Comments
ICICI Securities
Solar Industries (Hold)
CMP: ₹872.85
Target: ₹940
There can be disruption in business activity due to Covid-19, which prompts us to reduce our estimates as below:
We have factored-in about 16 per cent y-o-y decline in bulk and cartridge volumes for India business in FY21E.
We have adjusted costs (employee and other expenses). With the sharp disruption in business activity, control over costs is natural and should be expected.
We have also reduced our estimates of overseas revenue by 16 per cent for FY21E/FY22E. We do see a risk of recovery in FY22E being sharper than expected.
We have not changed our defence revenue and profit estimates.
We have also reduced our capex estimates for India and abroad. We estimate capex at ₹210 crore against ₹260 crore earlier. This improves the cash position of the company. The reduction in capex estimates is not guided by management.
Risks: Reduction in estimates takes the FY21E PAT estimate closer to FY17/FY18. Overcapacity in the domestic explosive industry, coupled with Coal India’s high bargaining power leading to pricing weakness, remains an overhang on Solar Industries. Improving global mining capex is a key tailwind, which will augment the company’s overseas operations.
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