Dec 01, 2016 01:22 PM IST IST | Source: Moneycontrol.com

Buy Solar Industries; target of Rs 697: ICICI Direct

ICICI Direct is bullish on Solar Industries has recommended buy rating on the stock with a target price of Rs 697 in its research report dated November 25, 2016.


ICICI Direct's research report on Solar Industries

In Q2FY17, SIL witnessed weak demand for its explosives from large players like Coal India (down 24% QoQ) and Singareni Collieries Company (down 8.4% QoQ). According to the management, growth is likely to pick-up in subsequent quarters. However, we believe it is unlikely to meet earlier guidance of 20-25% growth for full year FY17E. Accordingly, we have revised our estimates downward, both in the bulk & cartridge segments. We now estimate value growth of 16.9% CAGR (earlier 24%) in the bulk segment and 8.9% CAGR (earlier 12%) in the cartridge segment in FY16-18E.

Over the past two or three years, SIL has commanded premium valuations mostly due to accelerated growth in its key segments – bulk (22% CAGR in FY12-16) and cartridge (12% CAGR in FY12-16). Anticipation of higher coal production in India, pick-up in cartridge due to pick-up from private infrastructure players, higher exports and improved visibility of orders from defence segment also helped maintain the momentum. Despite subdued performance over the past two quarters, we believe SIL’s earnings will grow, albeit at a slower pace of 18.5% CAGR in FY16-18E (vs. 20.6% earlier). We continue to value SIL at 27x FY18E EPS of Rs 25.8 to arrive at a target price of Rs 697/share. We maintain BUY recommendation on the stock.

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