Hold Solar Industries Ltd For Target Rs.1750 - 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 ~290,000 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 51 countries in the world and has recently expanded its manufacturing base to many African Countries.
Q1FY22 Results: Solar reported handsome numbers in Q1FY22.
* Revenue for the quarter came in at | 825.2 crore, up 68% YoY, 4% QoQ
* EBIDTA margins came in at 21.2% vs. 18.7% YoY & 20.8% QoQ. EBIDTA came in at | 174.7 crore, up 90% YoY & 6.2% QoQ
* PAT (post minority interest) was at | 97.5 crore in Q1FY22 vs. | 91 crore in Q4Y21 and | 42.1 crore in Q1FY21.
What should investors do?
Solar is expected to perform quite strongly, going ahead, but we believe the price reflects this.
* We revise our rating on the stock from BUY to HOLD
Target Price and Valuation: We value the stock at | 1750, valuing the business at 35x FY23E earnings.
Key triggers for future price performance:
* Overseas subsidiaries turning breakeven and commencement of operations in Australia
* Capacity expansion and increase in geographical reach
* Defence segment picking up.
Alternate Stock Idea: We also like NRB Bearings 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 | 175 per share
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