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Edelweiss
Solar Ind (Buy)
CMP: ₹1,091.15
Target: ₹1,244
Solar Industries’ (SOIL) Q4FY18 results were encouraging with consolidated sales/EBITDA/PAT growth of 30 per cent/29 per cent/21 per cent coming in line with estimates.
We had turned bullish on the stock last quarter following revival in growth led by: 1) SOIL’s successful foray into global markets; 2) visible pick up in its long-stalled defence business; and 3) sustained volume-led growth in core business. Going ahead, management is confident of clocking ~25 per cent revenue growth with stable margins in FY19.
Defence order book stood at ₹250 crore and management expects ₹200 crore revenues from this segment in FY19. New markets such as Australia and South Africa will support overseas revenues, while pick up in volume growth from Coal India domestically will aid growth in FY19 coupled with price-led growth of about 5 per cent (negative in FY18).
We expect the stock to continue to fetch premium valuations with the impending uptick in return ratios — RoCE of 32 per cent by FY20E (21 per cent in FY18).
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