Solar - q2fy12 Results Update

KRChoksey Research is also available on Bloomberg KRCS, ThomsonReuters, Factset and Capital IQ 16th November, 2011

India Equity Institutional Research |Explosives Result Update (Mid-Cap)

Solar Industries Ltd. Rs 771

Muted Performance..Long term prospects intact BUY

Solar Industries Ltd, the flagship company of Nuwal Group is largest producer and supplier of explosives and associated devices in India. The company produces various categories of Bulk explosives, Cartridge Explosives and various types of detonating devices catering to global Metal, mining and Infrastructure companies.

Q2FY12 Performance : Below Estimates

Solar Industries posted its Q2FY12 results below our estimates with a topline degrowth of 16% sequentially and 37% growth y-o-y.

EBITDA declined 5% sequentially and PAT declined 6.3% sequentially. EBITDA Margins y-o-y improved by 198 bps sequentially and 271 bps y-o-y on the back of lower RMC.

Net Profit Margins were marginally low both on q-o-q and y-o-y basis on the back of higher depreciation cost.

Explosive sales increased 54% y-o-y with an EBITDA growth of 69%. EBITDA margins for the explosives segment surged by 310bps sequentially to 19.4% v/s 16.3% in Q1FY12. Topline from Trading segment saw a degrowth of 43% y-o-y

Other Key Highlights Nigeria plant will start production:

Solars Nigerian plant has successfully completed trial run and is expected to start production. Construction work at Turkey Plant is underway. Production from Turkey Plant will start by end of FY12/beginning of FY13E. Bhatgaon Coal Block will start production from FY14E:

Solar owns stake in two coal mines in Madanpur and Bhatgaon, both in Chhatisgarh. Madanpur Coal Block is still a No Go area while for Bhatgaon Coal Block Public hearing is complete and rehabilitation & resettlement has been accepted. The company has submitted revised mine closure plan and final clearance from MOFE is awaited. Company will start acquiring land after receiving approval. Development work is expected to start from H2 FY13E and commercial production will start from FY14E. Recommendation: We believe new capacity in Africa and Turkey is expected to augment exports leading to margin expansion, which coupled with value unlocking from coal block can lead to significant upside in the stock. We continue to maintain our BUY recommendation on Solar with a Rs 976/share valuing the core business at 13x FY13E earnings coupled with a Rs 234.9/Share NPV value assigned to the coal block, a potential upside of 26.5% from current levels. Key Financials

Particulars (Rs Crs) FY10 FY11 FY12E FY13E

Sales 557.4 679.5 876.5 1156.4

EBITDA 86.0 121.9 181.9 240.9

PAT 58.6 82.1 108.1 147.6

EPS 33.87 43.23 57.28 75.46

OPM 15.4% 17.9% 20.8% 20.8%

NPM 11.8% 12.1% 12.3% 12.8% Source: Company Data, KRChoksey Estimates

Target Price (Rs): 976 Potential Upside : 26.5% Previous TP (Rs): 976

Market Data

Shares outs (Cr) 1.73

Equity Cap (Rs Cr) 17.32

Mkt Cap (Rs. Cr) 1336

52 Wk H/L (Rs) 840/403

Avg Vol (1yr avg) 5504300

Face Value (Rs) 10

Bloomberg Code SOIL IN

Market Info:

SENSEX 16776

NIFTY 5030

Price Performance

60708090

100110120130140150

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr-

11

May

-11

Jun-

11

Jul-

11

Aug-

11

Sep-

11

Oct

-11

Nov

-11

Solar Inds Sensex Share Holding pattern (%)

Particular Sep 11 Jun11 Chg

Promoters 74.6 74.6 -

DII 14.4 14.9 -0.23

FIIs 0.1 0.4 -0.43

Public 10.8 10.2 0.66

Total 100 100 - Source: BSE

Analyst :

Hiral Daiya

[email protected]

91-22-6696 5572

www.krchoksey.com

91-22-6696 5555 91-22-6691 9569

Solar Industries Ltd.

2 KRChoksey - Institutional Research

Exhibit 1: Q2FY12 Result Snapshot (Consolidated)

Particulars (Rs Crs) Q2FY12 Q1FY12 Q2FY11 q-o-q y-o-y

Gross sales 216.8 258.0 158.2 -16.0% 37%

Excise Duty 11.9 15.6 7.8 -23.8% 51%

Net Sales 204.9 242.4 150.4 -15.5% 36%

Other operating income 1.92 2.0 0.1 -5.4% 2300%

Total Income 206.9 244.5 150.5 -15.4% 37%

(Increase)/Decrease in Stock -3.78 -9.9 -11.7 -61.9% -68%

Raw material & Traded goods 117.5 160.9 100.4 -27.0% 17%

% of sales 56.8% 65.8% 66.7% -903 bps -994 bps

Employee cost 10.2 10.2 7.79 0.4% 31%

% of sales 5.0% 4.2% 5.2% 78 bps -23 bps

Other expenditure 45.5 43.9 30.8 3.7% 48%

% of sales 22.0% 18.0% 20.5% 405 bps 153 bps

Total expenditure 169.5 205.1 127.4 -17.4% 33%

% of sales 81.9% 83.9% 84.6% -198 bps -271 bps

EBITDA 37.4 39.3 23.1 -5.0% 62%

EBITDAM (%) 18.1% 16.1% 15.4% 198 bps 271 bps

Depreciation 3.14 2.9 2.1 10.2% 47%

EBIT before other income 34.2 36.5 20.97 -6.2% 63%

% of sales 16.5% 14.9% 13.9% 162 bps 261 bps

Other Income 6.0 6.4 8.3 -6.6% -28%

EBIT 40.2 42.9 29.3 -6.2% 37%

% of sales 19.4% 17.5% 19.5% 190 bps -4 bps

Interest & Finance charges 3.9 3.7 2.9 5.8% 32%

Forex Loss 2.0 -1.9 -206%

PBT 34.4 39.2 28.2 -12.3% 22%

% of sales 16.6% 16.0% 18.8% 3.6% -11%

Tax expenses 9.42 12.6 10.2 -25.1% -8%

% of PBT 27.4% 32.1% 36.2% -465 bps -877 bps

PAT 24.95 26.6 18.0 -6.3% 39%

Minority interest in subsidiary -4.41 -1.59 -0.93 177.4% 374%

PAT 20.5 25.1 17.1 -18.0% 20%

NPM (%) 9.9% 10.2% 11.4% -32 bps -142 bps

EPS 11.87 14.48 9.87 -18.0% 20% Source: Company Data, KRChoksey Research

Valuations: We have used SOTP method to value Solar Industries where we are valuing Core business at 13x FY12E earnings and Coal blocks on NPV basis to arrive at a Price Target of Rs 976/Share.

Core Business (1) 13x 57 741 Coal Block (2) 180.23+54.70 234.9 Total Value(1+2) 976

Source: Company Data, KRChoksey Research



Income Statement (Rs Crs)

Particulars FY10 FY11 FY12E FY13E

Net Sales 557.4 679.5 876.5 1156.4

Expenditure 471.4 557.9 694.5 915.5

RM Consumed 326.6 390.0 507 670.5

Employee Cost 21.8 31.3 38.5 48.5

Other Expenses 121.8 141.7 149 196.5

EBITDA 86.0 121.9 181.9 240.9

Depreciation 7.9 8.5 15.3 17.5

Interest 13.4 12.8 16.5 18.0

Other Income 25.9 26.6 18.0 23.0

PBT 90.8 127.2 168.2 228.4

Tax 32.2 45.1 60.1 80.9

PAT 58.6 82.1 108.1 147.6

EPS 33.87 43.23 57.28 75.46

Balance Sheet (Rs Crs)


Share Capital 17.32 17.32 17.32 17.32

Reserve 247.9 298.7 377.6 483.9

Net Worth 265.2 316.0 394.9 501.2

Loan Funds 107.7 161.7 185.0 167.0 Deferred Tax Liabs 14.2 16.9 16.9 16.9

Total Liabilities 387.2 522.1 633.3 738.6

Net Fixed Assets 114.8 195.9 279.7 322.2

Investments 10.5 12.3 15.0 16.3

Goodwill 0 3.3 3.3 3.3

Current Assets 390.1 418.1 489.3 566.5

Current Liabs 153.0 138.9 177.0 191.0

Net Curr. Assets 237.1 279.2 312.3 375.5

Total Assets 387.2 522.1 633.3 738.6

Cash Flow (Rs Crs)


PBT 90.8 127.2 168.2 228.4Operating Cash Flow 49.6 34.3 101.4 152.7

Investing Cash Flow 30.9 98.0 93.3 59.6

Financing Cash Flow 9.8 27.9 11.9 64.8

Net Change in Cash 28.5 35.7 3.9 28.3

Opening Cash bal 76.1 104.5 68.8 64.9

Closing Cash bal 104.5 68.8 64.9 93.2

Ratio Analysis


OPM 15.4% 17.9% 20.8% 20.8%

NPM 11.8% 12.1% 12.3% 12.8%

EPS 33.87 43.23 57.28 75.46

ROE 24.9% 26.0% 27.4% 29.4%

ROCE 20.2% 21.7% 26.3% 28.2%

D/E 0.41 0.51 0.47 0.33

PE 22.8 17.8 13.5 10.2

Source: Company Data, KRChoksey Estimates



Rajiv Choksey Director [email protected] +91-22-6696 5555

Anuj Choksey Head-Institutional Equities [email protected] +91-22-6696 5500

Kunal Dalal HeadInstitutional Research [email protected] +91-22-6696 5574


Date CMP (Rs) TP (Rs) Recommendation

15-Nov-11 771 976 BUY

2-Aug-11 730 976 BUY

3-Jun-11 628 949 BUY

Rating Legend

Our Rating Upside

Buy More than 15%

Hold 5% - 15%

Reduce 0 5%

Sell Less than 0%

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Documents

Solar - q2fy12 Results Update