Buy Solar Ind; target of Rs 976: KRChoksey

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Buy Solar Ind; target of Rs 976: KRChoksey

KRChoksey is bullish on Solar Industries India and has recommended buy rating on the stock with a target of Rs 976 in its August 2, 2011 research report.

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KRChoksey is bullish on Solar Industries India and has recommended buy rating on the stock with a target of Rs 976 in its August 2, 2011 research report.

"Solar has clocked Net Sales of Rs 242cr during Q1FY12 which is up 51% Y-o-Y and 20% Q-o-Q. Explosives sales has gone up by 49% Y-o-Y (Rs 207cr vs Rs 139cr) while trading income has gone up by 57% Y-o-Y( Rs 34.5 cr vs Rs 22cr). Explosives sales in rupee terms has grown 52% Y-o-Y while accessories sales has gone up by 35% on back of volume growth of 34% and 11% respectively. Remaining growth has been contributed by growth in realization."

"Operating Profit in Q1FY12 stands at Rs 39.33 cr which is up 32% Y-o-Y but operating margin has gone down by 246 bps (16.09% vs 18.55%). Adjusting for trading income Q1FY12 saw raw material cost at 60% of sales compared to 47% in Q1FY11. Key reason for high raw material cost is change in sales mix during the quarter in favour of Bulk explosives. Bulk explosives volume has gone up by 56% Yo- Y. Ammonium Nitrate comprises of 70-75% of total raw material cost for bulk explosives compared to 60-65% for cartridge explosives. Ammonium Nitrate Price has gone up by 30% Yo- Y (USD 390/Ton vs USD 300/Ton) .Pass through of the hike in raw material takes place with the lag of a quarter . Combined impact of all these factors led to contraction in operating margin by 246 bps Y-o-Y. Net profit for Q1FY12 is up 39% Y-o- Y (Rs 26.64cr vs Rs 18.02cr) but net margin is down by 30 bps (10.89% vs 11.19%) in spite of 90% increase in other income. This is actually reflection of the Operating margin trend for the quarter."

"We have used SOTP method to value Solar Industries where we are valuing Core business at 13xFY12e EPS and Coal blocks on NPV basis. Our 12month price target for Solar Industries comes out to be Rs 976, which gives upside potential of 34%," says KRChoksey research report.  

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To read the full report click on the attachment