Welcome to Sana Securities! Login | Subscribe Now.

Solar Industries Stock Analysis

HomeSolar Industries Stock Analysis

ABOUT THE COMPANY

Current Price – Rs. 3139 | View: Buy

Solar Industries India Ltd. manufactures, markets and exports industrial explosives and initiating systems to 20 countries, including in India, Central and South East Asia, North and Sub-Saharan Africa and to the Mediterranean, as well as the Middle East.

solar industries revenue breakupManufacturing Capacity

Solar Industries has the largest manufacturing capacity for explosives in India. The Company manufactures its products at 25 manufacturing facilities across 10 states in India, and at 3 overseas units in Nigeria, Zambia and Turkey.

PRODUCT DETAILS

Product

Capacity

Bulk Explosives

2,75,357 MTPA

Cartridge Explosives

1,25,000 MTPA

Detonators

190 Mn. Units

Detonating Cord

75 Mn. Metres

PETN

1,650 MTPA

Cast Booster

1,500 MTPA

Styphnic Acid

10 MTPA

HMX and HMX Compounds

50 MTPA

Composite Propellants

250 MTPA

Clients

Coal India, The Singareni Collieries Company, ONGC, NHPC, MOIL, Vedanta, Hindustan Zinc, SAIL, Jindal Steel & Power, ACC, Ultratech Cement, Lafarge.

KEY FINANCIAL FIGURES (in Rs. Cr.)                                                                                                                                                             

 

FY2011

FY2012

FY2013

FY2014

FY2015

Total Income from Operations

679.88

967.58

1,121.81

1,132.96

1,351.89

Expenses

558.00

796.54

931.82

929.98

1,097.88

EBITDA

121.88

171.04

189.99

202.98

254.02

Depreciation

8.50

12.78

16.97

21.87

31.45

Finance Costs

12.76

23.58

30.86

17.86

17.85

Other income

26.59

23.64

20.02

11.16

7.90

Exceptional items

(0.83)

4.37

10.02

10.00

10.00

PBT

128.05

153.96

152.15

164.41

202.62

Tax

45.10

42.55

25.72

34.90

46.28

PAT

82.96

111.41

126.43

129.50

156.33

Profit/ (loss) attributable to Minority Interest

7.36

10.21

10.14

11.06

8.93

Share of profit/ (loss) of Associates

0.00

0.00

0.00

0.00

0.00

Profit / (Loss) for the year

75.60

101.20

116.29

118.44

147.41

 PROFITABILITY ANALYSIS (in %)

 

FY2011

FY2012

FY2013

FY2014

FY2015

Operating Profit Margin Ratio

17.93

17.68

16.94

17.92

18.79

Net Profit Margin Ratio

11.12

10.46

10.37

10.45

10.90

 KEY BALANCE SHEET FIGURES  (in Rs. Cr.)

 

FY2011

FY2012

FY2013

FY2014

FY2015

Share Capital

17.32

17.32

18.10

18.10

18.10

Reserves & Surplus

298.72

387.28

554.61

643.48

757.78

Net worth (shareholders funds)

316.04

404.60

572.70

661.57

775.88

Minority

27.45

37.80

40.54

38.10

47.14

Long Term Borrowings

161.68

82.60

67.27

152.37

155.93

Current liabilities

139.02

353.31

405.30

472.12

364.70

Other long term liabilities and provisions

1.46

1.47

1.32

1.19

Deferred tax liabilities

16.92

19.61

20.69

27.01

44.35

Total Liabilities

661.11

899.38

1,107.97

1,352.49

1,389.19

  

 

FY2011

FY2012

FY2013

FY2014

FY2015

Fixed Assets

221.83

337.95

433.07

571.92

645.91

Noncurrent Investments

12.26

8.62

9.52

10.17

7.73

Current assets

418.21

441.22

568.96

665.68

610.09

Long term advances and other noncurrent assets

5.54

111.60

96.42

104.72

125.45

Goodwill

3.27

Total assets

661.11

899.38

1,107.97

1,352.49

1,389.19

 EFFICIENCY ANALYSIS (in %) 

 

FY2011

FY2012

FY2013

FY2014

FY2015

ROCE

24.13

32.58

27.92

23.82

25.95

ROE / RONW

23.92

25.01

20.31

17.90

19.00

VALUATION ANALYSIS

 

FY2011

FY2012

FY2013

FY2014

FY2015

Total Income from Operations

(Rs. Cr)

679.88

967.58

1,121.81

1,132.96

1,351.89

Growth (%)

42.32 %

15.94 %

0.99 %

19.32 %

PAT (Rs. Cr)

75.60

101.20

116.29

118.44

147.41

Growth (%)

33.86 %

14.91 %

1.85 %

24.46 %

Earnings Per Share – basic

43.64

58.42

65.47

65.44

81.45

Earnings Per Share – diluted

43.64

58.42

65.47

65.44

81.45

Price to Earnings

13.38

14.30

15.74

13.46

41.65

INVESTMENT RATIONALE

Opportunity in the Defence sector

The Government’s ‘Make in India’ programme, and its decision to allow private companies into the highly regulated defence sector, has opened the door for private companies like Solar Industries to a massive opportunity in this segment.  Solar Industries is the first private company to obtain a license for setting up manufacturing facilities of HMX (a warhead explosive) and HMX compounded products.

The Company has supplied 13 tons of HMX and HMX compounded products to Terminal Ballistics Research Laboratory (TBRL) and Bharat Dynamics (BDL) as a first commercial supply in defence space till Q2 FY 2016. Solar Industries has received Rs. 72 Cr. of orders in the defence space in Q3 FY16.

The Company is also planning to invest Rs. 800 Cr. to manufacture bi-modular charge systems (BMCS) in India and is planning to set up a new factory in Nagpur with an initial capacity of 5 lakh rounds of shells per year. 

BMCS is a vital artillery requirement — essentially it is the explosive that propels shells to distances of over 30 km. Each shell fired by an artillery gun requires three or more charges.

Well Positioned | Diversified Product Portfolio

solar industries market shareSolar Industries is the largest manufacturer of industrial explosives and initiating systems in India, with ~25% market share (FY15) in terms of volume. Over the past one year, the Company has expanded into all segments of explosives including bulk, cartridges, detonators, detonating fuse, HMX, and propellants.  

Solar Industries has also backward integrated into manufacturing raw materials like Pentaerythritol Tetranitrate (PETN – used in detonators), sodium nitrate, calcium nitrate, zinc nitrate, and stypnic acid. This has enabled the Company to enjoy stable margins.

Growth Prospects of Explosives Industry

Revving up domestic mining efforts

Demand for explosives is directly correlated to mining activity. The MINING SEGMENT CONTRIBUTES ~85% OF THE EXPLOSIVES DEMAND IN INDIA. WITHIN MINING, COAL SECTOR IS THE LARGEST CONTRIBUTOR, ACCOUNTING FOR ~70% OF THE MINING SECTOR’S EXPLOSIVES USAGE. Recent developments with respect to the coal blocks and new mines, as sanctioned in the new liberal mining policy will increase the demand for explosives. The Government of India has also set a coal production target of 1.35 billion tonnes by 2020, which includes 1 billion tonnes of production for Coal India. This target will imply a huge boost for the industrial explosives sector over the next 4-5 years.

Demand from Overseas business

Solar Industries currently exports explosives to 20 countries and has a dominant market share of 43% in explosive exports from India. The Company’s export and overseas sales constituted 27% of the total sales. For Q3 of 2016, export sales grew by ~ 65% over previous period.

Solar Industries has set up manufacturing operations in key markets with large demand potential. Currently, the Company has manufacturing operations in three countries: Zambia, Nigeria and Turkey. Recently, it commenced sales to nearby countries like Tanzania and Mozambique, leveraging its manufacturing base in these regions.

INVESTMENT CONCERNS

Highly Regulated Industry | Need For Several Licenses and Approvals

Manufacturing an industrial explosive is strictly regulated – a number of approvals and licenses are required. Also, the manufacturing, marketing, transportation and consumption are governed by various departments and regulations.

Industrial explosives: Key licenses and approvals required

  • Industrial license from Department of Industrial Policy and Promotion, Government of India
  • Clearance from Home Ministry
  • Clearance from Intelligence Bureau regarding the location’s safety and Directors antecedant
  • NoC from District Magistrate after clearance by Police, PWD and Gram Panchayat
  • License from Chief Controller of Explosives, Government of India
  • Directorate General of Mines Safety’s permission is necessary for underground gassy mines

Lower Volume Growth Due To Slowdown In Mining & Infrastructure

Coal mining & infrastructure currently account for 51% of Solar Industries’ revenues. Non-Coal India institutional clients (mostly metal & steel sector) account for 18% of the Company’s revenue. Coal India’s alone contribution to Solar Industries’ revenue is approx. 33% in FY 2015. Any slowdown in mining, power & infrastructure sectors can affect Solar Industries’ volume growth negatively.

Accidents are Lethal

Explosives business is prone to accidents given the nature of products manufactured and raw material handled. In the explosives industry, 18 accidents were reported under the Explosives Act in FY 2014 alone. Any such explosions are naturally unpredictable and will have a negative impact on the Company’s business, results of operations and the stock price.