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Chola Securities
Solar Industries (Buy)
CMP: ₹1,081
Target: ₹1,239
Established in 1995, Solar Industries is the largest manufacturer of industrial explosives and explosive initiating systems in India and has the world’s largest manufacturing facility for packaged explosives.
In Q1 FY20, net sales of SIIL grew by a meagre 1 per cent y-o-y to ₹620 crore, on account of de-growth in overseas and defence segments and softened demand for coal mining due to lower OB removal.
Revenues from explosives grew by 9 per cent y-o-y to ₹340 crore aided by growth in prices of explosives by 7 per cent y-o-y to ₹36,969/tonne, coupled with a volume growth of 2 per cent y-o-y to 92,531 MT. Revenue from initiating systems stood at ₹820mn, up 32 per cent y-o-y.
Strong order book, overseas expansion, anticipation of higher coal production and revival in mining activity and overburden removal coupled with demand from infrastructure segment will be the key growth drivers going forward. At current levels, the stock trades at P/E of 22x its FY21E; we maintain a ‘buy’ rating on the stock, assigning P/E of 26x to FY21E EPS to arrive at a target price of ₹1,239.
Risks: Political risk at overseas facilities, spike in prices of ammonium nitrate are amongst the key concerns.
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