Thread by @alphaspotcap

Solar Industries Ltd Analysis!🇮🇳

A Detailed thread🧵👇🏻
#investing #StocksToBuy

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The Solar group is one of the largest domestic manufacturers of bulk and cartridge explosives. It has 25 manufacturing facilities in India.

In FY11, it entered the defence sector to manufacture high-energy explosives, delivery systems, ammunition filling & pyros fuses.

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Main customers/industries:

• Coal India - 20% share
• Other Institution - 15%
• Housing & Infra - 29%
• Exports - 30%
• Defence - 5%
• Others - 1%

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First Private Company:

Solar Industries is the first private company in India to manufacture RDX & TNT for the defence sector of the country.

It also manufactures war heads and grenades. It also supplied Pinaka rockets to the Indian Army ( first 🇮🇳pvt company to do so)

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• Order Book:

The company has a healthy order book with three major clients -

- Coal India
- SSCL
- Defence Sector

The total order book stands at ~₹2,982 Crores

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FY22 numbers YOY basis:

• Sales - ₹3,948 cr vs ₹2,516 cr
• EBITDA - ₹767 cr vs ₹536 cr
• PBT - ₹607 cr vs ₹397 cr
• PAT - ₹455 cr vs ₹288 cr
• Net Worth - ₹1,914 cr vs ₹1,579 cr
• RoCE - 27% Vs 21%
• Net Debt/Equity - 0.41 vs 0.39
• RoE - 23% vs 17.5%

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Key Growth triggers:

• Market Position:

The group is one of the largest (24% share) manufacturers and exporters of explosives and initiating systems in India.

It is one of the few players with complete product range & capability to develop & supply customised product

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• Nature of Business:

Various factors related to the nature of the business gives it a good future stability:

- Limited shelf life of explosives
- Continuous consumption by the armed forces
- Make in India focus
- Long-term defence contracts

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• Backward Integration:

Majority of raw materials such as detonator components, emulsifiers, sodium nitrate and calcium nitrate are manufactured internally, leading to cost savings, quality control and stable operating margin of around 20%.

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• Geographical Advantage:

All the bulk explosive manufacturing units are located in 50-60 km radius from major mining regions. The group has the ability to pass on fluctuations in raw material prices to customers through price escalation clause in the contracts.

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Financial Risk Profiling:

Tangible networth was ₹1,914 cr and gearing 0.5 time as on March 31, 2022. Debt protection metrics were comfortable, reflected in interest coverage of 13.1 & net cash accrual to total debt ratios of 0.52 time(higher the better).

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Weaknesses:

• Regulatory Risks:

Sale of explosives is regulated by the PESO & the Joint Chief Controller of Explosives. Though the group takes precautions at all stages of the manufacturing process and is a member of SAFEX, it remains susceptible to regulatory risks.

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• Volatility in forex rates:

Partial import of raw material and operations in Nigeria, Ghana, Zambia, South Africa and Turkey expose the group to adverse currency fluctuations.

The group incurred translation loss of ₹37 crore in Q3FY22 due to currency devaluation.

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Liquidity:

Cash accrual, expected at ₹400 crore per annum in FY23, will comfortably cover yearly debt obligation of ₹100-150 crore. Cash and equivalent stood at around ₹84.67 crore as on March 31, 2022.

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Shareholding Pattern:

• Promoters: 73.15%
• FIIs : 6.28%
• DIIs : 15.15%
• Public : 4.45%
• Others : 0.97%

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With ever increasing defence expenditure and focus on Make in India initiatives, Solar Inds looks to be in the drivers seat!

@caniravkaria @kuttrapali26 @Anshi_________ @stockifi_Invest