Nirmal Bang
Solar Industries India (Buy)
CMP: ₹946.35
Target: ₹1,285
Solar Industries India (SIIL) reported consolidated revenues of ₹650 in 3QFY19 (highest-ever quarterly sales), up 40 per cent y-o-y and 16 per cent above our estimate. The topline growth was driven by exports and overseas markets (up 42 per cent y-o-y at ₹240 crore) as well as infrastructure and housing segment (up 38 per cent y-o-y at ₹160 crore). Sales to Coal India (CIL) rose 51 per cent y-o-y to ₹120 crore while defence sales were also healthy at ₹40.9 crore. Despite lower bulk explosive sales owing to low overburden removal, explosives volume rose 15 per cent y-o-y to 95,719 mt while realisation rose 25 per cent y-o-y to ₹36,920/mt. However, EBITDA grew only 16 per cent y-o-y to ₹120 crore translating to 380 bps y-o-y fall in operating margin to 18.6 per cent, below our estimate of 20.8 per cent.
We remain positive on SIIL’s business scalability as well as strong financial health. We have marginally tweaked our earnings estimates and retained ‘Buy’ rating on Solar Industries with a revised target price of ₹1,285 (₹1,275 earlier) based on 33x September 2020E earnings.