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Cholamandalam Securities
Solar Ind (Market performer)
Target: ₹1,811
CMP: ₹1728.55
Solar Industries India has reported strong set of earnings for Q1-FY22 driven by robust momentum in overseas and exports business. The only drag in performance has been the sluggish defence segment, which we believe is poised for a turnaround post the multi-mode hand grenade order wins.
SIIL is confident of increasing revenue from defence to ₹300 crore this financial year and subsequently to ₹600 crore by FY24. The strong growth will primarily be led by scale-up in domestic markets (pick-up in mining activities and revival in housing & construction sector), exports & overseas business (expansion in more countries) and defence (commencement of MMHG shipments and a healthy order pipeline).
Revenue from mining is expected to increase 25 per cent y-o-y and further to 70-80 per cent in the next three years. Strong order book, turnaround in defence segment coupled with foreign subsidiaries reaching breakeven is expected augur well for Solar Industries in FY22.
At CMP the stock is trading at 33.2x its FY23E, we revise our rating on the stock from Buy to Market Performer, with revised target price of ₹1,811 (earlier ₹1,678).
Risks: Foreign Currency impact and delay in defense sales.
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