Solar Industries is seeing nig opportunity in defence sector and has already invested Rs 156 crore in this space. A leading manufacturer of industrial explosives, the company reported a 33.21 percent increase in consolidated net profit in the quarter ended September to Rs 32.25 crore against Rs 24.21 crore in the year ago period.
Speaking to CNBC-TV18 post earnings, CFO Nilesh Panpaliya said exports contributed almost 30 percent to revenue. The company expects 25 percent growth in this segment. The total revenues of the company rose to Rs 318 crore from Rs 273 crore in the corresponding period last fiscal, registering a growth of 16.44 percent.
Below is verbatim transcript of the interview:
Q: Can you maintain this 25 percent run rate that you have seen in the first half of the year in terms of revenues for the full year?
A: We have maintained a sales growth of almost 16 percent as Q2 is always a weak quarter for explosive industries because of monsoon season but we could still see a growth of 16 percent. However, our net profit has increased by almost 33 percent.
Q: We have seen a lot of thrust from the new government in the defence sector. How much do you sell to the defence sector and given that this segment will see a big boost, how much can you capitalise because of that?
A: Yes, the government is giving thrust to the defence projects and in line with that our company has set up manufacturing facilities to manufacture high molecular explosives that is HMX and propellants for Pinaka and Akash missiles.
Now our facilities are ready and even we have participated in the tenders for HMX and we are hopeful to receive these tenders in the last quarter of this year.
Also, we have participated in the limited tender floated for Pinaka and Akash missiles and the orders are also expected in Q4. We are positive about private participation in defence.
Q: How much have you invested in this facility and for these Pinaka missiles what kind of order book are we talking about?
A: Our total capital expenditure for defence is around Rs 156 crore till date and our total planned investment is around Rs 220 crore that is to manufacture 50 metric tonnes of HMX and 10,000 numbers of propellants.
Now the tender quoted for the propellants was around 500 units for Pinaka and around 700 units for Akash.
Q: Can you put that in terms of rupees and crores, what does the order book currently stand at? What kind of deal pipeline are you currently chasing?
A: We have just participated in the tender and so, once we get this tender we can tell you the order size.
Q: What is your current order book?
A: This is the first time we will be supplying to a defence project.
Q: Any export orders that you are seeing in the defence sector? What is the contribution of the exports to the overall business and how much do you see that part growing?
A: Our total contribution to revenue is almost 30 percent which comes from overseas units and export. We do see this growing at 25 percent plus growth rate.
Q: Is this a growth rate that you have been seeing in the past as well or do you think there would be fresh surge coming in from exports?
A: There will be a fresh thrust coming in but right now because of Ebola problem in western Africa and some problems in gulf countries, so there is a slowdown in export. But going ahead we do see a substantial growth in exports.
In the past also we have grown at more than 20 percent but now the way things are, we are seeing a 25 percent plus growth rate in exports and overseas.
Q: You have managed to improve your margins in this quarter, it currently stands at around 18.5 percent. What led to the margin improvement and what will be a sustainable margin rate for the company?
A: Sustainable margin is 18-19 percent and we have been able to improvise this by taking cost cutting measure in our company and efficient production.
Q: The government of Maharashtra has granted your company mega project status for your defence project which involves an outlay of close to Rs 400 crore. How did this really help you in terms of either getting in more projects, execution?
A: Defence projects have substantial amount of gestation period ahead. Getting some benefits from the government and incentives definitely helps us for the project viability.
Q: Any more tenders that you have participated in from the governments end?
A: No. We are participating in the tenders which are floated by Coal India limited for their explosives requirement.
Now the defence tenders that will be coming up for HMX and propellant, Akash and Pinaka will be regularly participating and of course there are few compounds of HMX, we will be participating in those also.
Q: What is the current market share of the company in industrial explosives?
A: Present market share is close to around 27-28 percent.
Q: How has this changed?
A: If you talk about 2006-2007 we were at hardly 4-5 percent, from there till now we have grown.
Q: You supply products to the mining industry as well?
A: Yes. We do supply to the mining industry.
Q: Since we have seen a bit of a recovery in the mining industry especially down south, what is the contribution that comes from that pocket and how much can that grow?
A: Down south we are present in Singareni Collieries. Recently, we have set up one more facility there at Kothagudem for our bulk plant and yes the mining IIP growth has been 2.64 percent and even Coal India has shown a growth of 5.3 percent in the first half. All this is helping us to increase the revenue accordingly.
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