Solar Industries India (SIL) is the largest manufacturer of industrial explosives and explosive initiating systems in India. The Nagpur-based company has licensed capacity of 4,02,000 tn with its plants across the country. The company’s offerings include bulk and packaged (cartridge) explosives, apart from a wide array of initiating systems comprising detonators, detonating fuses and cast boosters. SIL currently owns and operates the world’s largest single-location manufacturing capacity for cartridge explosives besides India’s largest manufacturing capacity for bulk explosives. Over the past three decades, SIL has gradually expanded its product offerings from cartridge to bulk explosives and from detonators to detonating cord and cast boosters. The recent addition to its vast bouquet of products were multi-layer shock tubes, underground bulk explosives, explosives for military application, pyrotechnics, propellants and ammunition developed through intensified efforts of state-of-the-art R&D centre. Hence, SIL has significantly widened its bouquet of products and is today a one-stop-shop for industrial explosives. Currently, SIL has 25 manufacturing facilities, spanning 10 states across India and 3 overseas units - in Zambia, Nigeria and Turkey. It also supplies to corporate giants such as Steel Authority of India, Oil and Natural Gas Corporation, Tata group, Adani group, Jindal group, Vedanta, Reliance Power, NHPC, Aditya Birla Group, etc. SIL is the largest exporter of explosives from India, supplying to more than 22 countries. The company has also taken a strategic leap into the defence sector recently through the execution of some early orders in this space. Looking forward, the defence foray offers immense scope for growth. Solar Industries is the India’s largest manufacturer of industrial explosives and initiating systems. Having complete explosives range with a presence across product value chain. It has the World’s largest single-location cartridge manufacturing facility at Chakdoh near Nagpur. It is the India’s first private sector company to obtain the licence for setting up manufacturing facilities for HMX (a warhead explosive) and HMX compounded products. SIL has displayed similar attributes in the past decade since its listing on the bourses. SIL became the largest player in 1 mt domestic industrial explosives market over a period of past 10 years with its volume market share at 2.5 x from 10 % in FY06 to 25 % in FY16. SIL has grown at higher-than-industry rate over the same period. SIL’s average volume CAGR across bulk and cartridge explosive, detonator and detonator fuse was 13 % over FY09-FY16 against Indian explosives industry’s average volume CAGR of 7 % over the same period. The company successfully managed to keep competition at bay on account of its ability and intention to keep investing in the business, rationalise the cost structure to remain cost-competitive in fact it achieved the leadership position by going for backward integration, widening its product portfolio and maintaining strong client relationship. SIL offers the widest portfolio of products with end-to-end solutions and maintains its numero uno position as an industrial explosives and initiating systems supplier to largest consumer of explosives in the country, Coal India, for the past few years. SIL satisfies nearly 30 % of the explosives requirement of Coal India. Moreover, after opening up of India’s defence sector for private players, the company is eyeing multibillion dollar Indian defence space which is being catered to by either government owned defence establishments or through imports. After consolidating its position in India, the company successfully moved to other big explosive-consuming markets by setting up plants in Zambia, Nigeria and Turkey over the past five years. It is now in the process of setting up a plant in South Africa. The company has realised the importance of global opportunity (more than US$10bn) and taken steps to grab the share through overseas expansion and focus on exports. SIL possesses wide moats in the form of industry leadership, significant entry barriers, optimal product mix and carefully pre-planned capacity additions to benefit the most from the revival in mining & infrastructure activity. Even in the export & overseas business, SIL has just scratched the surface of growth, with many more un-penetrated markets yet to be explored. New business segments like defence business will further solidify SIL’s business model at a time when government’s prerogative is to indigenise defence manufacturing, which will allow SIL to scale the defence business at a faster pace. Even during times of moderate business environment, SIL had witnessed robust revenue CAGR of 40 %, over FY12-16, backed by a strong 15 % volume CAGR (bulk + cartridge) coupled with capacity expansion and market share gains. This speaks for the pedigree of the management and business model that has evolved over time and reiterates our confidence on the company to capture onto the upcoming opportunity with the revival in industrial activity. Hence, SIL is a rare combination of excellent growth track record, proactive management, conservative leverage approach, expanding margins & return ratios and a 20 %+ growth guidance from the management for the next three years. The company is expected to generate better cash flows with cash flow from operations (CFO) improving from Rs. 157.3 crore in FY15 to Rs. 210 crore in FY18E. CFO is likely to remain subdued in FY17E due to higher capex of Rs. 135 crore in FY16-17E. The same is likely to continue as the management has guided for higher capex of Rs. 200 crore for FY17E-18E. The FCF is also expected to grow to Rs. 50 crore in FY18E. The CFO/EBITDA, a measure of quality of earnings, is also expected to stabilise at 0.5 x in FY18E. With the robust performance, the company looks forward to a future full of promise. All the sectors which form company’s consumer caucus - mining, infrastructure and construction - are witnessing policy changes that are expected to result in structural strengthening and phenomenal growth. This gives plenty of reason to be optimistic. The defence sector too, which is moving strategically from imports to domestic sourcing of its requirements, has opened up colossal opportunities for company. At the current market price of Rs. 681.10, the stock is trading at a PE of 32.74 x FY17E and 25.22 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 20.80 in FY17E and Rs. 27.00 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
|SALES (₹ Crs)||1,344.70||1,532.80||1,757.40||2,149.80|
|NET PROFIT (₹ Cr)||147.40||166.10||188.30||244.80|
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!