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Strong earnings momentum continues…

About the stock: Solar Industries (SIL) is the largest manufacturer of industrial explosives and explosive initiating systems in India.

* It has a capacity of ~290,000 MT/year. It holds reasonable market share in India of ~28%

* It also leads the exports share from India, which is ~70% in industrial explosive and initiating system

* It exports to 51 countries in the world and has recently expanded its manufacturing base to many African countries

Q2FY22 Results: Solar reported handsome numbers in Q2FY22.

* Revenue for the quarter was at | 787.7 crore, up 34.1% YoY, down 4.6% QoQ

* EBIDTA margins came in at 16.7% vs. 21.4% YoY & 21.2% QoQ. EBIDTA came in at | 131.8 crore, up 4.7% YoY & down 24. 6% QoQ

* PAT (post minority interest) was at | 74.8 crore in Q2FY22 vs. | 97.5 crore in Q1Y22 and | 65.2 crore in Q2FY22

What should investors do?

Solar is expected to perform decently, going ahead, but we believe the price reflects this.

* We continue to maintain our HOLD rating on the stock

Target Price and Valuation: We value the stock at | 2460, valuing the business at 35x FY24E earnings.

Key triggers for future price performance:

* Overseas subsidiaries turning breakeven and commencement of operations in Tanzania, capacity expansion and increase in geographical reach

* Defence and export segments picking up

Alternate Stock Idea: We also like SKF India in our capital goods coverage.

* SKF India is one of the leading bearing manufacturers known for its deep grove ball bearings and has a presence across industrial & auto sector

* BUY with a target price of | 3960 per share

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