FY22 (EBITDA margins dipped QoQ due higher other expenses). Solar posted an EBIDTA of Rs 252.4 crore, up 62% YoY & 7.7% QoQ. Solar posted a PAT (Post Minority interest) of Rs 170.2 crore in Q1FY23 vs Rs 167.9 crore in Q4FY22 & Rs 97.5 crore in Q1FY22. 

Our Perspective:

Solar Industries has been performing exceptionally well in the 4-5 quarters mainly on back of Government initiative like Housing for All, Gati Shakti, Atmanirbhar Bharat, indigenisation of defence products and better performance from mining and infra. Higher revenue is due to increased demand from Coal, Housing and Infra and Non CIL and Institutional customer. On overseas business company has witnessed a growth of 15-18%. South Africa will be profitable by H1FY24. Commercial production in Australia will be started by Q3FY23 and Indonesian unit has started production of detonators and initiating system will be in production by next quarter. However, there is some pressure on EBITDA margins due to increase in Ammonium Nitrate prices which has jumped around 12% QoQ due to increased natural gas prices and supply chain disruptions due to Russia- Ukraine war. Once the things get back to normal the company will be enjoying a higher EBITDA margins in range of 21-22%. CAPEX for Q1FY23 stands at Rs 84 crore and proposed CAPEX for FY23 will be in range of Rs 400-450 crore. Current Order Book stands at Rs 3850 crore out of which Rs 538 crore is from defence sector which suggest good revenue visibility in coming quarters.

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