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					SOLAR INDUSTRIES INDIA LTD




                      All set to explode ……….....
     KRChoksey - Institutional Research is also available on Bloomberg KRCS<GO>, Thomsonreuters, Factset and Capital IQ
Solar Industries India Ltd

    India Equity Institutional Research | Explosives & Mining


     Solar Industries India Ltd.                                                   Rs 455


                                                                                   BUY
                                                                                                      Price Outlook :                                      632
    Solar Industries India Ltd is the largest producer of explosives in India       accounting for
                                                                                                      Market Data                        Sept 2, 2010
    almost one fifth of domestic market share.
                                                                                                      Shares outs (Cr)                               1.73
    Investment Summary:                                                                                Equity Cap (Rs. Cr)                          17.32
                                                                                                       Mkt Cap (Rs. Cr)                            787.15
          •   Thrust on Infrastructure creation will propel demand for explosives: Huge
                                                                                                       52 Wk H/L (Rs)                          470/316
              investment is envisaged during 11th and 12th 5 year plans in power, steel, Cement ,
                                                                                                       Avg Vol (1yr avg)                             9598
              Road and other related industries which will roughly lead to annually 2.0-2.5 mn
              ton additional explosive demand domestically. Solar Industies, being market              Face Value (Rs)                                  10

              leader (19% market share) will be default beneficiary of this growth.                    Bloomberg Code                              SOIL IN


          •   New production facility in Africa will further propel growth : Solar Industries is in   Market Info:
              the process of establishing explosive manufacturing facilities in Zambia, Nizeria       SENSEX                                        18238
              and Tanzania. Zambia facility is already operational while other two will get           NIFTY                                          5486
              operational within next two quarters. African facility will contribute Rs 55 cr in
              FY11E which will grow to Rs 200cr by FY13E.                                             Price Performance


          •   Price escalation clause with Coal India will lead to margin stabilization:
              Ammonium Nitrate, which accounts for 72% of raw material cost for explosives
              shows very high volatility in its price ( USD 225/ton – USD 455/ton last year).This
              has adverse impact on margin of explosive manufacturers. From FY 09, CIL, the
              largest explosive consumer domestically has agreed for price negotiation on
              quarterly basis based on prices of diesel and Ammonium Nitrate. This will help
              stabilize margins of Solar Industries.

          •   Stake in Coal blocks are hidden treasure: Solar holds stake in two coal blocks in
              Chhatisgarh through subsidiaries and JV. These two coal blocks have total coal
              reserve of 260 mn Ton and Solar’s share is 55mn Ton. NPV of these two coal blocks
              is Rs 271.65 on per share basis for Solar Industries.
                                                                                                      Share Holding pattern (%)
     Particulars( RsCr)                   FY10           FY11E            FY12E              FY13E     Particulars           Jun10        Mar10      Chg

     Net Sales                          557.42           641.64           851.80            1016.08    Promoters              74.60        74.60
                                                                                                       FIIs                       0.01      0.01
     OPM(%)                              14.03            15.31            16.10              16.67
                                                                                                       DII                    17.44        18.52      (1.08)
     NPM(%)                              10.51            10.70            10.61              10.85    Others                     7.95      6.87      1.08
     EPS (Rs)                            33.87            39.70            52.23              63.74    Total                      100        100
                                                                                                      Source: BSE
     PE                                  13.00            11.08             8.42               6.90
     EV/EBITDA                            7.30            5.50             4.30               3.40    Analyst : Shailesh Kumar

     ROCE(%)                            21.00             25.50           27.40              28.90
                                                                                                      Shailesh.kumar@krchoksey.com
     ROE(%)                             22.10             21.60           23.10              23.20    www.krchoksey.com
                                                                                                      ℡ 91-22-6696 5555,Ext-422
    Valuations:                                                                                          91-22-6691 9569

     Applying SOTP method where we have valued Solar’s explosive business at 9xFY11E
    EPS of Rs 40 and Value of coal blocks on NPV basis , which gives 1 year target price of
    Rs 632, which gives an upside potential of 39%.


2                                                                                                               KRChoksey - Institutional Research
Solar Industries India Ltd




                                                    Table of Contents:                  Page No




     •    Investment Summary                  …………………………………………………………………………………….…..…………………..02




     •    Company Background                  ………………………………………………………………………………….….…………..………….04




     •    Business Model                      ……………………………………………………………………………….……….……..…………….05




     •    Management Profile                  …………………………………………………………………………………….………..……………… 05




     •    Key Investment Rationale            ……………………………………………………………………………………….……..……………..07




     •    SWOT analysis                        ……………………………………………………………………………………..…..…………………11




     •    Valuation and Recommendation        … ...……………………………………………………………….…………………..…..……………12




     •    Peer Comparison                     ……………………………………………………………………………………...……..………………12




     •    Financials and Analysis             ……………………………………………………………………………………….………………………13




     •    Appendix: Brief Industry Overview   ……………………………………………………………………………………………………………….18




     •    Disclaimer                          ………………………………………………………………………………………………………………..23




3                                                                                    KRChoksey - Institutional Research
Solar Industries India Ltd
                             Company Background:

                             Solar Industries Ltd, The flagship company of Nuwal Group (Estd Feb 24, 1995)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 and sell
                             them to customers across the globe .Metal, mining and Infrastructure companies are main users of
                             Explosives produced by the company.


                             Highlights:

                                 •    Largest manufacturer of explosives in India with 19% market share.

                                 •    Counts among top three players in different categories of explosives and ancillary devices.

                                 •    Only explosive manufacturer domestically which is fully backward integrated and makes all
                                      raw materials in house barring ammonium nitrate.

                                 •    Largest supplier of explosives to largest domestic consumer( Coal India Ltd).

                                 •    Company has relation with global consumers and exports its products to 15 countries across
                                      the globe.

                                 •    Well diversified clientele which includes Metal, cement, Power and Infrastructure
                                      companies besides mining companies.



                             Product Profile : 
                              
                                                                        Solar’s                         Revenue          EBITDA
                               Product         Installed    Market
                                                                       market           Utility       contribution     Contribution
                               Category        Capacity    Share(%)
                                                                       position                           (%)              (%)
                                 Bulk                                                  Opencast
                                            174430MT         43%        Second                             26%            19.64%
                              Explosives                                                 Mines
                                                                                      Tunneling,
                              Cartridge
                                               76600MT       37%         First       Underground          33.8%           27.87%
                              Explosives
                                                                                        mining
                                                                                        Ignite
                              Detonators       162.5Mn       15%        Second                            16.9%           41.83%
                                                                                      Explosives
                              Detonating        75Mn                                    Ignite
                                                             4%          Third                            2.4%             4.54%
                                 Fuse           metres                                Explosives
                                                                                      To initiate
                                 Cast                                                     non
                                               1500MT        1%       Not in Top 5                        1.5%            2.969%
                               Boosters                                                sensitive
                                                                                      explosives
                                                                                         Raw
                                                                        Internal
                                 PETN          1100MT                                material for
                                                                      Consumption
                                                                                      Detonators




                             Key Clients:


                              Coal India Ltd                                      Birla Corporation
                              Singareni Collieries Company Ltd                    Grasim Industries
                              SAIL                                                Border Roads Organisation
                              TISCO
                              Hindustan Zinc Ltd
                              ACC

4                                                                                                   KRChoksey - Institutional Research
Solar Industries India Ltd




                                      Sales Break-up :

                                                                                                      In FY10, Coal India Ltd
                                                                                                      accounted for 36% of total
                                                                                                      sales while 52% came from
                                                                                                      other domestic consumers
                                                                                                      like SAIL, HZL, SCCL, ACC
                                                                                                      etc. Solar has generated 12%
                                                                                                      of topline ( Rs 65 cr)by
                                                                                                      exporting its products to
                                                                                                      more than 15 different
                                                                                                      countries across the globe.

                                      Source: Company, KRC Research




Business Model:

Source of revenue                                                                                         Revenue contribution(%)

Sale of explosives and ancillary products                                                                                      80.60%


Trading in Surplus Ammonium Nitrate                                                                                            17.50%



Onsite service related to deployment of Explosives                                                                              1.90%




Management Profile :

                                                                 The dynamic promoter of the company who brought the group from
Mr Satyanarayan Nuwal, Chairman                                  a trader in explosives to the largest manufacturer of explosives in
                                                                 India. Has two decades of experience In explosives industry.
                                                                 Dip Mining Engineering, A veteran with 40 years of experience in
Mr Kundansingh K Talesra, Director
                                                                 explosives industry in different capacities.
                                                                 MSc Mining(Geology), Four decades of experience in explosives
Mr Roomie Dara Vakil, Director                                   industry in different capacities. Previous company Gulf Oil
                                                                 Corporation.
                                                                 Qualified Chartered accountant with more than a decade of
Mr Manish Nuwal, Executive Director
                                                                 industry experience.




5                                                                                                   KRChoksey - Institutional Research
Solar Industries India Ltd


Corporate Structure:
                                                            Solar Explosives
                                                               India Ltd


                                       Domestic ( 88%)
                                                                                Overseas (12%)




     Economic                          Solar                 Solar Mines &          Solar Overseas
    Explosives                     Components                 Minerals Ltd            Mauritius               Solar Overseas
    Ltd. (100%)                   Pvt Ltd (100%)                 (51%)                Ltd(100%)              Netherlands(100%)




                         Navbharat                    Solar Mining             Solar Nigachem                  Solar Industrias
                         Coalfields                resources Ltd(51%)          Nigeria Ltd(65%)                 Mocambique
                         Ltd(74%)                                                                                LDA(65%)



                                                                                                    Solar
                                                                                                  Explochem
                                                                                                 Zambia(65%)




Source: Company, KRC Research




6                                                                                                     KRChoksey - Institutional Research
Solar Industries India Ltd
                                    Key Investment Rationale:


                                        1. Thrust on infrastructure creation will create huge demand for explosives :


                                    Explosives consumption matrix


                                     Production                                                                   Explosives Consumption
                                     1 Mn Ton Cement                                                                      240 Metric Ton
•    Next 7 years (FY11E- FY18E)
     will see India erecting         1Mn Ton Steel                                                                        340 Metric Ton
     between 40000Mw-50000Mw
     coal fired power plant .        1 MW Power                                                                           799 Metric Ton


                                    Planned expenditure over next 5-7 years in different sectors is as follows:


                                     Sectoral Development                               Explosives consumption
                                     Power : 120000MW additional power generation
                                     capacity over next 7 years , coal based            8.22mn Ton additional explosive consumption
•    This will create additional     72000MW, thus 10285 MW thermal power               per annum.
     requirement of more than        capacity Per annum
     2.5mn ton explosives per
     annum over next 7 years .       Cement :Planning commission expects Cement
                                     sector to grow at( GDP+2)%,assuming GDP of 8%      Additional 8400-9600Metric Ton per annum
                                     pa, we will be adding additional 35-40mn Ton
                                     cement capacity over next 7 years

                                     Steel :India is striving for 150 mn ton pa steel
                                                                                        Additional 5850 Metric Ton explosive
                                     capacity by 2015 from current level of 64 mn
                                                                                        consumption per annum.
                                     ton, which means 17.2 mn ton additional steel
•    Current licensed capacity of
                                     capacity per annum
     explosives is approx 1.7mn
     ton per annum.


                                    Even if we manage to put 50% of planned capacity, it will still create additional requirement for more
                                    than 2.5mn ton explosives per annum assuming 50% imported coal is used.


                                    Solar, being market leader in the sector will be a major beneficiary of this demand growth.




7                                                                                                        KRChoksey - Institutional Research
Solar Industries India Ltd


•    Africa is the 6th largest                 2. New production facility in Africa will further propel growth:
     market for explosives in the
     world with annual demand
                                                                Solar industries is commissioning production capacity in zambia, Nizeria and
     approxing USD 700mn.
                                                                Tanzania. Details are as follows.


                                            Place                    Product                          Capacity              Commissioning Schedule

•    Solar is competitively placed          Zambia                Bulk Explosives                      10000MT                        June 2010
     as its facilities are located in
                                            Nizeria               Bulk Explosives                      10000MT                    September2010
     Zambia, Nizeria and
     Tanzania compared to local                                 Cartridge Explosives                   5000MT
     players who are based in
     South Africa and have high             Tanzania              Bulk Explosives                      5000MT                        January 2011
     opex.
                                                                Cartridge Explosives                   5000MT

                                        .

•    Revenue from African
     operation will register a                                                         African Revenue(Rs Cr)
     CAGR of 90% over FY11-13E
     which will lead to 27% CAGR                      250                               90% CAGR
     in consolidated revenue of                                                                                                      200
                                                      200
     Solar Industries over the
                                                                                                        143
     same period.                                     150

                                                      100
•    Realisation in African market                                        55
     is almost 2.5x that in Indian                     50
     market.
                                                       0
                                                                       FY11E                           FY12E                     FY13E


                                                                                              African Revenue(Rs Cr)


•    The company is spending Rs
     45 cr over Fy10-11 for
     commissioning these                                                            Non African revenue(Rs Cr)
     capacities.                                       1000                                  20% CAGR                           923.9
                                                                                                       782.3
                                                        800
                                                                          637.72
                                                        600

                                                        400

•    Revenue from African                               200
     operation will contribute
                                                            0
     17.65% to topline by FY13E
     from 7.85% in FY11E.                                                 FY11E                        FY12E                    FY13E


                                                                                               Revenue(Ex Africa)-Rs Cr



                                                                               Consolidated revenue(Rs Cr)

                                                                                       27% CAGR
                                             1200                                                                          1133.83

                                             1000                                              935.1

                                              800                700.42

                                              600

                                              400

                                              200

                                                0
                                                                  FY11E                        FY12E                        FY13E


                                                                                       Consolidated revenue(Rs Cr)




                                        Source: KRC Research
8                                                                                                                         KRChoksey - Institutional Research
Solar Industries India Ltd



                                        3.   Price escalation with Coal India will lead to margin stabilisation:

                                                              Solar‘s 37% revenue in FY10 came from Coal India Ltd.

•    Coal india ,being the largest                            CIL procures explosives through online reverse bidding process and enters into
     explosive consumer sets                                  annual supply contract with winners.
     pricing trend for domestic
     explosive industry.
                                                              Price of Ammonium Nitrate , accounting for 72% of total raw material cost is
                                                              very volatile due to limited supply . Volatility can be gauged from the fact that
                                                              last year Ammonium nitrate prices varied between USD 225/Ton to USD
                                                              455/Ton. It also tells why Solar’s margin has been fluctuating so much.
•    Ammonium Nitrate,
     accounting for almost 72% of                             CIL has now agreed for quarterly review of Explosives prices taking into account
     raw material cost is in short                            Prices of Ammonium Nitrate and Diesel. This will help the company effectively
     supply and has to be                                     deal with any fluctuation in prices of Am Nitrate and thus protect its margin.
     imported from Iraq and
     other countries.
                                                              Taking cue from CIL, other buyers like SCCL, TISCO, HZL etc are also
                                                              incorporating similar escalation clause in contract. It will help in stabilising the
                                                              margin of the company.

                                                              Solar is actively trying to diversify its clientele and they expect CIL to
•    Volatility in ammonium                                   contribute only 25% of topline by FY12E compared to 45% in FY08.
     nitrate prices can be gauged
     from the fact that last
     year,its price fluctuated
     between USD 225-USD
     455per ton.
                                                                                    Trend of PBDIT(%)

                                       30
                                                       24.9                        25.3
                                       20                                                         21.9           21            21.1            20.7            20.8
                                                                      19
•    CIL move to quarterly price
     review based on Ammonium          10
     Nitrate prices will lead to
     margin stabilization for
     players like solar Indstries.      0
                                                                                                                      FY 11E


                                                                                                                                      FY 12E


                                                                                                                                                      FY 13E
                                               FY 06


                                                              FY 07


                                                                           FY 08


                                                                                          FY 09


                                                                                                         FY 10




                                                                                                         PBDIT(%)



                                     Source: KRC Research




9                                                                                                                      KRChoksey - Institutional Research
Solar Industries India Ltd


                                           4.   Coal blocks are hidden treasure :

                                                Solar holds stake in two coal blocks (Madanpur & Bhatgaon) through JV.



•    Solar has stake in coal blocks                                        Madanpur coal block              Bhatgaon coal block
     where it holds 39.7mn miner
     able coal reserves.
                                        Permissible uses                         Captive                        Merchant sale


                                        Total Reserve                           180 Mn Ton                        80 Mn Ton


•    Madanpur coal block can be         Miner able Reserve                      125 Mn ton                        60 mn Ton
     used for captive purpose
     while Bhatgaon coal can be
                                        Solar’s share                        @ 20%,25mn ton                  @24.5%,14.7mn ton
     sold on merchant basis.

                                        Per year excavation     (A)             0.8mn ton                         0.5mn ton


                                        Life of mine                              30 yrs                             30 yrs

•    Solar plans to erect 100MW
     coal based power plant using       Coal grade                                  E+                                B/C
     Madanpur coal.
                                        Realisation per ton(Rs)                    1500                              3000


                                        Cost of mining per ton(Rs)             400+100=500                           1500


                                        Cash Flow per ton(Rs) (B)                  1000                              1500


•    Solar has so far put Rs 78 cr      Cash flow per annum ( AxB)                 80 cr                             75cr
     in coal blocks and will be
     putting another Rs 47cr in         After paying 30% tax, cash
                                                                                   56cr                             52.5cr
     Fy13 when production starts.       flow per annum
                                        Value of cash flow in FY13 (at
                                                                                 502.32 cr                         470.92cr
                                        Cost of capital 10.6%)

                                        Value of Cash flow in FY11 (X)           411.73cr                            386cr

                                        Investment made by Solar                                        ((53x1.106^2))+(47/(1.106)^2)
                                                                           25x(1.106)^4=37.40cr
                                        valued in FY11 (Y)                                                        =103.18cr

•    These coal blocks have value       Net Value of cash flow in
                                                                               Rs 374.33cr                        Rs 282.82cr
     of Rs 271.65 on per share          FY11 (X-Y)
     basis for solar industries ltd.
                                        No of shares O/S( Cr)                      1.73
                                                                                                                     1.73
                                        Per share value
                                                                                  216.37                            163.47
                                        contribution(Rs)

                                       As coal from Madanpur coal block is not meant for merchant sale, we give 50% discount to value
                                       contributed by that coal block( Rs 108.18)



                                       Thus total hidden value from coal blocks on per share basis is (Rs 108.18+Rs 163.47) i.e Rs
                                       271.65.




10                                                                                                         KRChoksey - Institutional Research
Solar Industries India Ltd


SWOT Analysis:




                        Strengths:                                      Weakness:

                             •   Inherent cost advantage due to            •       Business concentration with fewer
                                 backward integration.                             clients can have adverse consequences
                                                                                   in case client is lost.
                             •   Strong balance sheet to support
                                 growth initiatives.                       •       Explosives Industry is dictated by
                                                                                   buyers. Any adverse pricing condition
                             •   Heavy regulation creates entry                    by buyers can have negative impact on
                                 barrier for any newcomer.                         margin of the company.




                         Opportunities:                                  Threats:

                             •   Heavy spending on infrastructure by
                                                                               •     Delay or cancellation in Government’s
                                 Indian Govt and planned capex by
                                                                                     spending can have adverse
                                 various industries will boost demand
                                                                                     consequence for explosives demand.
                                 for explosives.
                                                                               •     Too much volatility in price of
                             •   Entry into coal mining and further
                                                                                     Ammonium Nitrate( key raw material)
                                 forward integration in form of power
                                                                                     can have negative impact on
                                 generation will help add
                                                                                     bottomline.
                                 substantially to topline and
                                 bottomline.

                             •   Entry into African market will help
                                 grow business faster.




11                                                                                                    KRChoksey - Institutional Research
Solar Industries India Ltd


                                     Valuation & Recommendation :
 •    In the past , Solar has
                                     We are applying SOTP method to value the company.
      traded in forward PE band
      of 5.40x- 21.45x.
                                      Explosive Business @ 8x FY11 E PE                           (A)                      40x9= Rs 360
 •    There is visible and secular
      growth potential for the        Coal Block using DCF                                        (B)                              271.65
      company for next 5-7 years      Total Value                                               (A+B)                              631.65
      period.

 •    Our 9x Forward PE multiple     Thus we recommend STRONG BUY on Solar Industries with 1 year price target of Rs 631.65,
      assigned to Solar falls on     which gives potential upside of 39% from CMP of Rs 455.
      conservative side.

                                     Peer Comparison :


                                     FY10 Basis


                                      Company         Sales( Cr)   ROCE(%)   ROE(%)      PE        PB        EV/EBITDA      Debt-Equity

                                      Solar
                                                       557.42        21%      22.1%      10.2      2.97          7.3             0.4
                                      Industries
                                      Gulf Oil          1043         3.2%     0.8%       NA        1.6           58.8            0.9
Solar is the most attractively
priced among peers(both               ORICA(AUD)         741        20.0%     10.8%      24.4      2.9           8.1             0.4
domestic as well as global)
compared to returns it has            SASOL(USD)        13784        7.1%     7.7%       19.4      2.1           NA              0.2
offered to its shareholders.




12                                                                                                        KRChoksey - Institutional Research
Solar Industries India Ltd


                                     Financial & Analysis :

                                     Segmentwise Revenue Projection :


                                       Revenue( Rs Cr)           FY10    FY11E    FY12E           FY13E          CAGR %
                                       Explosives               353.44   463.21   686.4          842.81            33.2
                                       % of Total sales           59.9    66.4     74.2            76.3
                                       Detonating devices       122.74   126.44   156.18         178.03           13.05

•    Gross sales is growing at 23%     % of Total sales           20.8    18.1     16.9            16.1
     CAGR from FY10-FY13E due
                                       Trading sales            103.28    100      75               75            -10.0
     to 33.2% growth in explosives
     business. Operation of            % of Total sales           17.5    14.3     8.1             6.8
     explosive plant in Africa is
     leading to high growth in         Others                    10.73    7.8      7.8              8.6           -7.04
     explosives sales.                 % of Total sales           1.8     1.1      0.8              0.8
                                       Total                    590.19   697.45   925.38         1104.44           23.0




•    This is also shifting revenue
     mix in favour of explosives (
     from 59.9% in FY10 to 76.3%
     in FY13E. Realisation from
     African market is almost 2.5x
     Indian market.




13                                                                                         KRChoksey - Institutional Research
Solar Industries India Ltd




•    Though net sales and
     operating margin are
     growing,net margin is flat as
     other income as percentage
     of sales is going down.




 •    ROE is lower than ROCE
      because of tax and
      underleverage.




 •    EPS and Book value are in
      secular uptrend as business
      is churning higher profit.



14                                   KRChoksey - Institutional Research
Solar Industries India Ltd




•    Company is expected to
     generate higher free cash
     flow from FY13E onwards
     as major capex will be
     over by then.




15                               KRChoksey - Institutional Research
Solar Industries India Ltd
Balance Sheet
 Particulars( Rs Cr)                 31.03.09        31.03.10      31.03.11          31.03.12             31.03.13
 SOURCES OF FUNDS 
 Share Capital                         17.32           17.32         17.32              17.32                17.32 
 Reserves & Surplus                   203.51           247.9        300.84             372.43               453.95 
 Net Worth                            220.83          265.22        318.16             389.75               471.27 
 Loan Funds                            71.75          107.68            67                110                  110 
 Secured Loans                          34.6           79.76            32                 80                   80 
 Unsecured loans                       37.15           27.92            35                 30                   30 
 Minority Interest                      0.06            0.06              0                 0                    0 
 Deferred Tax Liability                12.82            14.2         12.82              12.82                12.82 
 Total Liabilities                    305.46          387.16        397.98             512.57               594.09 
 APPLICATION OF FUNDS                                                                                              
 Gross Block                          144.57          151.33        229.37             289.37               349.37 
 Depreciation                          28.72           36.57         48.07              62.57                80.07 
 Net Block                            115.85          114.76         181.3              226.8                269.3 
 CWIP                                   3.94           20.84              4                 5                   10 
 Net Fixed asset                      119.79           135.6         185.3              231.8                279.3 
 Investments                            4.41           10.45            5.5                 7                    9 
 Current Assets                       325.95          390.14        355.53             417.35               467.78 
 Inventories                           27.64           37.95          64.4               94.6                104.3 
 Debtors & Other debit Balance        103.16           89.77         137.7              176.8               196.71 
 Cash & Bank Balances                  72.94           93.98         72.53              64.72                81.27 
 Loans and advances                   122.21          168.44          80.9              63.45                 85.5 
 Current Liabilities & Provisions     147.49          153.04           150             144.06                  162 
 Net Current assets                   178.46           237.1        205.53             273.29               305.78
 Miscellaneous Expenditure              2.82            4.04          1.65               0.48                 0.01 
 Total assets                         305.48          387.19        397.98             512.57               594.09 
Profit& Loss
 Particulars( Rs Cr)                        FY09          FY10       FY11E           FY12E              FY13E
 Sales                                     530.37        590.19      697.44          925.87            1104.43
 Excise Duty                                42.58         32.77       55.79           74.07              88.35 
 Net Sales                                 487.79        557.42      641.64          851.80            1016.08 
 Operating Expenses                        418.00        471.39      531.92          700.15             829.15
 Material Consumed                         294.08        326.64      391.40          511.08             609.65 
 % of sales                                 60.29         58.60       61.00           60.00              60.00 
 Manufacturing Expenses                     10.80         15.76       14.12           19.57              22.35
 % of sales                                  2.21          2.83        2.20            2.30               2.20 
 Staff Cost                                 15.93         21.81       23.09           34.07              38.64 
 % of sales                                  3.27          3.91        3.60            4.00               3.80
 Administrative Expenses                     5.88         12.18        7.06           11.07              12.19 
 % of sales                                  1.21          2.19        1.10            1.30               1.20 
 Selling & Distribution Expenses            86.13         93.88       96.25          124.36             146.32
 % of sales                                 17.66         16.84       15.00           14.60              14.40 
 (Increase)/Decrease in Stocks               5.18          1.12          ‐               ‐                  ‐ 
 PBDIT                                     69.79          86.03      109.72          151.65             186.93
 % of sales                                 14.31         15.43       17.10           17.80              18.40 
 Depreciation                                6.22          7.85       11.50           14.50              17.50 
 % of sales                                  1.28          1.41        1.79            1.70               1.72
 PBIT                                      63.57          78.18       98.22          137.15             169.43 
 % of sales                                13.03          14.03       15.31           16.10             16.67 
 Interest & Finance Charges                 23.49         13.36       17.58           23.16              24.81
 % of sales                                  4.82          2.40        2.74            2.72               2.44 
 PBT before Other Income                   40.08          64.82       80.64          113.99             144.62 
 % of sales                                 8.22          11.63       12.57           13.38             14.23
 Other Income                               25.99         25.97       25.00           25.00              25.00 
 % of sales                                  5.33          4.66        3.90            2.93               2.46 
 PBT after other income                    66.07          90.79      105.64          138.99             169.62
 % of sales                                 13.54         16.29       16.46           16.32              16.69 
 Provision for Tax                          21.90         32.20       36.96           48.63              59.35 
 PAT                                       44.17          58.59       68.68           90.36             110.27
 NPM(%)                                      9.06         10.51       10.70           10.61              10.85 
 Equity shares o/s( No., Cr)                 1.73          1.73        1.73            1.73               1.73 
 EPS                                       25.53          33.87       39.70           52.23             63.74

16                                                                             KRChoksey - Institutional Research
Solar Industries India Ltd
Cash Flow
 Particulars( Rs Cr)                                           FY09               FY10            FY11E            FY12E            FY13E
 Net Profit before Tax                                         66.07             90.79        105.64              138.99           169.62 
 Adjustments                                                                                             
 Depreciation                                                   6.22              7.85             11.50              14.50         17.50
 Interest Expenses                                             23.49             13.36             17.58              23.16         24.81 
 Operating Profit before W/C changes                           95.78            112.00        134.72              176.65           211.93 
 W/C Adjustment                                                26.86             ‐37.6             10.12          ‐76.84            ‐14.67 
 (Increase)/Decrease in Debtors                               ‐52.96             13.39         ‐47.93                  ‐39.1        ‐19.91
 (Increase)/Decrease in Inventories                            15.37            ‐10.31         ‐26.45                  ‐30.2             ‐9.7
 (Increase)/Decrease in Loans                                 ‐63.85            ‐46.23             87.54                ‐1.6               ‐3 
 Increase/(Decrease) in creditors                              128.3              5.55             ‐3.04               ‐5.94        17.94 
 Cash Generated from operations                              122.64              74.40        144.84                  99.81        197.26 
 Adjustment for Tax                                          (21.90)         (32.20)          (36.96)             (48.63)          (59.35)
 NET CASH FROM OPERATING ACTIVITIES                          100.74              42.20        107.88                  51.18        137.91
 Increase in Misc Expenditure(not w/off)                       ‐1.17             ‐1.22              2.39               1.17              0.47 
 Addition in Fixed asseet                                     ‐28.66            ‐23.66             ‐61.2                ‐61               ‐65 
 Investment                                                     0.58             ‐6.04              4.95                ‐1.5               ‐2 
 NET CASH FROM INVESTING ACTIVITIES                           ‐29.25            ‐30.92         ‐53.86             ‐61.33            ‐66.53
 Accumulated deferred Tax liability                             1.37              1.38             ‐1.38                   0                0
  Dividend                                                     ‐7.79            ‐12.12         ‐13.62             ‐16.04            ‐24.57 
 Tax on dividend                                               ‐1.33             ‐2.06             ‐2.32               ‐2.73            ‐4.18 
 Interest Expense                                             ‐23.49            ‐13.36         ‐17.58             ‐23.16            ‐24.81 
 Net increase/(Decrease) in debt                              ‐39.61             35.93         ‐40.68                    43                 0
 NET CASH FROM FINANCING ACTIVITIES                           ‐70.85              9.77         ‐75.58                  1.07         ‐53.56
 Net increase/(decrease) in cash                                0.64             21.05         ‐21.56                  ‐9.08        17.82 
 Cash & Cash equivalent at beginning of year                    72.4             73.04             94.09              72.53         63.45 
 Cash & Cash equivalent at end of year                        73.04              94.09             72.53              63.45         81.27 

Ratio
                             Ratios                  FY09               FY10              FY11E               FY12E             FY13E 
        Balance Sheet        DebtEquity               0.3                0.4               0.2                 0.3               0.2 
                             Current Ratio            2.2                2.5               2.4                 2.9               2.9 
                             Depreciation/NFA(%)      5.2                5.8               6.2                 6.3               6.3 
                             Interest coverage        3.0                6.4               6.2                 6.5               7.5 
          Turnover           Fixed Asset Turnover     4.1                4.1               3.5                 3.7               3.6 
                             Debtor days              77.2               58.8              78.3                75.8              70.7 
                             Creditor days           110.4              100.2              85.3                61.7              58.2 
                             Inventory days           20.7               24.8              36.6                40.5              37.5 
                             Working capital days    133.5              155.3             117.1               117.6             111.5 
           Return            OPM(%)                   13.0               14.0              15.3                16.1              16.7 
                             NPM(%)                   9.1                10.5              10.7                10.6              10.9 
                             ROCE(%)                  21.7               21.0              25.5                27.4              28.9 
                             ROE(%)                   20.0               22.1              21.6                23.1              23.2 
          Valuation          PE                       13.5               10.2              8.7                 6.6               5.4 
                             PB                       3.56               2.97              2.47                2.01              1.65 
                             EV/EBITDA                8.8                7.3               5.5                 4.3               3.4 
                             EPS                     25.53               33.9              39.7                52.2              63.7 
                             BV                      127.6              153.3             184.2               226.1             275.2 
                             EV( Rs Cr)              612.96             627.85            608.35             659.43             638.25 



17                                                                                                    KRChoksey - Institutional Research
Solar Industries India Ltd
                                     Appendix :

                                     Explosives Industry: Current Scenario

                                     Global Market:
 •     North America, china &           • Current size of Global explosives industry is approximately USD 10 bn.
       Australia are top three                                           Global Explosive consumption(%)
       markets for explosives
       accounting for 25%,15% and
       13% of total global                              N America
       consumption respectively.                                                             5%      5%
                                                        China
                                                                                      5%                                    25%
                                                        Australia
                                                                                6%
                                                        Latin America
                                                        SE Asia             7%
                                                        Africa
                                                        Eastern Europe
                                                                                7%                                             15%
                                                        India
                                                        W Europe                        12%
                                                                                                               13%
                                                        Russia
                                     Source: Company, KRC Research


                                                                           Explosives( Consumption)

                                                                          20%


  •    Coal mining is the largest
       consumer of explosives
       accounting for 70%
       consumption.                                         10%


                                                                                                                      70%



                                                                                     Coal Mining
                                                                                     Metal ore mining
                                                                                     Construction & others

                                     Key Growth Drivers:

                                         •   Growth in mineral Production in next 5 years:
                                                                                           3.40%
                                                     Met Coal                                3.90%

                                                                                                          6.40%
                                                      Iron Ore
                                                                                                                                  11%

                                                                                                     5.20%
                                                 ‐1.60% Ni ckel

  •    Due to incresed global                          Copper
                                                                                       3.10%
                                                 ‐0.10%
       demand , Australia , the
       largest mineral producer is                        Gol d
                                                                                     2.70%
                                              ‐1.90%
       expected to register 25%
       production growth over                    Thermal  Coal
                                                                                                              7.10%
       2010-2015.                                                                                 4.60%

                                        ‐4.00%     ‐2.00%        0.00%     2.00%       4.00%         6.00%    8.00%    10.00%     12.00%


                                                                            2005‐2010             2010‐2015
                                     Source: ORICA, KRC Research




18                                                                                                                KRChoksey - Institutional Research
Solar Industries India Ltd
                                       •      Urbanisation growth in China and Infrastructure spending In Asia:

                                                                                   Urbanisation(%)


                                           world                                    49%

      •    China and India are on
           major urbanisation drive        Japan                                                66%
           as they fall below
           average global rate of
           49%.                        Germany                                                        73%

                                                                                                                                     world
                                              US                                                            81%                      Japan
                                                                                                                                     Germany
                                        Mexico                                                          76%                          US
                                                                                                                                     Mexico
                                        Russia                                                        72%                            Russia
                                                                                                                                     Brazil
                                           Brazil                                                             85%                    India
      •    Of 1070 km/year of
           planned global tunnel                                                                                                     China
           building for next 15            India                      30%
           years, 37% are coming in
           China.
                                           China                                  45%


                                                    0%         20%          40%           60%           80%         100%




                                                                            Tunnel/Year(km)
      •    Deterioration in ore
           quality requires more
                                        450              396
           overburden removal           400
           which will further propel
           global explosives            350
           demand.
                                        300                                                                          260
                                        250
                                        200                                             170
                                        150                          100                                                           100
                                        100
                                                                                                       40
                                         50
                                          0
                                                         China       Japan          India     Rest                  Europe         USA
                                                                                              asia
                                                                                  Tunnel/Year(km)




19                                                                                                                  KRChoksey - Institutional Research
Solar Industries India Ltd


                                       Indian Explosives Market:

  •    8th largest market for                  • India is the 8th largest market for explosives with total market size of Rs 15bn.
       explosives.                             • Solar Industries Ltd, Indian Explosives Ltd and Gulf Oil Corporation are top three players
                                                   in the sector accounting for 19%, 17% and 12% of total market share respectively.

                                               There are two main components of an explosives system-
                                                   •   Explosives and
                                                   •   Detonating devices.

                                       Trend in domestic explosives Demand:
                                           •   Demand for Bulk explosives has been growing at 9.6% CAGR.
  •    Bulk explosives account for
                                           •   Bulk explosives comprise of almost two third of domestic explosives consumption because of
       two third of domestic
                                               shift in coal mining operation to opencast from underground method.
       explosive consumption due
       to shift towards opencast                    600
       mining.                                                               Trend  in domestic  explosives  demand
                                                                 9.6% CAGR                                                                     503
                                                    500                                                                    459
                                                                                                        418
                                                    400                               380

                                                                   317
                                                    300                                                                                 276
  •    Current installed capacity is                                                              229               245
       approx 1.7mn tons for                                                    214
                                                             195
       explosives.                                  200


                                                    100


                                                      0
                                                             2007‐08            2008‐09           2009‐10           2010‐11E           2011‐12E

                                                                   Cartridge Explosives( 000 MT)              Bulk Explosives (000MT)

                                           •     Prodution for detonators and detonating devices is growing 6.65% CAGR and is expected to
                                                 maintain the growth momentum.Almost half the detonating fuse produced domestically is
                                                 exported outside.
                                                          1200
                                                                         Trend in Domestic  Detonators demand
                                                                                                                                       1029
                                                          1000                                                        950.62
                                                                                                        880.2
                                                                                         815
                                                           800
                                                                          688

                                                           600
                                                                                 452           461.04           470.26           470
                                                                   425
                                                           400
                                                                                                   259.2          279.93             283
                                                                                      240
                                                                     173
                                                           200


                                                             0
                                                                   2007‐08        2008‐09         2009‐10         2010‐11E        2011‐12E

                                                             Detonators(Mn No.)        Detonating Fuse(Mn Metres)        Cast Boosters(Tons)


                                           •     Current capacity utilisation level is less than 50% which is all set to change in coming years.




20                                                                                                                         KRChoksey - Institutional Research
Solar Industries India Ltd


                                         Pricing Scenario:
                                         Domestic explosives pricing is dictated by the largest consumer Coal India ltd. There has been
 •       Coal India being the largest    clear lack of consistency in their pricing policy .
         consumer plays key role in
         domestic pricing of
         explosives.                                                                         CIL awarded regular annual increase of 5-6% in
                                          Till 1998-99                                       prices and volume was distributed across large
                                                                                             number of bidders.
                                                                                             Preference given to lowest price bidder for
                                          1999-2000
                                                                                             volume allocation
                                                                                             Vendor grading system based on manufacturing
                                                                                             infrastructure, random tests of products,
  •      Now CIL has agreed for price     2001-2007
         determination on quarterly                                                          product performance during previous year and
         basis based on ammonium                                                             pricing. Price was revised on annual basis.
         nitrate prices.                  During 2009                                        Contract duration has been changed to 3 years.
                                                                                             Price revision on quarterly basis based on prices
                                          Latest
                                                                                             of Ammonium Nitrate and Diesel

                                            •      Ammonium Nitrate is the largest cost component for production of explosives , accounting
                                                   for almost 43% of total production cost. Prices of Ammonium nitrate are very volatile in
                                                   nature due to limited supply and fluctuation is more than 100% in a year.
                                            •      Bottomline of explosives producers is directly impacted by pricing dictate of coal India Ltd.
     •    Domestic explosives
          industry is heavely
          regulated which creates       Key demand drivers:
          entry barrier for             Mining and Infrastructure are key demand drivers for explosive industry.
          newcomers.
                                        Explosives consumption matrix
                                          Production                                                                  Explosives Consumption
                                          1 Mn Ton Cement                                                                        240 Metric Ton
                                          1Mn Ton Steel                                                                          340 Metric Ton
                                          1 MW Power                                                                             799 Metric Ton


                                        Key demand drivers for explosives in India are as follows:

                                            •      Power : India will be adding 120000MW additional power generation capacity over next 7
                                                   years ( Remaining of 11th plan and 12th plan), out of which coal based capacity is
                                                   72000MW.This translates into 10285 MW thermal power capacity Per annum. This will lead
                                                   to additional demand for 8.21mn Ton explosives per annum. Even if we assume modest
                                                   implementation of 50-60% of original target and 50% of imported coal we need 2mn ton -
  •      Huge coal based power                     2.5mn ton additional Explosive requirement per annum.
         capacity addition over next
         7 years will lead to               •      Steel: Steel production capacity in India is expected to grow to 124mn ton in next 5 years as
         additional 2.0-2.5mn ton
                                                   per planning commission estimate from current level of 65mn Ton. Thus on average 12mn
         explosives demand per
         annum over next 7 years                   ton new capacity per annum will be added which will require additional 4080Ton explosives
         compared to current                       per annum.
         licensed capacity of approx
         1.7 mn ton.                        •      Cement: Cement demand grows 200bps higher than GDP growth rate. This translates into
                                                   additional demand of 20mn ton per annum which means 2400 Metric ton additional
                                                   explosives requirement per annum.

                                        If above projections hold true , we are expecting additional annual explosives demand growth of
                                        4.5-5.5mn Ton per annum. Thus Indian explosives market is all set to explode.




21                                                                                                             KRChoksey - Institutional Research
Solar Industries India Ltd




 Rajiv Choksey               Co-Head Institutional Equities      rajiv.choksey@krchoksey.com                      +91-22-6653 5135

 Anuj Choksey                Co-Head Institutional Equities      anuj.choksey@krchoksey.com                       +91-22-6696 5500

 Kunal Dalal                 Head Institutional Research         Kunal.dalal@krchoksey.com                        +91-22-6696 5555



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Further, KRC Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors
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