Analyst Corner: Solar Industries: Maintain ‘buy’ with target of Rs 1,241

By: | Published: November 2, 2018 1:07 AM

Solar Industries (SOIL) reported an in-line print. Consolidated revenues grew 28% YoY to `5.21bn. Standalone revenues increased 42% YoY, while translation loss in overseas subsidiary lead to subdued growth.

The disparity in translation loss impact between topline and EBITDA for overseas operations shielded consolidated margins. Higher ammonium nitrate prices led to lower standalone margins, which management believes should recover over the rest of FY19.

Solar Industries (SOIL) reported an in-line print. Consolidated revenues grew 28% YoY to `5.21bn. Standalone revenues increased 42% YoY, while translation loss in overseas subsidiary lead to subdued growth. Translation loss impacting overseas sales/EBITDA/PAT was `390 mn/54 mn/26 mn (severe depreciation of Turkish lira). The disparity in translation loss impact between topline and EBITDA for overseas operations shielded consolidated margins. Higher ammonium nitrate prices led to lower standalone margins, which management believes should recover over the rest of FY19. We still do not see much risk to FY19/20E numbers based on

H1FY19 performance, yet the volume trends (bulk + cartridge) suggesting 5%/1% YoY growth for Q2/H1FY19 are a bit disconcerting.
What is heartening though is increased orderbook and execution of the defence segment and SOIL is firmly set to execute `2 bn/5 bn in defence segment for FY19/20E. Management reiterated 20% defence margins once defence revenue matures (i.e. FY20E). Q2FY19 witnessed `1.1 bn increase in overseas working capital debt YoY. Management expects the same to moderate as management reclaims debt to equity of 0.4x (which currently stays elevated at 0.52x). We maintain BUY on

SOIL with a target of `1,241/share.
Defence sales contributed `440 mn in Q2FY19 (`720 mn in H1FY19) as compared to `80 mn in Q2FY18 (`90 mn in H1FY18). Defence order book stood at `4.71 bn as compared to `2.46 bn in Q1FY19. Majority of the orderbook accretion of `2.7 bn QoQ is through high energy materials (HMX). Management remains confident about achieving revenue guidance of `2 bn/5 bn for defence in FY19/20E.

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