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Resilient performance, better outlook…

Solar Industries (SIL) reported robust numbers for Q4FY21 owing to favourable macros. The topline jumped 45% led by an all-round performance from coal, housing & infra and exports segments. Further, positive operating leverage kept margins buoyant. With the strong performance in Q4, Solar posted growth of 12% on FY20 base overcoming a difficult year with ease. The company has also announced a dividend of | 6/share during the quarter. Revenue for the quarter came in at | 791.39 crore, up 45% YoY, 22.5% QoQ. Gross margins contracted ~105 bps YoY, 73 bps QoQ on account of higher input costs. Nonetheless, positive operating leverage aided EBIDTA margins, which came in at 20.8% vs. 16.4% YoY, 20.5% QoQ. EBIDTA came in at | 164.6 crore, up 83.4% YoY, 24% QoQ. PAT (post minority interest) was at | 91 crore in Q4FY21 vs. | 78 crore in Q3FY21 and | 50 crore in Q4FY20.

All-round performance, defence only drag…

Explosives volume rose 13% whereas realisations jumped 25%. As a result, overall explosives segment revenue leaped 42% YoY to | 418 crore. Accessories segment registered an improvement of 52% YoY to | 111 crore. Defence segment revenue came in at | 19.54 crore, down 26% YoY. The segment struggled as there were some disruptions with respect to new order processing and execution of existing ones owing to Covid-19. Going ahead, the defence segment should start firing up with the | 680 crore order book and bulk clearance order for multi-mode hand grenade.

Greenfield capex to improve market share, aid growth

SIL is planning a significant expansion to increase its packaged explosives manufacturing capacity. The company is expected to come up with a plant in southern, extreme northern region thereby bettering its geographical reach and capacity. Capex will be largely funded through internal accruals while maintaining debt/equity below 0.5. For FY22E, SIL has guided for a capex of | 315 crore.

Tailwinds across segments to propel FY22 numbers…

Similar to Q4 numbers, we expect the robust performance to continue led by higher offtake from Coal India and continued thrust from housing & infra segments. To add, foreign subsidiaries are now breaking even, with increasing topline in Australia and South Africa. Taking cognisance, we build in revenue CAGR of 21.4% in FY21-23E.

Valuation & Outlook

Solar ended FY21 on a strong note reflecting its resilience. The company has huge opportunities across geographies and is making strides to enter newer markets. Furthermore, new capex will improve volumes and gain market share in domestic business. Hence, taking cognisance of better outlook, we ascribe a BUY rating (earlier HOLD) to Solar. We value Solar at 35x FY23E with a target price of | 1640/share (earlier | 1190).

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