IGI Logo

Beat across segments

Solar Industries’ (SOIL) earnings witnessed beat in revenue and profitability. This was on the back of impressive overseas execution (up 7.5% QoQ and 59% from Q1FY20). Domestic capital spending on roads infra has helped domestic revenues as Housing and Infra revenues reclaim Q1FY20 levels (up 102% YoY). SOIL is looking at next 5-10 years capacity creation within the country as demand is expected to takeoff.

Certain levers are augmenting higher market share capture visibility i.e the stress witnessed by the smaller players in a higher RM cost, high working capital environment. SOIL is also looking to create two new facilities in Southern and Northern India to go closer to customers as well as to mitigate single location risks. With topline growth guidance of 30% for FY22E and ~15- 20% in the long-run, management expects RoCE to move up to 30%. We downgrade SOIL to ADD from BUY with a revised target of Rs1750/share (Rs1645/share earlier)

* Standalone EBITDA margins maintained at ~18% QoQ. Gross margins at 32.2% was down 133bos QoQ, while decline in other expenses helped EBITDA margins – other expenses declined to 8.9% of revenues against 10.3% QoQ. Housing and Infra as a % of standalone revenues declined (41% vs 45% QoQ). Consolidated Gross Margin/te declined ~1% QoQ to Rs16,862/te while EBITDA/te improved 1% QoQ to Rs9414/te.

* Overseas business turnaround continues to aid revenue/margins. Overseas and exports revenues were up 51% YoY and 7.5%QoQ. Export and overseas segment is up 59% from Q1FY20 – which underlines the remarkable improvement that the segment has witnessed. We continue to highlight the significant triggers towards profitability improvement that overseas operations exercise. Turkey has scripted a turnaround, which has helped revenues as well as margins. Ghana operations have reached breakeven, South African operations were expected to reach breakeven in Q4FY21 while Australian operations will soon start contributing meaningfully. SOIL has started two new operations in Burkina Faso and Albania. With such lofty growth numbers, SOIL has witnessed QoQ improvement in Conso less Standalone EBITDA margins to 27% (26.3% QoQ).

* Defence revenues up 139% QoQ to Rs467mn, second highest quarterly runrate achieved till date. Defence order book has not been disclosed separately. Execution of multi modal hand grenade order seems to have led to strength in execution

* Downgrade to ADD with an increased target price of Rs1,750share. We value SOIL at 30x FY23E P/E. There has been certain traction seen with Skyroot, a space age startup helping ISRO with propulsion systems; SOIL has invested Rs175mn into the same. With subsequent rounds of funding, MTM value of SOIL’s investment into the name can bring in a surprise or two.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer