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Ventura Securities

12.00 AM Dec 7th 2017

Solar Ind

BSE ID : 532725     NSE ID : SOLARINDS

RECOMMENDED PRICE 1127.25

PEAK FROM RECO 2932.95 160.19%

CURRENT PRICE 2732.95 142.44%

We initiate coverage on Solar Industries India Ltd. as a BUY with a price TARGET of Rs. 1537, representing a potential upside of 37% (CMP Rs. 1127.25) over a period of 27 months.

There are not many companies in the Indian market which have sustainably grown at a CAGR of 23.8% over the period of 11 years i.e. FY2006-2017. Given the high growth estimate of its user industries viz infrastructure, mining and defence coupled with its international expansion plans, the growth momentum is expected to sustain over FY2017-2020. Solar Industries India Ltd. (SIIL) is the dominant player in the explosives industry and is nearly 5X that of its nearest peer GOCL (by revenue). Astute foresight to be compliant with regulatory licensing (which itself is an entry barrier) and a well-managed Capex planning has ensured that SIIL has maintained its unassailable lead in the explosive industry. Complementing its incisive business strategy is its enviable financial performance which makes for a compelling case of premium valuation.

Over the period FY2017-2020, we expect revenues to grow at a CAGR of 25.3% from Rs. 1579.9 crores to Rs. 3131.4 crores. The EBITDA is expected to grow at a CAGR of 27.2% from Rs. 323.9 crores to Rs. 670.7 crores and the PAT at a CAGR of 28.6% from Rs. 186.6 crores to Rs. 396.8 crores, over the same period. Return ratios - ROE and ROCE - too are expected to grow by 157 bps to 21.7% and by 375 bps to 28.7%, respectively.

Our optimism stems from the following:

• The Government of India is aggressively pushing for ‘Housing for All’ by FY2022 and is focused on developing new smart cities. These initiatives will see substantial consumption of cement and iron. In addition, Coal India’s output is expected to touch 1 Billion MT by FY2020, inevitably intensifying the need for bulk and cartridge explosives. For the period of FY2017-2020, we envisage the cartridge and bulk explosives’ volume to grow at a CAGR of 10% and 7% respectively.

• Government’s Defence Procurement Policy (DPP) of 2016 has opened new arenas for the private companies in the Indian defence landscape. SIIL’s proactive nature in securing all the prerequisite licenses, a defence order book of Rs. 131 crores and a regular CAPEX for building and expanding its production facilities, makes it a major beneficiary of all the tailwinds this segment has to offer. We expect the revenue from defence to climb at a CAGR of 252.5% to Rs. 450 crores by FY2020.

• Already producing in 5 countries and exporting to 22 other nations, SIIL has always believed in diversifying its geographic portfolio. Spread over the period of FY2018-2020, SIIL’s future embraces a determined CAPEX of Rs. 900 crores and expanding production to 10 new countries. The new South African operation will start generating revenue to the tune of Rs. 25 crores from Q3FY18 and we expect the total exports and overseas revenue to touch Rs. 755 crores by FY2020, a CAGR growth of 19.8%.

• Revenue CAGR growth of 25.3% over FY2017-2020 will also translate into robust operating cash flows, which we expect to grow at a healthy CAGR of 27.2% from Rs. 176.1 crores in FY2017 to Rs. 362.7 crores in FY2020. This will aid the company’s CAPEX plans as most of it will be supported by internal accruals and help SIIL in maintaining a net D/E ratio of 0.4.

We initiate coverage on Solar Industries India Ltd.  as a BUY with a price Target1 of Rs. 1537, representing a potential upside of 37% (CMP Rs. 1127.25) over a period of 27 months.

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The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. 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