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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 ~330,000 MT/year. It holds reasonable market share in India of ~30%

* 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

Q2FY23 Results: Solar reported handsome numbers in Q2FY23.

* Revenue for the quarter came in at | 1566.6 crore, up 98.9% YoY

* EBIDTA margins came in at 19.1% vs. 16.7% YoY & 17.5% QoQ. EBIDTA came in at | 299 crore, up 126.9% YoY & 7.7% QoQ

* PAT (post minority interest) was at | 176.5 crore in Q2FY23 vs. | 139.2 crore in Q2FY22 and | 170.2 crore in Q1FY23

What should investors do? SIL is expected to perform well, going forward, on the back of strong demand from coal and infra sector along with its foreign subsidiaries.

* We maintain our BUY rating on the stock

Target Price and Valuation: We roll over our numbers to FY25E and value the stock at | 4700, valuing the business at 37x FY25E earnings.

Key triggers for future price performance:

* Better performance from overseas subsidiaries on the back of strong demand, Revenue increase from non-CIL customers in coal segment

* Defence and export segments picking up due to diversified portfolio

Alternate Stock Idea: We also like Anup Engineering in our capital goods coverage.

* Anup Engineering is one of the leading process equipment manufactures with special focus on heat exchangers

* BUY with a target price of | 1080 i.e. 15x P/E on FY24E EPS

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