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Target: ₹3,400
CMP: ₹2,689.45
We expect the healthy growth prospects of Solar Industries India (SOIL) to continue, led by robust demand of packaged explosives, rising scale in overseas markets and increasing ramp-up of defence segment. In its recently released FY22 annual report, the management has re-iterated its aim to deliver 30 per cent y-o-y revenue growth in FY23, despite a high base (FY22 saw 57 per cent/60 per cent y-o-y revenue/PAT growth, respectively).
The key growth drivers highlighted were (1) rising capex in India for infrastructure, real estate, mining and allied industries, (2) widening presence in overseas markets through new plants and (3) a scale up in the defence business led by government’s accelerating indigenisation and SOIL’s broadening product portfolio.
We expect the growth momentum to continue in Q1FY23 as well and note that the Ammonium Nitrate (AN) prices have remained firm in Apr-June’22 on QoQ basis and hence realisation of explosives is likely to remain high.
The valuations are likely to remain rich as Solar Industries offers market leadership, strong growth prospects and robust margin profile in a licensed-controlled explosive industry with high entry barriers and imminent defence scale-up.
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