8 September 2016
1QFY17 Results Update | Sector: Capital Goods
Solar Industries
Buy
BSE SENSEX
28,926
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
S&P CNX
8,918
SOIL IN
90.5
58/ 0.9
760/570
-2/-14/-25
32
27.0
CMP: INR641
TP: INR725 (+13%)
1QFY17 operational performance in-line
In-line operational performance:
Solar Industries’ (SOIL) consolidated revenue
for 1QFY17 grew 10% YoY to INR4.2b (v/s our estimate of INR4.4b), EBITDA was
up 21.2% YoY to INR866m (v/s our estimate of INR836m), and EBITDA margin
expanded by 170bp YoY to 20.4% led by better product mix. Better margin
cartridge sales formed 35% of sales as against 29% in 1QFY16. Adjusted net
profit grew 13.9% YoY to INR471m (v/s our estimate of INR486m).
Revenue growth supported by strong performance from cartridge segment:
SOIL’s consolidated revenue growth of 10% YoY to INR4.2b (v/s our estimate of
INR4.4b) was driven by strong growth in the cartridge segment (up 33% YoY).
Detonators (27% YoY) and detonating fuse (59% YoY) also registered strong
growth. However bulk segment revenue declined 1% YoY despite volume
growth of 11%. Realization in the bulk segment remained under pressure and
declined by 10% YoY due to intensifying competition. Realization declined
across segments, as raw material (ammonium nitrate) cost declined 8% YoY,
which was passed on to the end consumer.
Overseas business performance impacted by currency devaluation:
Revenue
from overseas business declined 4% YoY, impacted by currency devaluation in
the key markets of Nigeria and Turkey. Nigerian currency declined by 82% YoY
and Turkish currency declined by 10% YoY. This led to translation loss of
INR200m. On constant currency basis, revenue grew 17% YoY.
Maintain Buy:
We maintain our Buy rating on the stock, with a target price of
INR725. We value SOIL at 30x FY18E EPS (earnings CAGR of 15% over FY16-18E)
after factoring in the possibility of continued strong growth due to ramp-up in
mining/infrastructure activities in India, increasing penetration overseas and
inflexion point in defense revenue. The stock’s premium valuations are also
justified by optimum revenue of ~INR5b (possibly ~FY20) from the defense
business.
Financials & Valuations (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
15.4
18.1
21.8
EBITDA
3.0
3.6
4.0
Adj PAT
1.1
1.5
1.8
EPS (INR)
18.4
20.9
24.2
EPS Gr. (%)
9.5
14.4
15.0
BV/Sh. (INR)
95.9 112.4 131.7
RoE (%)
19.1
18.6
18.4
RoCE (%)
21.1
20.3
21.3
P/E (x)
42.8
37.6
32.5
P/BV (x)
1.3
1.1
1.0
Estimate change
TP change
Rating change
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 3982 5449
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Solar Industries
1QFY17 results: Operational performance in-line with expectation
1QFY17 operational performance in line with expectation:
Solar Industries’ (SOIL)
consolidated revenue for 1QFY17 grew by 10% YoY to INR4.2b (vs. our estimate of
INR4.4b), EBIDTA was up 21.2% YoY to INR866m (vs. our estimate of INR836m),
EBIDTA margin expanded by 170bp YoY to 20.4% led by better product mix during
the quarter. Better margin cartridge sales formed 355 of the sales as against 29% in
1QFy16. Adjusted net profit increased by 13.9% YoY to INR471m (vs. our estimate of
INR486m).
Revenue growth supported by strong performance from cartridge segment:
SOIL’s
consolidated revenue growth of 10% YoY to INR4.2b (vs. our estimate of INR4.4b)
was driven by a strong growth in the cartridge segment (up 33% YoY). Detonators
and detonating fuse also registered strong growth of 27% and 59% YoY, However
Bulk segment revenue witnessed decline of 1% YoY despite volume growth of
11%. Realization in the bulk segment remained under pressure and declined by 10%
YoY due to intensifying competition.
Exhibit 1: Revenue growth driven by growth cartridge
segment
57.1
Revenue (INR M)
Growth YoY
37.4
6.5
19.7
4.5 2.3 9.7
(12.6)
Exhibit 2: Revenue contribution dominated by demand from
CIL and SIL
Power and Defence,
0.4
Others, 0.1
Overseas,
21
Export, 4
Coal, 32
28.0
18.5
18.1
13.3
12.4 10.9 20.3
15.4 14.6
Trade, 31
Institutiona
l, 11
Source: MOSL, Company
Source: MOSL, Company
Overseas business performance impacted by currency devaluation:
During the
quarter revenue from overseas business declined 4% YoY impacted by currency
devaluation in the key markets of Nigeria and Turkey. Nigerian currency declined by
82% YoY and Turkish currency declined by 10% YoY. This has led to translation loss
of INR200m during the quarter. On constant currency basis Sales is up 17% YoY.
Exhibit 3: Margin improvement YoY led by product mix
change
EBITDA (INR M)
EBITDA (%)
19
19 19 20 19 19 18 18 20 20 19
18
17
16 16 16 16
Detonating
Fuse, 3
Exhibit 4: Product mix in favor of cartridges (%)
Overseas
Revenue,
19
Defence, 0
Detonators,
9
Cartridge,
35
Bulk, 34
Source: MOSL, Company
Source: MOSL, Company
8 September 2016
2

Solar Industries
Other key highlights of the 1QFY17 results
Cartridge Revenue registered growth of 33% YoY whereas volume growth stood
at 37% indicating decline in realization by 2% YoY. Volume growth was led by
strong demand from the infrastructure segment.
Exports Revenue declined led by weak economic scenario. To compensate for
that, Solar plans to enter new geographies. Management has guided for flat
export Sales in FY17 (INR1.1b).
Defence revenue for FY16 stood at INR77m and management has provided
guidance for revenue of INR500-600m for FY17 as against earlier guidance of
INR800m. Solar expects sale to pick in defence segment from October 2016.
Interest cost during the quarter increased by 53% YoY mainly as capex for the
project is completed and now interest is now getting charged in P&L. Current
debt on the book stands at INR3.3b
South Africa facility is expected to be completed by 4QFY17 with capex of $11m
of which $7.5m is already incurred. Soalr expects INR100m revenue in FY17
from the same
Capex plan for FY17 stand at INR2b of which INR1b would be spent on
explosives segment, INR500m on the overseas business and INR500m on the
defence segment.
SOIL has an order backlog in defence segment of INR728m (INR150m for HMX
and INR550m for propellant and pyro products) which it expects to execute in
FY17.
We maintain our
Buy
rating on the stock, with a target price of INR725 and value
SOIL at 30x FY18E EPS (earnings CAGR of 15% over FY16-18E) to factor in the
possibility of continued strong growth, with ramp-up in mining / infrastructure
activities in India, increasing penetration overseas and also an inflexion point in
defence revenues. The premium valuations are also justified given that optimum
revenues for defence business stands at ~INR5b (possibly ~FY20).
Valuation and Rating
8 September 2016
3

Solar Industries
Exhibit 5: Segmental Break up
FY15
1Q
Cartridge
Revenues
Volume
Rln per MT
Bulk
Revenues
Volume
Rln per MT
Detonators
Revenues
Volume (Millions Units)
Rln per unit
Detonating Fuse
Revenues
Volume (Milion mtrs)
Rln per mtr
Trading
Other Operating Income
Overseas Revenues
Defense
Total
Revenue growth (%)
Cartridge
Bulk
Detonators
Detonating Fuse
Volume growth (%)
Cartridge
Bulk
Detonators
Detonating Fuse
Growth in realizations (%)
Cartridge
Bulk
Detonators
Detonating Fuse
4.5
2.2
35.9
(8.5)
(17.0)
4.2
(24.0)
(42.2)
(8.2)
(3.5)
(25.7)
(23.7)
(3.6)
(0.7)
(25.7)
(5.3)
(5.2)
0.7
(43.5)
(0.2)
9.1
(5.6)
(11.7)
57.5
7.5
(9.9)
16.2
31.2
(0.7)
(10.2)
(3.4)
(21.5)
(2.5)
(10.3)
8.3
(4.3)
30.4
2.1
(2.3)
85.9
45.1
18.5
(10.5)
(11.0)
34.5
46.4
6.1
(23.7)
0.6
55.5
0.6
(24.5)
(10.3)
53.1
37.6
1.0
(7.1)
39.2
(5.9)
7.6
1.2
29.2
18.5
58.4
25.8
21.7
1.1
48.2
36.7
10.7
17.5
66.0
36.2
4.4
32.7
70.1
20.5
23.5
(32.0)
(48.5)
23.5
41.4
(21.2)
(41.8)
(2.9)
54.5
(25.2)
(28.5)
(14.9)
54.1
(22.2)
0.8
1.4
31.5
(16.9)
69.4
8.8
16.4
37.8
107.9
24.9
9.3
(2.4)
16.3
33.3
(0.7)
27.3
58.7
5
917
-
3,879
38
849
-
3,235
21
650
-
3,514
26
936
-
4,281
-
990
-
4,198
-
920
-
3,636
-
922
58
4,318
-
821
19
4,636
-
900
20
4,663
92
15
6
88
16
5
48
10
5
99
15
7
93
15
6
149
17
9
101
16
6
115
22
5
147
25
6
415
26
16
314
32
10
315
34
9
424
40
11
323
36
9
261
30
9
434
40
11
413
40
10
411
42
10
1,027
28,241
36,351
1,104
30,137
36,629
1,392
38,220
36,415
1,454
40,118
36,243
1,582
43,224
36,598
1,452
41,960
34,592
1,620
49,398
32,801
1,590
48,830
32,552
1,571
47,843
32,829
1,423
25,002
56,915
843
15,303
55,061
1,087
20,255
53,676
1,343
24,327
55,202
1,210
22,426
53,973
854
14,224
60,053
1,183
20,497
57,701
1,678
30,612
54,809
1,614
30,665
52,628
2Q
3Q
4Q
1Q
FY16
2Q
3Q
4Q
FY17
1Q
Source: MOSL, Company
8 September 2016
4

Solar Industries
Exhibit 6: Operating Matrix
FY09
Cartridge
Revenues (INR M)
Volume (tons)
Rln per MT
Bulk
Revenues (INR M)
Volume (tons)
Rln per MT
Detonators
Revenues (INR M)
Volume (m pieces)
Rln per piece
Detonating Fuse
Revenues (INR M)
Volume (m mtrs)
Rln per Mtrs
Defense
Other operating income
Trading activity
Overseas revenues
Consolidated Revenues
Domestic Revenues (Excl Trading / Def,
Incl Exports)
% YoY
EBIDTA Margins
Standalone
Subsidiaries
EPS (INR/sh)
Net Cash / (Debt)
RoE (%)
RoCE (%)
1,722
41,211
41,778
1,559
55,000
28,349
941
71
13
160
27
6
-
-
798
-
5,180
FY10
2,117
55,488
38,150
1,520
57,857
26,276
1,034
103
10
156
29
5
-
41
1,033
-
5,901
FY11
2,065
47,695
43,302
2,018
79,980
25,226
1,095
108
10
262
59
4
-
95
753
950
7,238
FY12
3,053
63,200
48,307
FY13
,941
75,356
52,298
FY14
3,970
68,776
57,725
FY15
4,686
84,898
55,192
FY16
4,925
87,759
56,121
FY17E
FY18E
5,626
6,600
98,290 113,034
57,243 58,388
2,822
,832
3,703
4,976
6,243
7,132
8,366
94,962 114,326 106,988 136,716 183,412 205,421 236,235
29,717 33,518 34,613 36,399 34,039
34,720 35,414
1,428
118
12
377
67
6
-
-
997
1,630
10,307
1,490
141
11
287
47
6
-
118
599
1,864
12,131
1,554
130
12
361
52
7
-
161
87
2,329
12,166
1,269
126
10
229
47
5
-
55
-
3,353
14,568
1,431
146
10
457
71
6
77
95
-
3,654
16,882
1,639
161
10
528
78
7
500
104
-
3,934
19,463
1,873
177
11
619
90
7
,200
115
-
4,718
23,491
4,382
4,827
10.1%
15.4%
8.9%
53.4%
18.0
(137)
24.1%
19.4%
5,440
12.7%
18.0%
12.9%
36.7%
29.0
(977)
26.0%
20.0%
7,680
41.2%
17.7%
11.8%
35.1%
36.6
(2,306)
29.1%
20.6%
9,550
24.3%
16.3%
11.2%
35.9%
46.3
(2,405)
25.4%
17.0%
9,589
0.4%
17.9%
13.6%
35.1%
50.7
(3,359)
20.5%
13.7%
11,160
16.4%
18.8%
15.3%
29.2%
64.1
(2,796)
21.6%
14.7%
13,134
17.7%
19.3%
16.7%
25.3%
61.5
(2,792)
20.2%
15.4%
15,425
17.4%
19.7%
17.5%
26.6%
20.9
(3,233)
20.1%
15.0%
18,658
21.0%
0.0%
0.0%
0.0%
24.2
(3,036)
19.8%
22.3%
14.3%
8.7%
49.8%
14.6
12
20.0%
19.6%
Source: MOSL, Company
8 September 2016
5

Solar Industries
Financials and Valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Other Income
Depreciation
Interest
Exceptional Items
PBT
Tax
Rate (%)
Reported PAT
Minority Interest
Adjusted PAT
Change (%)
Adj. Stand Alone PAT
Change (%)
2011
6,809
22.1
3,724
313
1,543
1,228
18.0
252
77
123
0
1,281
451
35.2
830
74
756
29.0
503
60.9
2012
9,676
42.1
5,608
442
1,915
1,710
17.7
236
128
236
44
1,540
425
27.6
1,149
102
1,012
33.9
603
19.8
2013
11,218
15.9
6,501
556
2,329
1,833
16.3
142
170
183
100
1,522
257
16.9
1,344
101
1,163
14.9
738
22.5
2014
11,330
1.0
5,908
673
2,719
2,030
17.9
112
219
179
100
1,644
349
21.2
1,375
111
1,184
1.8
818
10.9
2015
13,519
19
7,687
798
2,494
2,540
18.8
79
315
179
100
2,026
463
23
1,643
89
1,474
24
1,059
29
2016
15,382
14
8,741
881
2,785
2,975
19.3
124
328
207
0
2,564
764
30
1,800
138
1,661
13
1,113
5
2017E
18,079
18
10,092
1,006
3,425
3,555
19.7
114
377
218
0
3,074
1,015
33
2,060
167
1,893
14
1,544
39
(INR Million)
2018E
21,794
21
12,092
1,142
4,515
4,044
18.6
170
419
259
0
3,536
1,167
33
2,369
182
2,188
16
1,816
18
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov.
Creditors & other current liab.
Net Current Assets
Misc Expenses
Application of Funds
E: MOSL Estimates
2011
173
2,987
3,160
275
1,616
169
5,220
2,396
442
1,954
292
123
33
4,209
592
944
596
2,077
1,390
1,390
2,820
0
5,220
2012
173
3,873
4,046
378
2,964
196
7,584
3,398
570
2,828
503
113
48
5,501
1,286
1,393
630
2,192
1,410
1,410
4,091
0
7,583
2013
181
5,546
5,727
405
3,721
207
10,060
4,408
740
3,668
606
489
57
6,260
1,361
1,559
922
2,417
1,020
1,020
5,240
0
10,060
2014
181
6,435
6,616
381
4,837
270
12,103
5,796
959
4,838
810
252
71
7,554
1,528
1,853
1,330
2,842
1,422
1,422
6,132
0
12,103
2015
181
7,578
7,759
471
3,465
444
12,139
6,922
1,273
5,649
810
374
0
7,059
1,649
1,913
373
3,125
1,753
1,753
5,306
0
12,139
2016
181
8,495
8,676
566
3,466
433
13,141
9,088
1,601
7,486
0
382
0
7,587
1,631
2,659
370
2,927
2,315
2,315
5,273
0
13,141
2017E
181
9,986
10,167
779
4,850
448
16,244
9,000
1,978
7,022
781
101
0
10,360
2,194
2,637
1,617
3,912
2,021
2,021
8,339
0
16,244
(INR Million)
2018E
181
11,736
11,917
961
4,500
448
17,826
10,000
2,397
7,603
781
101
0
11,720
2,546
3,159
1,464
4,550
2,380
2,380
9,340
0
17,826
8 September 2016
6

Solar Industries
Financials and Valuations
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
8.7
9.6
36.5
1.6
21
2012
11.7
13.2
46.7
2.0
19
2013
12.9
14.7
63.3
2.2
19
2014
13.1
15.5
73.1
2.3
19
2015
16.3
19.8
85.7
2.7
19
48.3
32.4
24.1
4.5
1.5
0.4
26.0
20.0
21.8
51
32
75
1.3
0.3
29.1
20.6
21.7
53
48
53
1.3
0.6
25.4
17.0
19.2
51
44
33
1.1
0.5
20.5
13.7
16.1
60
49
46
0.9
0.5
21.6
14.7
16.9
52
45
47
1.1
0.4
2016
18.4
22.0
95.9
3.0
20.0
42.8
29.2
20.5
4.0
1.3
0.5
20.2
15.4
16.2
63
39
55
1.2
0.4
2017E
20.9
25.1
112.4
3.5
20.0
37.6
25.6
17.2
3.4
1.1
0.5
20.1
15.0
16.3
53
44
41
1.1
0.3
2018E
24.2
28.8
131.7
4.0
20.0
32.5
22.3
15.1
2.8
1.0
0.6
19.8
22.3
16.6
53
43
40
1.2
0.3
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Invest. in liquid assets
CF from Investments
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2011
1,281
77
123
-451
-792
237
-966
131
-835
539
-123
-162
254
-344
940
596
2012
1,540
128
236
-425
-1,237
240
-1,214
98
-1,115
1,348
-236
-203
909
34
596
631
2013
1,522
170
183
-257
-858
760
-1,112
311
-802
749
-183
-233
333
291
630
922
2014
1,644
219
179
-349
-484
1,209
-1,593
100
-1,494
1,116
-179
-244
694
409
922
1,330
2015
2,026
315
179
-463
-132
1,925
-1,125
88
-1,037
-1,371
-179
-295
-1,845
-957
1,330
373
2016
2,564
328
207
-764
31
2,366
-1,355
-475
-1,830
1
-207
-332
-538
-3
373
370
2017E
3,074
377
218
-1,015
-1,820
834
-694
319
-375
1,384
-218
-379
788
1,247
370
1,617
(INR Million)
2018E
3,536
419
259
-1,167
-1,154
1,893
-1,000
0
-1,000
-350
-259
-438
-1,046
-153
1,617
1,464
8 September 2016
7

Solar Industries
Corporate profile
Company description
SOIL is India’s leading explosives manufacturer,
having a licensed capacity of 290k tons of bulk and
cartridge explosives across 20 manufacturing
locations within India. It also has manufacturing
units across Nigeria and Zambia to cater to African
markets. Its Turkey plant caters to growth
opportunities from CIS nations.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Jun-16
Promoter
DII
FII
Others
73.0
20.9
2.0
4.1
Mar-16
73.0
20.9
2.2
4.0
Jun-15
72.9
17.1
1.7
8.3
Source: Capitaline
Exhibit 3: Top holders
Holder Name
ICICI Prudential Life Insurance Company Ltd
HDFC Trustee Company Ltd - A/C
SBI Emerging Businesses Fund
SBI Magnum Global Fund
SBI Magnum Balanced Fund
SBI Small And Midcap Fund
% Holding
2.7
2.5
1.9
1.6
1.3
1.2
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Satyanarayan Nuwal
Kailashchandra Nuwal
Manish Nuwal
Khushboo Pasari
Designation
Chairman & Exec. Director
Vice Chairman
Managing Director
Company Secretary
Exhibit 5: Directors
Name
Satyanarayan Nuwal
Kailashchandra Nuwal
Manish Nuwal
Ajai Nigam*
Amrendra Verma*
Name
Anant Sagar Awasthi*
Anil Kumar Jain
Dilip Patel*
Roomiee Dara Vakil
Madhu Vij*
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Gandhi Rathi & Co
Anant B Khamankar
B K Banka & Associates
Patel Madan Malpani & Co
Ekbote Deshmukh & Co
Khanuja Patra & Associates
Type
Statutory
Secretarial Audit
Internal
Internal
Internal
Cost Auditor
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
MOSL
forecast
20.9
24.2
Consensus
forecast
22.4
27.8
Variation
(%)
-6.6
-12.8
Source: Bloomberg
FY17
FY18
8 September 2016
8

Solar Industries
NOTES
8 September 2016
9

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Solar Industries
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