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Solar Industries India Ltd>
  • CMP : 10,037.0 Chg : 241.25 (2.46%)
  • Target : 4,775.0 (17.03%)
  • Target Period : 12-18 Month

27 Jan 2023

Explosives volume growth remains strong…

About The Stock

Solar Industries (SIL) is the largest manufacturer of industrial explosives and explosive initiating systems in India.

  • It has a capacity of ~330,000 MT/year. It holds reasonable market share in India of ~30%
  • It also leads the exports share from India, which is around 70% in industrial explosive and initiating system
  • It exports to 55 countries in the world and has recently expanded its manufacturing base to many African countries

Strong YoY growth in exports and realisations in domestic explosives; sequentially exports growth remained muted.

  • Revenue came in at ₹ 1811.8 crore, up 78.0% YoY & 15.6% QoQ
  • EBIDTA margins came in at 19.3% (+181 bps YoY; flat QoQ). EBIDTA came in at ₹ 349.5 crore, up 96.4% YoY & 16.9% QoQ
  • PAT was at ₹ 219.4 crore; up 108.9% YoY & 16.3% QoQ
What should Investors do?

SIL is expected to perform well, going forward, on the back of strong demand from coal and infra sector along with its foreign subsidiaries.

  • We maintain our BUY rating on the stock
Target Price and Valuation

We value the stock at ₹ 4775, based on 38x P/E for FY25E earnings.

Key Triggers for future price performance
  • Better performance from overseas subsidiaries on the back of strong demand, revenue increase from non-CIL customers in coal segment
  • Defence and export segments picking up due to diversified portfolio
Alternate Stock Idea

We also like Bharat Electronics in our capital goods coverage.

  • Strong order book & healthy pipeline in defence electronics offers strong visibility; diversifying into non-defence to help improve margins


  • BUY with a target price of ₹ 135 i.e. 15x P/E on FY24E EPS

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR (FY17-FY22) FY23E FY24E FY25E 3 Year CAGR (FY22-FY25E)
Revenue 2,237.3 2,515.6 3,947.6 20.2 6,631.0 7,429.5 8,867.5 30.6
EBITDA 434.3 514.6 747.3 18.8 1,273.1 1,515.6 1,879.9 35.6
EBITDA margin (%) 19.4 20.5 18.9 - 19.2 20.4 21.2 -
Net Profit 267.4 276.4 441.3 18.2 737.3 891.8 1,137.1 36.7
EPS (|) 29.6 30.5 48.8 - 81.5 98.5 125.7 -
P/E (x) 138.1 133.6 83.7 - 50.1 41.4 32.5 -
EV/EBITDA (x) 86.2 72.6 50.2 - 29.8 25.0 20.0 -
RoCE (%) 17.6 17.6 22.5 - 29.9 30.1 32.5 -
RoE (%) 19.2 17.4 23.9 - 30.3 28.2 27.6 -
Source: Company, ICICI Direct Research

Variance Analysis

  Q3FY23 Q3FY22 YoY (%) Q2FY23 QoQ (%)   Comments
Total Revenues 1,811.8 1,017.9 78.0 1,566.6 15.6   Strong YoY growth was mainly led by exports and higher realisations in domestic explosives
Raw materials costs 1,151.5 599.8 92.0 933.3 23.4    
Employees Cost 91.7 67.4 36.1 86.5 6.0    
Other Expenses 219.1 172.7 26.8 247.8 -11.6    
Total Expenditure 1,462.2 839.9 74.1 1,267.6 15.4    
EBITDA 349.5 178.0 96.4 299.0 16.9    
EBITDA margins (%) 19.3 17.5 181 bps 19.1 21 bps   Margins improved YoY on postive operating leverage
Depreciation 32.0 27.2 17.7 30.4 5.5    
EBIT 317.5 150.8 110.6 268.6 18.2    
Interest 25.5 13.4 89.9 19.4 31.2    
Other Income 7.2 7.1 2.4 4.4 66.1    
Extra Ordinary Item -0.1 0.0   0.1 0.0    
PBT  299.4 144.4 107.3 253.5 18.1    
Total Tax 80.0 39.4 103.1 64.9 23.3    
PAT 219.4 105.1 108.9 188.6 16.3    
Key Metrics Q3FY23 Q3FY22 YoY (%) Q2FY23 QoQ (%)    
Ind. explosives volume (MT) 1,22,030 1,04,717 16.5 87,661 39.2   Strong volume growth witnessed on QoQ
Realisation (|/MT) 71,745 49,004 46.4 70,900 1.2   Realisation remained higher by 46.4% YoY; flat on QoQ
Value (| crore) 876 513 70.6 622 40.9    
Initiating Systems (| crore) 133 101 31.7 126 5.6    
Export & Overseas (| crore) 729 377 93.4 739 -1.4   Exports revenue remained better on YoY; declines marginally on QoQ
Defence (| crore) 110 73 50.7 111 -0.9   Multi-Mode Hand grenade propelled defence revenue


Q3FY23 Results: Strong earnings growth continues on YoY basis

  • Revenue increased 78.0% YoY to | 1811.8 crore, mainly led by strong growth in the explosives and exports segments. Explosives segment, which contributed ~48% to total revenues grew 70.6% YoY to | 876 crore on account of healthy volume growth of 16.5% YoY and better realisations (+46.4% YoY). Exports, which contributed ~40% to total revenues, also witnessed growth of 93.4% YoY to | 729 crore. Initiating systems segment grew 31.7% YoY to | 133 crore while defence segment revenue grew 50.7% YoY. Sequentially, total revenue increased 15.6%, mainly led by strong growth in explosives segment, which witnessed 39.2% QoQ growth in sales volume


  • The 9MFY23 revenue was up 90% YoY to | 4994 crore, led by explosives segment and exports. Explosives segment revenue (~69% of sales for 9MFY23) was up 85% YoY led by 63% YoY increase in explosive realisations and 13% growth in volumes. Exports revenue (40% of sales) was also up 97% YoY


  • Gross margins in Q3FY23 contracted by 629 bps YoY to 36.4% due to higher raw material prices on a YoY basis (primarily ammonium nitrate). Sequentially also, gross margins contracted by 398 bps as explosives realisation remained largely flattish on a QoQ basis


  • EBIDTA margins for the quarter improved 181 bps YoY to 19.3% despite lower gross margins. This was mainly led by positive operating leverage. Thus, Absolute EBITDA was up 96.4% YoY to | 349.5 crore. The margin remained flattish QoQ and EBITDA was up 16.9% sequentially


  • PAT during Q3FY23 increased 108.9% YoY to | 219.4 crore on a strong operational performance. Sequentially, PAT was up 16.3%


  • For 9MFY23, EBITDA and PAT were up 89% and 110% YoY to | 952 crore and | 591 crore, respectively


Q2FY23 Earnings Conference Call highlights

  • The company has increased its revenue growth guidance to 65%+ for FY23E (previous guidance was 45-50% growth)
  • Volume growth guidance remains unchanged at 15-17% for the year. Demand from domestic coal players (Coal India, Singareni Coal) has been decent
  • EBITDA margins are expected to be in the range of 18-20% in the coming quarters
  • Domestic explosive realisations are expected to correct during the next couple of quarters in line with correction in commodity prices and raw material prices (primarily crude oil and ammonium nitrate). However, the realisations are expected to stabilise post the next two quarters
  • Exports revenue is expected to grow in the coming period. EBITDA margin in exports is expected at 18-21%
  • Order backlog was at | 3389 crore of which order backlog for defence segment was at | 817 crore and | 2572 crore is from Coal India and Singareni coal
  • The company expects the next contract from Coal India by October 2023 and from Singareni Coal by April 2024. Till then, existing contracts in hand will be executed
  • The company has participated in various RFPs in the defence segment, which includes RFP for one of the Pinaka variants and RFP for drone based loitering munitions
  • The companys intent to offer its products for space applications has also started showing results after the successful launch of Vikram S and static test of PSOM XL rocket motor made for Isro
  • Volume growth is expected at 15-20% even in the international markets
  • Working capital days were at 100 as of December 2022 and expected to be 90-100 days for FY23E
  • Capex during 9MFY23 was at | 350 crore and is expected to be | 450-500 crore for full year FY23
  • Capex for the next two years is also expected to be | 450-500 crore per annum, mainly for increasing defence portfolio and increasing geographical presence
  • Commercial production at Australia facility is expected to start by Q1FY24. Indonesian unit is already started partially and is expected to start fully by Q1FY24




I/We, Chirag Shah PGDBM, Vijay Goel PGDBM, MBA Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.             


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