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Solar Industries India Ltd>
  • CMP : 9,997.6 Chg : 51.65 (0.52%)
  • Target : 0.0 (-100.0%)
  • Target Period : 12-18 Month

04 May 2022

About The Stock

: Solar Industries (SIL) is the largest manufacturer of industrial explosives and explosive initiating systems in India.  It has a capacity of ~300,000 MT/year. It holds reasonable market share in India of ~28%  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


Solar reported handsome numbers in Q4FY22.  Revenue for quarter came in at ₹ 1316.9 crore, up 66.4% YoY & 29.4% QoQ  EBIDTA margins came in at 20% vs. 20.8% YoY & 17.5% QoQ. EBIDTA came in at ₹ 262.8 crore, up 59.7% YoY & 47.7% QoQ  PAT (post minority interest) was at ₹ 167.9 crore in Q4FY22 vs. ₹ 84.5 crore in Q4FY21 and ₹ 102.1 crore in Q3FY22

What should Investors do?

Solar is expected to perform decently, going ahead, but we believe the price reflects this.  We maintain our HOLD rating on the stock

Target Price Valuation

We value the stock at ₹ 2900, valuing the business at 40x FY24E earnings.

Key Triggers for future price performance

Better performance from overseas subsidiaries on the back of strong demand and economic activities returning to normal  Defence and export segments picking up due to addition of new products

New Stock Ideas

We also like NRB in our capital goods coverage.  It offers a play on needle roller bearings, which are largely used in auto applications.  BUY with a target price of ₹ 220 per share i.e. 18x P/E on FY24E EPS.

Q4FY22 Earnings Conference Call highlights

The company has achieved highest ever yearly revenue of | 3948 crore, and achieved a staggering 57% YoY compared to earlier 45% estimated earlier. Out of this 57% growth 25-27% is through volume growth and rest is through price growth. The company has revised its growth guidance to ~27-30% in FY23. SIL has announced a dividend a | 7.5 per share  Government initiative like Housing for All, Gati Shakti, Atmanirbhar Bharat, indigenisation of defence products and better performance from mining and infra are also expected to boost the company’s performance  The company has set a target of 18-20% EBITDA margin in FY23 due to rising commodity prices and disruption in freight charges but in FY24 it is expected to reach 20-21%. The company will pass on some part of higher raw material prices to its customers in coming quarter  Defence segment is set to achieve a revenue of | 400-450 crore in FY24, current order book stands at | 475 crore. The company is qualified for Advance Pinaka for which testing has been done and will be front runners for manufacturing. The company’s strategic investment in Z Motion will provide an advantage in armed UAVs  Prices of ammonium nitrate have surged about 80% in FY22 and current geopolitical tension between Russia and Ukraine will add more pressure as Russia is one of the biggest supplier on ammonium nitrate (AN). Domestic market has ramped up production. Hence, availability of AN will not be an issue  SIL has incurred a translation loss of | 180 crore along with forex and provision reversals gains of | 30 crore  Overseas segment continues to perform better as South Africa is close to attain breakeven on EBITDA and the company has started manufacturing facility in Australia  Currently export and overseas is contributing ~37% of revenues and is expected to achieve 40% in coming quarters. Defence segment will contribute around 15-18% of revenue in coming quarters as the company has added 20 new products in its portfolio, which includes ignitors, rockets, fuses and missiles  The company has a capex guidance of | 400-450 crore in FY23 out of which around | 160 cores will be in defence segment, | 100 crore will be in overseas segment and rest will be for geographical and product portfolio expansion in India. Working capital days have been reduced from 108 days in FY21 to 90 days in FY22  Current order book of SIL is at | 2982

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