CMP 892.00

Target Price 981.00

ISIN: INE343H01011

MAY 30th

, 2013

SOLAR INDUSTRIES INDIA LIMITED Result Update: Q4 FY13

BUYBUYBUYBUY

Stock Data

Sector Specialty Chemicals

BSE Code 532725

Face Value 10.00

52wk. High / Low (Rs.) 1099.00/749.00

Volume (2wk. Avg ) 6470

Market Cap ( Rs in mn ) 16197.71

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 11218.14 12564.32 13695.11

EBITDA 2100.11 2302.40 2522.72

Net Profit 1162.93 1267.39 1370.22

EPS 64.26 70.03 75.71

P/E 13.93 12.78 11.82

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX SOLAR INDUSTRIES INDIA LTD

SYNOPSIS

Solar Industries India Ltd (SIIL) founded in

1995, is one of the largest comprehensive

explosives & initiating devices manufacturing

Industry in India.

SIIL has posted a consolidated net profit of Rs.

319.56 million for the quarter ended March 31,

2013 as compared to Rs. 296.25 million for the

quarter ended March 31, 2012.

SIIL has expanded its business by setting up

manufacturing facilities in Zambia & Nigeria.

SIIL is planning to develop specific products for

the Defence Sector.

Solar Overseas Netherlands B.V. has increased

its stake from 54% to 74.50% in Ilci Patlayici

Maddeler Sanayi Ve Ticaret Anonim Sirketi

(ILCI).

SIIL has recommended the Final Dividend of

60% i.e. Rs. 6 per share on equity share of Rs.

10 each.

SIIL has increased its holding from 51% to

100% in Solar Mining Resources Ltd.

SIIL is adding another 10,000 TPA bulk capacity

in addition to our existing 10,000 TPA &

installing 5000 TPA of cartridge unit in Central

and East African countries.

Net Sales and PAT of SIIL are expected to grow

at a CAGR of 12% and 10% over 2012 to 2015E

respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Solar Inds Ltd 892.00 16197.71 64.26 13.93 2.83 100.00

BASF India Ltd 612.00 26490.80 26.36 23.22 2.28 40.00

Pidilite Industries Ltd 293.05 150306.70 8.44 34.74 10.95 190.00

Sudarshan Chemical Industries Ltd 282.60 1956.40 34.48 8.20 0.72 125.00

Investment Highlights CONSOLIDATED

Results updates- Q4 FY13,

Solar Industries India Ltd is one of the largest

comprehensive explosives and initiating devices

manufacturing Industry in India, reported its

financial results for the quarter ended 31st MARCH,

2013.

Months MAR-13 MAR-12 % Change

Net Sales 3097.61 2587.17 19.73%

PAT 319.56 296.25 7.87%

EPS 17.66 17.10 3.26%

EBITDA 563.31 557.63 1.02%

The company’s net profit jumps to Rs.319.56 million against Rs.296.25 million in the corresponding quarter

ending of previous year, an increase of 7.87%. Revenue for the quarter rose by 19.73% to Rs.3097.61 million

from Rs.2587.17 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.17.66 a share during the quarter, registering 3.26% increase over previous year period.

Profit before interest, depreciation and tax is Rs.563.31 millions as against Rs.557.63 millions in the

corresponding period of the previous year.

Expenditure :

Break up of Expenditure

Rs. Millions

Q4 FY13 Q4 FY12

Cost of Materials Consumed 1639.55 1355.09

Employee Benefit Expenses 150.07 128.96

Depreciation 43.08 34.29

Purchase of Stock in Trade 1.11 118.81

Other Expenditure 727.33 548.04

Segment Revenue

Latest Updates

• Solar Industries India Ltd has recommended the Final Dividend of 60% i.e. Rs. 6 per share on equity share of

Rs. 10 each.

• Solar Industries India Ltd has expanded its business by setting up manufacturing facilities in Zambia &

Nigeria and is charting new destinations.

• Solar Industries India Ltd is now in process of developing specific products for the Defence Sector.

• Solar Industries India Limited has increased its holding from 51% to 100% in Solar Mining Resources

Limited.

• Solar Industries India Limited through its step down subsidiary Solar Overseas Netherlands B.V. has

increased its stake from 54% to 74.50% in Ilci Patlayici Maddeler Sanayi Ve Ticaret Anonim Sirketi (ILCI).

• Solar Industries India Limited has increased its market share to 27% from 24% in last financial year.

• Solar Industries India Limited has launched electronic detonators in the domestic market.

• Solar Industries India Limited is adding another 10,000 TPA bulk capacity in addition to our existing 10,000

TPA and installing 5000 TPA of cartridge unit. This will enable us to serve the mining needs of Central and

East African countries.

Company Profile

Solar Explosives, a Solar group company was incorporated on February 24, 1995 by Satyanarayan Nuwal,

Nandlal Nuwal and Kailashchandra Nuwal. The journey of “Solar” Group started in the year 1984 when a

proprietary firm Solar Explosives was formed by Satyanarayan Nuwal for trading in Explosives. In this year one

of the, then largest Indian Explosive manufacturing company awarded its first consignment agency to Solar

Explosives. The name of Solar Explosives Limited got changed to Solar Industries India Limited and the trading

symbol of the Company on NSE was changed from SOLAREX to SOLARINDS with effect from April 13, 2009.

The Solar group has a two decade reputation in the explosives industry, starting out as a trading organization it

soon became the nation's biggest explosives trading entity. The Solar Group has a licensed & installed capacity of

175, 000 MT of Explosives, 140 million Detonators & 20 million meters of detonating fuse.

By the year 1996, Solar established an effective trade network as well as Institutional market. Banking on strong

marketing network and manufacturing experience gained in Solar Carbons the Group entered into

manufacturing of Explosives by incorporating Solar Explosives Limited at Nagpur in the year 1996. In 1997 the

promoters started manufacturing Detonators under Economic Explosives Limited. Also in 1997 the promoters

started manufacturing non Explosive component required for manufacturing detonators under Solar

Components. In the year 2000 the promoters under Solar Capitals Limited started manufacturing of Bulk

Explosives.

In September 2005, Solar Explosives acquired all the shares from the promoters of Economic Explosives Limited,

Solar Capitals Limited and Solar Component Limited by swapping their holding with the shares of Solar

Explosives Limited to make the three companies its wholly owned subsidiary.

Manufacturing Locations

The manufacturing facility of the company is located at Village Chakdoh, 37 kms from Nagpur and is spread over

an area of 150 acres. This ISO 9001 certified facility with a licensed capacity of 80,000 TPA of all kinds of

explosives is the largest manufacturer of packaged explosives in India.

Products manufactured by the company:

The company is one of the largest manufacturers and suppliers of Explosives and Explosive Accessories in India

covering the entire range of products such as Bulk and Cartridge Explosives, Detonators, Detonating Cords,

Pentaerythritol Tetranitrate (“PETN”), and Cast Boosters.

Clientele:

The company supplies its products to major public and private sector companies like Coal India Limited and its

subsidiaries, Steel Authority of India Limited, Singareni Collieries Company Limited, and Hindustan Zinc Limited.

The company has also supply to various national hydroelectric projects, cement industry, infrastructure and

construction sector, Border Roads Organization etc.

Its products are also exported to countries like Indonesia, Malaysia, Sri Lanka, Oman, Jordan, Syria, Lebanon,

Ethiopia, Kenya, Uganda, Tanzania, and Nigeria.

Subsidiaries:

• Economic Explosives Limited

• Solar Capitals Limited

• Solar Components Private Limited

• Solar Overseas Mauritius Ltd

• Solar Mines & Minerals Ltd

• Navbharat Coalfields Ltd

• Solar Mining Resources Ltd

• Solar Recourses Minerals LDA

• Solar Industries LDA

• Solar Agro Forestall LDA

• Solar Overseas Netherlands Cooperative U.A

Financial Highlight CONSOLIDATED

Balance sheet as at March31st, 2012

(A*- Actual, E* -Estimations & Rs. In Millions)

FY12 FY13 FY14E FY15E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 173.24 180.98 180.98 180.98

Reserves and Surplus 3872.77 5546.06 6813.45 8183.67

Net worth (a) 4046.01 5727.04 6994.43 8364.65

Minority Interest 378.04 405.44 425.71 536.40

Non-Current Liabilities:

Long-term borrowings 826.02 672.68 578.50 512.56

Deferred Tax Liabilities [Net] 196.07 206.88 217.22 226.78

Other Long Term Liabilities 0.20 0.20 0.20 0.20

Long Term Provisions 14.38 14.49 14.69 14.90

Long term liabilities (b) 1036.67 894.25 810.62 754.44

Current Liabilities:

Short-term borrowings 2006.60 2772.57 3521.16 4271.17

Trade Payables 706.47 231.42 208.28 190.78

Other Current Liabilities 680.57 855.91 1035.65 1191.00

Short Term Provisions 139.48 193.08 239.42 275.33

Current Liabilities © 3533.12 4052.98 5004.51 5928.29

Total (a+b+c) 8993.84 11079.71 13235.28 15583.77

ASSETS:

Non-Current Assets:

Fixed Assets:

Tangible Assets 3331.03 4273.72 5342.15 6488.14

(d) 3331.03 4273.72 5342.15 6488.14

Goodwill on consolidation (net) 48.43 56.98 65.53 72.73

Other non-current assets 101.20 42.79 29.95 25.16

Non Current Investments 86.16 95.20 103.77 111.03

Long Term Loans and Advances 1014.77 921.41 856.91 805.50

(e) 1250.56 1116.38 1056.16 1014.42

Current Assets:

Current Investments 27.10 394.19 604.94 816.67

Inventories 1285.91 1361.28 1429.34 1500.81

Trade Receivables 1393.24 1559.20 1715.12 1886.63

Cash and Bank Balances 630.14 921.92 1198.50 1486.14

Short Term Loans and Advances 418.09 527.07 648.30 777.96

Other Current Assets 657.77 925.95 1240.77 1613.00

(f) 4412.25 5689.61 6836.97 8081.21

Total (d+e+f) 8993.84 11079.71 13235.28 15583.77

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12 FY13 FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 9675.75 11218.14 12564.32 13695.11

Other Income 236.45 200.16 204.16 208.25

Total Income 9912.20 11418.30 12768.48 13903.35

Expenditure -7965.39 -9318.19 -10466.08 -11380.63

Operating Profit 1946.81 2100.11 2302.40 2522.72

Interest -235.76 -308.63 -339.49 -373.44

Gross profit 1711.05 1791.48 1962.91 2149.28

Depreciation -127.81 -169.74 -196.90 -218.56

Exceptional Items -43.66 -100.19 -103.20 -106.29

Profit Before Tax 1539.58 1521.55 1662.82 1824.43

Tax -425.45 -257.23 -290.99 -346.64

Profit After Tax 1114.13 1264.32 1371.82 1477.79

Minority Interest -102.09 -101.39 -104.43 -107.56

Net Profit 1012.04 1162.93 1267.39 1370.22

Equity capital 173.24 180.98 180.98 180.98

Reserves 3872.76 5546.06 6813.45 8183.67

Face value 10.00 10.00 10.00 10.00

EPS 58.42 64.26 70.03 75.71

Quarterly Profit & Loss Statement for the period of 30th SEP, 2012 to 30th JUNE, 2013E

Value(Rs.in.mn) 30-Sep-12 31-Dec-12 31-Mar-13 30-June-13E

Description 3m 3m 3m 3m

Net sales 2451.82 2781.66 3097.61 3376.39

Other income 31.08 60.95 47.45 49.82

Total Income 2482.90 2842.61 3145.06 3426.22

Expenditure -2033.46 -2333.90 -2581.75 -2812.54

Operating profit 449.44 508.71 563.31 613.68

Interest -55.49 -66.96 -84.29 -94.40

Gross profit 393.95 441.75 479.02 519.28

Depreciation -42.00 -43.42 -43.08 -43.94

Exceptional Items 0.00 0.00 -100.19 0.00

Profit Before Tax 351.95 398.33 335.75 475.33

Tax -79.11 -84.25 3.01 -103.62

Profit After Tax 272.84 314.08 338.76 371.71

Minority Interest -22.31 -31.28 -19.20 -20.00

Net Profit 250.53 282.80 319.56 351.71

Equity capital 180.98 180.98 180.98 180.98

Face value 10.00 10.00 10.00 10.00

EPS 13.84 15.63 17.66 19.43

Ratio Analysis

Particulars FY12 FY13 FY14E FY15E

EPS (Rs.) 58.42 64.26 70.03 75.71

EBITDA Margin (%) 20.12% 18.72% 18.32% 18.42%

PBT Margin (%) 15.91% 13.56% 13.23% 13.32%

PAT Margin (%) 11.51% 11.27% 10.92% 10.79%

P/E Ratio (x) 15.32 13.93 12.78 11.82

ROE (%) 27.54% 22.08% 19.61% 17.67%

ROCE (%) 30.16% 24.75% 23.55% 22.54%

Debt Equity Ratio 0.70 0.60 0.52 0.45

EV/EBITDA (x) 9.10 8.91 8.09 7.34

Book Value (Rs.) 233.55 316.45 386.48 462.19

P/BV 3.83 2.83 2.32 1.94

Charts

Outlook and Conclusion

� At the current market price of Rs.895.00, the stock P/E ratio is at 12.78 x FY14E and 11.82 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.70.03 and

Rs.75.71 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 10% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 8.09 x for FY14E and 7.34 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.32 x and 1.94 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.981.00 for Medium to Long term

investment.

Industry Overview

The chemical industry in India is poised for explosive growth in the coming years. India’s population has grown

nearly as large as that of China, with its consuming middle class accounting for about a third of its population.

The chemical industry, which includes basic chemicals and its products, petrochemicals, fertilizers, paints &

varnishes, gases, soaps, perfumes & toiletries and pharmaceuticals is one of the most diversified of all industrial

sectors covering thousands of commercial products. It plays an important role in the overall development of the

Indian economy. It contributes about 3% in the GDP of the country.

In the Chemical Sector, 100 percent FDI is permissible. Manufacture of most chemical products inter-alia

covering organic/ inorganic, dyestuffs and pesticides is delicensed.

Specialty chemical industry

Specialty chemical industry is a knowledge driven industry. In India it has been growing rapidly at 1.2-1.3x of

GDP growth rate (~12%) over the last five years and currently stands at ~$21.5 Billion. Indian specialty

chemical manufacturers have strong presence in export market also. API and colorants (including dyes and

pigments) are the key export oriented products. India exports specialty chemicals to nearby Asia-Pacific

countries which don't have competitive scale of productions. India also exports to developed countries of Europe

and USA where it leverages its low cost of production and quality talent pool.

The key specialty segments in India are agrochemicals, paints coating and construction chemicals, colorants,

Active Pharmaceutical Ingredients (APIs), personal care chemicals and flavors & fragrances.

Specialty chemicals are defined as a "group of relatively high value, low volume chemicals known for their end

use applications and/ or performance enhancing properties."

Market Size

Indian chemical industry is rapidly growing industry and is estimated at ~$108 billion (as per CMIE 2010). Of

this the specialty chemicals account for ~20%, i.e. ~$21.5 billion ($17.7 billion of specialty chemicals and $3.8

billion of agrochemicals, APIs not included here).

Going ahead, the growth potential of the specialty chemicals consumption in India is strong and it is expected to

reach ~$ 45billion by FY17 ($38 billion for specialty chemicals and $6.5 billion for agrochemicals).

Growth Drivers

Specialty chemical industry growth typically follows the growth of these key end markets. For example, an

increasingly urbanized India (cities are likely to comprise 40% of the population by 2030) will double the

requirement for clean municipal water by 2020, and therefore significantly increase municipalities' usage of

water treatment chemicals to treat/recycle waste water. Similarly, increased infrastructure spending by the

government (The XIIth Plan recommends USD 1 trillion investment in development of roads, ports, power and

telecom) accompanied by growth in the real-estate industry, could result in over 15 % p.a. growth in the

construction chemicals and coatings segment.

Growth projections

The market size of specialty chemicals in India has the potential to reach $80- $100 billion by FY21. The base

case growth rate is expected to be higher than the XIIth five year plan targets with an expected growth of ~15%

p.a. And the optimistic case is likely to achieve a growth of ~18% p.a. over the next decade.

Exports

India exports significant proportion of its production of specialty chemicals and API. During April-February

2011, exports of chemicals increased 22 per cent to US$ 7.5 billion. India has emerged as an exporter of dyes,

exporting dyes to Germany, U.K., U.S., Switzerland, Spain, Turkey, Singapore and Japan. The export of dyes is

expected to increase from US$ 1.5 billion in 2005–06 to US$ 2.6 billion in 2020.

Colorants (dyes and pigments) form the bulk of the export of specialty chemicals. Agrochemicals export is also on

the rise and major destinations for agrochemical exports are US, UK, France, Netherlands, Spain, Belgium and

Asia-pacific countries. API exports from India are into both regulated and semi regulated markets spanning

across the world.

Government Initiatives

• The government has removed licencing requirements, except for hazardous chemicals and a few special

drugs

• Entrepreneurs are allowed to set up chemicals industries following the Industrial Entrepreneurs’

Memorandum (IEM) route

• Under the automatic route, 100 per cent FDI is allowed for all chemicals except hazardous ones. Customs

duty

• The peak rate of customs duty on most chemicals is 7.5 per cent.

• The Petroleum Chemical Petrochemical Investment Regions (PCPIR) Policy has been introduced to boost the

development of chemicals and petrochemicals investment regions

• Plans are underway to set up port-based chemicals parks in SEZs to encourage clustering, provide

infrastructure and enable tax concessions

• Downstream SEZs have been planned to use the output of chemicals parks

• The newly approved PCPIR for Tamil Nadu, set up at Cuddalore and Nagapattinam, has received government

support of US$ 1.1 billion.

• PCPIR is a scheme launched by the Ministry of Chemicals and Fertilizers wherein the authority approved

investments of about US$ 34 billion in three states- Gujarat, Andhra Pradesh and West Bengal

• The Government of India also plans to establish port-based chemical parks in special economic zones (SEZs).

Road Ahead

In recent times the production of specialty chemicals have slowly shifted from developed countries to

manufacturing competitive countries of India, China, and Taiwan etc. It is imperative for India to maintain its

manufacturing competitiveness as well as for Indian manufacturers to keep pace with the product/ process

innovation cycles to build its presence in global specialty chemicals industry.

The focus of Indian specialty chemical manufacturers could be on eco-friendly products and in alignment with

stringent regulations. Segments like colorants, flavors & fragrances etc. have strong presence of unorganized

players and the market is expected to observe consolidation in these segments. Export market scenarios may

change with time and create new geographic opportunities to enter.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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