Buy Solar Industries Ltd For Target Rs.3390 - ICICI Direct
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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 ~300,000 MT/year. It holds reasonable market share in India of ~28%
* It also leads the exports share from India, which is around 70% in industrial explosive and initiating system
* It exports to 55 countries in the world and has recently expanded its manufacturing base to many African Countries
Q1FY23 Results: Solar reported handsome numbers in Q1FY23.
* Revenue for quarter came in at | 1615.6 crore, up 95.8% YoY & 22.7% QoQ
* EBIDTA margins came in at 17.5% vs. 21.2% YoY & 20% QoQ. EBIDTA came in at | 283 crore, up 62% YoY & 7.7% QoQ
* PAT (post minority interest) was at | 170.2 crore in Q1FY23 vs. | 167.9 crore in Q4FY22 and | 97.5 crore in Q4FY22
What should investors do? Solar is expected to perform well going forward on back of strong demand from Coal and Infra sector along with its foreign subsidiaries.
* We changed our rating from HOLD to BUY on the stock.
Target Price and Valuation: We value the stock at | 3390, valuing the business at 38x FY24E earnings.
Key triggers for future price performance:
* Better performance from overseas subsidiaries on the back of strong demand and economic activities returning to normal.
* Defence and export segments picking up due to diversified portfolio.
Alternate Stock Idea: We also like NRB in our capital goods coverage
* It offers a play on needle roller bearings, which are largely used in auto applications.
* BUY with a target price of | 220 per share i.e. 18x P/E on FY24E EPS.
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