Jitendra Kumar Gupta Moneycontrol Research
Solar Industries clocked close to 32 percent growth in sales during the quarter ended June 2018, even in a slightly dull environment, thanks to its timely diversification.
Its explosive business, which accounts for 51 percent of its sales, saw 9 percent year on year growth sales volumes, which along with 7.5 percent growth in realisations helped it deliver a strong set of numbers.
Overseas revenues and exports, which account for about one-third of the sales, posted a strong 32.1 percent growth in sales to Rs 237 crore.
In the domestic market, housing and infrastructure have been the key drivers, as the segment reported close to 33 percent growth in sales to Rs 163.3 crore. Construction of roads and other allied activities is leading to higher demand for explosives.
Its other important segment (which is supplying of explosives to coal mining companies such as Coal India and others) saw a strong 26 percent year on year growth in sales, which is a result of higher off-take and production reported by Coal India and other mining companies in the recent months.
Because of the higher scale and control of over the related manufacturing costs, the company was able to restrict cost pressure. During the June quarter, the company reported 90 basis points decline in EBIDTA to 20.9 percent, which was largely to do with the forex translation loss of Rs 12 crore. Further, higher interest cost and marginal increase in depreciation had an impact on profitability, as a result of which, net profits grew by 27.1 percent to Rs 69.6 crore.
Outlook and valuations
Earlier in 2017, Coal India had placed a bulk order of Rs 11,400 crore with the Solar Industries. Part of this order, which is about Rs 8,000 crore is still pending to be delivered over the next two years.
That apart, in the overseas business, the company is expanding in various markets like South Africa, Zambia, Turkey, Nigeria and others. It is expecting the overseas revenues to treble by the end of FY20. During FY19, it is expecting to commission manufacturing facilities in Ghana and Australia.
Considering these factors, growth across customers are expected to remain strong particularly in the defence, overseas markets and mining. At the current market price Rs 1285, its stock is trading at 24 times it FY20 estimated earnings, which is reasonable in the light of growth in revenues and improvement in return ratios.
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