MOSL: SOLAR INDUSTRIES (Neutral)-Operating performance impacted by weak margins
Solar Industries: Operating performance impacted by weak margins; Revenue growth supported by volumes, realization improvement
(soil IN, Mkt Cap USD1.3b, CMP INR991, TP INR1125, 14% Upside, Neutral)
- Operational performance below expectations: 3QFY19 Consol. revenue increased 40.2% YoY to INR6.5b (our estimate: INR5.9b), supported by 15% volume growth and 25% realization growth. EBIDTA grew 17% YoY to INR1.2b (below expectation). Margin contracted 380bp YoY to 18.6%, below our estimate of 21.5% due to (a) raw material price (ammonium nitrate) increase not being completely passed on to the end consumer, (b) forex loss of INR55m being impacted by INR appreciation, and (c) INR75m provision on account of ECL. Adj. net profit grew 28% YoY to INR686m, ahead of our estimate of INR665m on account of lower-than-estimated tax rate (23% v/s our estimate of 32%). In 9MFY19, revenue/EBIDTA/PAT grew 33%/22%/22%.
- Revenue growth across categories supported by strong realization improvement: Consol. revenue was driven by the robust performance of overseas and export segment (+42% YoY). On the domestic front, 3Q saw robust demand from the infra and housing space (+38% YoY), and CIL (+50% YoY). Robust growth from CIL was supported by (a) weak base of 3QFY18 (-21% YoY), and (b) better realizations (+25% YoY) due to higher ammonium nitrate prices. SOIL expects growth from CIL to remain robust.
- Defense showing traction: Revenue stood at INR409m (v/s INR99m in 3QFY18), led by better execution of orders in hand. SOIL expects revenue contribution to reach INR2b in FY19 from INR378m in FY18. Defense order backlog stands at INR4.3b, which it expects to execute by end-FY20.
Solar Industries India Limited is an explosives manufacturing company. The Company manufactures, supplies and exports industrial explosives and initiating systems. It manufactures various explosives products, such as Slurry and emulsion base explosives, bulk explosives, detonators, pentaerythritol tetranitrate (PETN) and accessories. The Company's products include Large Dia slurry Explosives, Small Dia Emulsion, Small Dia Slurry Explosives, Solar Detonators, Supreme Detonators, Supreme Electric Detonators, Economic Sod, Eco Det, Cord Relay, Cast Booster and Detonating Fuse. Its products are used across mining and infrastructure sectors. It also offers high melting explosive (HMX) and HMX Compounded products to the defense sector. The Company has 25 manufacturing plants eight states in India and three in overseas locations. The Company offers its products to 42 countries across the globe. The Company has manufacturing facilities at Zambia, Nigeria and Turkey.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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