Solar Industries India Ltd. share price target

Background Established in 1984, Solar Industries is the largest manufacturer of industrial explosives and explosive initiating systems in India. With a licensed explosives capacity of over 290,000 MT/annum, the company has ~28% market share in India. Solar, with a 70% market share in exports from India, exports to 19 countries in Africa and South East Asia. Economic Explosives, a 100% subsidiary, manufactures detonators. Solar has manufacturing facilities spread across 16 locations and eight states in India. In recent years expanded its manufacturing base to Nigeria, Zambia and Turkey. SIIL has also interests in the coal mines (in Chattisgarh) through two JVs. Solar is...

Solar Industries (SIL) reported weak Q2FY17 numbers as the company witnessed a decline in bulk segment volumes by 9.3% YoY coupled with weak volume growth in cartridge segment at 22.3% YoY. The company also witnessed a translation loss due to currency devaluation in Nigeria and Turkey to the tune of | 11 crore in Q2FY17...

Solar Industries India Ltd (SIIL), the market leader in industrial explosives and largest Indian exporter, is poised to sustain its fast paced growth on the back of its leadership position with a well diversified product portfolio, overseas expansion, entry into the defence sector, helped by strong client relationships with low cost realization. SIIL holds a ~22% market share of the domestic industrial explosives and a ~55% of market share in international industrial explosive. Coal India is the largest client of SIIL and contributed ~24% of revenue in Q1FY16, even as SIIL diversifies its customer base, increasing its footprint in the industry. We estimate consolidated revenue to grow at ~17% CAGR over FY16-18E, resulting in...

Net sales grew 10.6% YoY to INR 4.2bn in 1QFY17 vs INR 3.8bn in 1QFY16 led by robust volume growth of 36.7% YoY in cartridge from 22,426MT to 30,665MT and 10.7% growth in bulk explosive segment from 43,224MT to 47,843MT; exports revenue grew 16.5%YoY. The company’s has consistently reduced its reliance on CIL (Coal India Ltd) for revenues diversifying its customer portfolio. Consequently, customer share (in terms of revenue) stood at – CIL (24%), Non CIL & Inst (20%), Export & Overseas (25%), Trade & Others (31%), Defense (0.35%). Moreover management highlighted that the company has INR 720mn of defense orders in the order pipeline which would be completed within the year.

Valuation: Strong order book, expected rapid revenue growth from defense and growing export revenues are the key growth drivers. At current levels, the stock trades at P/E of 23.0X its FY18E. Consequently, we rate the stock an OUTPERFORMER, assigning P/E of 26X to FY18E EPS to arrive at a target price of INR 696.

In-line operational performance: Solar Industries’ (SOIL) consolidated revenue for 1QFY17 grew 10% YoY to INR4.2b (v/s our estimate of INR4.4b), EBITDA was up 21.2% YoY to INR866m (v/s our estimate of INR836m), and EBITDA margin expanded by 170bp YoY to 20.4% led by better product mix. Better margin cartridge sales formed 35% of sales as against 29% in 1QFY16. Adjusted net profit grew 13.9% YoY to INR471m (v/s our estimate of INR486m).

Valuation : They maintain Buy rating on the stock, with a target price of INR725 and value SOIL at 30x FY18E EPS (earnings CAGR of 15% over FY16-18E) to factor in the possibility of continued strong growth, with ramp-up in mining / infrastructure activities in India, increasing penetration overseas and also an inflexion point in defence revenues. The premium valuations are also justified given that optimum revenues for defence business stands at ~INR5b (possibly ~FY20) .

Background Established in 1984, Solar Industries is the largest manufacturer of industrial explosives and explosive initiating systems in India. With a licensed explosives capacity of over 290,000 MT/annum, the company has ~28% market share in India. Solar, with a 70% market share in exports from India, exports to 19 countries in Africa and South East Asia. Economic Explosives, a 100% subsidiary, manufactures detonators. Solar has manufacturing facilities spread across 16 locations and eight states in India. In recent years expanded its manufacturing base to Nigeria, Zambia and Turkey. SIIL has also interests in the coal mines (in Chhattisgarh) through two JVs. Solar is...

Revenues came in at | 430.7 crore, up 10.5 % YoY (our estimate: | 415.5 crore) due to strong volume growth, 25.8% and 21.7% YoY growth in cartridge and bulk segment, respectively. Realisations were...

4QFY16 operational performance in line with expectation: Solar Industries' (SOIL) consolidated revenue for 4QFY16 grew by 11% YoY to INR4.3b (vs. our estimate of INR4.2b), EBIDTA was up 21.4% YoY to INR828m (vs. our estimate...

Background Established in 1984, Solar Industries is the largest manufacturer of industrial explosives and explosive initiating systems in India. With a licensed explosives capacity of over 290,000 MT/annum, the company has ~28% market share in India. Solar, with a 70% market share in exports from India, exports to 19 countries in Africa and South East Asia. Economic Explosives, a 100% subsidiary, manufactures detonators. Solar has manufacturing facilities spread across 16 locations and eight states in India. In recent years expanded its manufacturing base to Nigeria, Zambia and Turkey. SIIL has also interests in the coal mines (in Chhattisgarh) through two JVs. Solar is...