Exports push, more private clients help explosives manufacturer Solar Industries to shine

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Solar IndustriesBSE -1.14 %, a Nagpur-based explosives manufacturer, has been able to maintain a compounded volume growth of 20% in the past five years as compared to an industry growth of 9%. Maintaining growth was an uphill task given a higher dependence on mining and infrastructure sectors for revenue generation. Investment activity in these sectors has been slow. Solar was able to maintain its volume growth on account of three factors. First, India’s largest coal producer and Solar’s biggest client Coal India has been showing a gradual pick up in coal offtake after several years of slowdown. CILBSE 2.00 % accounts for about 26% of Solar’s total volume. The recent slack in CIL’s growth is unlikely to impact Solar as it has now bagged new orders to supply explosives for removal of ‘overburden’, which is not directly linked to CIL’s production. Overburden is the top soil lying above the mineral being mined. The removal of overburden is also more beneficial for the company as the explosives required for per cubic metre area increases by two times. Second, the explosives manufacturer has also added more private sector companies such as Hindustan ZincBSE 0.26 % and JSW SteelBSE -0.81 % to its client list. Third, the company has increased its exports from less than 10% of revenue five years ago to more than 25%. It has a capacity to manufacture explosives of 70,000 metric tonnes at Nigeria, Zambia and Turkey. The new plant in South Africa, which holds a manufacturing capacity of 30,000 tonnes, will be operational from December 2016. The next leg of volume growth is expected to be driven by orders from Indian defence forces. The company has orders worth Rs 72 crore to supply explosives to defence in FY17, and it aims to reach orders worth Rs 500 crore in the next 3-4 years. The company will be supplying HMX, a powerful explosive chemical related to RDX. It will be used in ammunition for Pinaka, Akash, Invar and Konkur missiles and anti-tank ammunition. The defence order will result in higher earnings growth as it fetches superior margins of 20% compared with current blended margin of 15%. At Thursday’s closing price of Rs 3,140.5, the stock is valued at 28 times one year forward earnings as against the historical average of 22 times.

Source:  ET Bureau

 

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