Accumulate Solar Industries India; target of Rs 985: KR Choksey
KR Choksey recommended buy rating on Solar Industries India with a target price of Rs 985 in its research report dated August 04, 2017.
KR Choksey's research report on Solar Industries India
Total Sales stood at INR 5021 Mn which was up by 14.2% Y-O-Y and 4.3% Q-O-Q, which stood in-line with our estimates of INR 5,062 Mn. EBIDTA stood at INR 1,010 Mn which was up by 16.4% Y-O-Y and 12.7% Q-O-Q and EBIDTA margin stood at 20.1% as against 19.7% in Q1FY17 and 18.6% in Q4FY17. EBITDA margins stood higher than our estimate of 18.9% owing to lower than anticipated other expenses. Adj. PAT stood at INR 548 Mn which was up by 16.3% Y-O-Y and remained flat Q-O-Q. PAT Margin stood at 10.9% and was below our estimate of 12.2% primarily on account of lower than expected other income.
The company’s bulk and cartridge explosives segment continued to outperform as against the industry growth rate. Commissioning of South African plant, expected entry into the Australian market and stability in other export markets provide better revenue visibility for the company. SIIL’s defence foray continues to remain niche with growing potential on account of Government of India’s “Make in India” drive. We believe that smooth execution of defence orders will lead to re-rating of the stock. SIIL over the last two years (FY15, FY16) has traded at an average forward PE of 26x. We factor in the increased domestic infrastructure activities, ramp-up in domestic coal production on account of reduction in imports and growing potential of the defense segment of the company and assign a P/E of 30X on its FY19E earnings of INR 32.8 resulting into a target price of INR 985/share. We maintain our “ACCMULATE” rating on the stock. At CMP of INR 883, SIIL trades at 41.3x FY17 EPS of INR 21.4, 31.2x FY18E EPS of INR 28.3 and 26.9x FY19E EPS of INR 32.8.
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