IGI Logo

Higher realization & overseas markets aids strong growth

SOIL’s revenue doubled to Rs15.7bn led by higher realization and continued scale up in overseas markets. Domestic explosives sales grew 90% YoY to Rs6.2bn led by 9% volume growth (at Rs87,661 MT) and 74% higher realization YoY (at Rs70,900 MT). Exports & overseas sales grew 106% YoY and 25% QoQ to Rs7.4bn (15-16% volume growth), likely due to scale up from newly forayed countries. Gross margin fell 350bps YoY to 40.4%, but was up 640bps QoQ. EBITDA margin rose 240bps YoY to 19.1% and was in-line with our estimate. EBITDA grew 127% YoY to Rs3bn while PAT jumped 139% YoY to Rs1.8bn, above our estimate of Rs1.4bn. Defence progressed well, with healthy sales of Rs1.1bn, export order of Rs3bn and likely commercialization of Pinaka rockets from FY24. With robust order book position and strong H1 performance, SOIL has revised its FY23 revenue growth guidance to 50% YoY (vs. 30% earlier) with sustainable EBITDA margin of 18-20%. Factoring in higher realization and defence scale-up, we increase our FY23E/24E earnings estimates by 11%/18%. We roll forward our valuation to H1FY25E with revised target price of Rs4,700 based on P/E of 45x (up from 42x earlier due to imminent and large Pinaka opportunity). Maintain BUY.

Domestic market update

Domestic sales was realization driven (up 74% YoY and flat QoQ to Rs70,900/MT) while volume grew 9% YoY to 87,661MT. Initiating systems grew 50% YoY to Rs1.3bn. Sales mix was Coal India (Rs2bn, up 68% YoY), institutional (Rs2.7bn, up 200% YoY) and Infra & housing (Rs2.4bn, up 55% YoY). Volume growth in FY23E is likely at 15%. Margin improved in Q2 as AN prices gets passed through with a lag. Share of Coal India in total sales is likely to be lower at 12-15% as non-CIL miners & other segments scale up.

Exports and overseas market update

Exports and overseas sales rose 106% YoY to Rs7.4bn with 15-16% volume growth, which will sustain in FY23E. Overseas sales is witnessing a healthy scale up and is likely to get further fillip as plants in Australia and Indonesia are likely to be operational in H2FY23.

Defence segment update

Defence sales were healthy at Rs1.1bn, crossing Rs1bn quarterly rate for the first time vs. Rs600mn-Rs700mn range over the past 4 quarters. SOIL secured Rs3bn export order towards ready to use ammunition and is deliverable over next two years (production to start from Q1FY24). One RFP for Pinaka rockets is floated and two more are likely over the six months. Commercialization of Pinaka will commence from FY24. Order book rose 64% QoQ to Rs8.9bn while defence sales is likely at Rs4bn/Rs7.5bn in FY23/24E.

Other Updates: (1) Ex-cash net working capital days improved to 87 days (annualized) vs. 108 days YoY. (2) OCF in H1FY23 was at Rs1.4bn vs. Rs314mn YoY. (3) Capex outlay for FY23E is planned at Rs4.5bn-Rs5bn.

Retain Buy with a revised target price of Rs4,700

We expect strong revenue/EPS CAGR of 27%/33% over FY22-25E. The valuation will be aided by (1) market leadership and robust margin profile in licensed-controlled explosive industry with high entry barriers, (2) strong overseas growth prospects led by foray in large countries and (3) imminent defence scale-up due to large Pinaka opportunity.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

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