ValuePickr Forum

Solar Industries Ltd

Views are invited on Solar Industries India Ltd. [BSE â 532725; NSE- SOLARINDS], a Rs. 1247 cr. marketcap company and a leader in its operational segment. HDFC AMC holds almost 9 % stake in the company with the total institutional holding in the company at 15.37 % with promoters holding 74.60 % (with nil pledge). A CAGR of 79.22 % in topline and 94.5 % in EBITDA over last 8 years even on such higher scale of Rs. 722 cr. is what makes this company worth looking at while a 30 % growth guidance each year till FY14 from the management makes the company hard to ignore for long term investment... Link to Latest Annual Report (2011) is attached for reference .....

Views are invited from fellow members with an aim to understand the company better.

Link to pdf file of this research note --

Link to Annual Report (2011) --

Solar Industries India Ltd.

BSE Code â 532725


RoNW (RoE) :






24.35 %

22.43 %

20.24 %

19.61 %

11.75 %

RoCE :






25.56 %

24.36 %

22.14 %

21.68 %

13.19 %

Market Positioning of the Company in Operational Segment :

Domestic :

Market Leader with ~22 % Marketshare with highly Backward Integrated Operations (Only Player in India) alongwith investment in Forward Integration

International :

Manufacturing Plant in Zambia & Nigeria while setting up plant in Turkey & Europe with exports presence in

30 Countries

Promoters' Holding :- 74.6 %

( 0 % = Nil Pledge )

Current Mcap :- Rs. 1247.33 cr.

FY11 Sales : Rs. 722.85 cr. (FY10 - 590.19 cr.)

FY11 EBITDA : Rs. 148.47.11 cr. (FY10 â 111.99 cr.)

FY11 EPS : Rs. 43.64 (FY10 â 33.82)

FY12e Sales â Rs. 965.3 cr.

FY12e EPS â Rs. 60.5

FY13e Sales â Rs. 1280.5 cr.

FY13e EPS â Rs. 75.1

Valuation Grading

Undervalued Till


( 1.4xFY12e.Sales, 13.5xFY12e.EPS

1.1xFY13e.Sales, 10.89xFY13e.EPS )

Reasonably Valued @


( 1.6xFY12e.Sales, 14.9xFY12e.EPS

1.2xFY13e.Sales, 12.05xFY13e.EPS )

Fairly Valued @


( 2.0xFY12e.Sales, 18.6xFY12e.EPS

1.5xFY13e.Sales, 14.9xFY13e.EPS )

Why Solar Industries deserves to be a part of one's core portfolio :

  1. When we analyse any company for its prospect to be a part of our core portfolio, we normally do an assessment of three factors, viz.,

    Past ( track-record


    Present ( growth ),

    Future ( Visibility ).

    It is very rare that any company scores well (and not only well but infact very well) in all the three aspects and in addition also has :

    a reasonably good quality clean management with

    high promoter holding ( 74.60

    % with nil pledge ) as also

    high institutional holding ( 15.37 % ),

    is a leader in its Operational Segment and

    has always operated at an EBITDA margin of 17 % + in its entire history,

    has a RoE of 24.35 % and a RoCE of 25.56 % ,

    has given an annual growth guidance of 30 % each year over coming 3 years and

      is still available at resonable valuations of just 11.9 FY12e price-to-earning (p/e) multiple and 1.3 times market-cap-to-sales ratio.

  1. Solar Industries India Ltd. ( BSE- 532725 ; NSE â SOLARINDS ) is one such company and straightaway we will start with its assessment without discussing further.

  1. CAGR of 79.22 % in Topline over the span of last 8 years is what is achieved by Solar Industries. If we look at just last five financial years, still, it has grown at a CAGR of 40.83 % and that too on a larger scale.

  1. The most significant point to note here is that the CAGR of 40.83 % in topline over last 5 years has been achieved with a corresponding 26 % CAGR in actual volumes of products of the company which is a very healthy sign and signifies expanding marketplace as also increasing market-share of Solar in the segment.

  2. EBITDA has grown at a CAGR of 94.65 % over the span of last 8 fiscal years while if we take into account last 5 fiscal years, EBITDA has grown at a CAGR of 55.82 %.

  1. PAT has grown at a CAGR of 94.99 % over the span of last 8 years and the same has grown at a CAGR of 58.69 % over the span of last 5 years.

  1. Quality of financials is healthy which is evident from the highest tax paid by the company in the industry ( at the rate of 35.5 % at PBT level and 30.36 % at EBITDA level ).

  1. Effective Management of such healthy growth is evident from the gradual reduction of interest payment as % to EBITDA which has come down to 8.56 % (FY11), consistent high RoE and RoCE over last 4 years which stands at 24.35 % and 25.56 % (FY11) respectively as also reasonable balancing of growth and shareholder payback by ploughing back higher amount of cash generated in the initial years and gradual reduction in ploughed back money with simultaneous increase in Dividend payment over last two years. This also depicts the justice done with minority shareholders which is otherwise rare in a high promoter holding (74.6 %) company as promoters could have enjoyed the high dividend payment by sacrificing growth which is not done by the management of Solar as a result of which the company today is on verge of an expoenential growth phase even on such higher scale.

  1. The growth has also continued in Q1FY12 with a 49.9 % YoY rise in topline, 31.7 % YoY growth in EBITDA and 39 % YoY growth in PAT.

  1. The management has consistently achieved growth with a conservative approach towards leverage which is evident from the reasonably healthy cash levels company maintains throughout the business cycle as also 50 % under-utilisation of bank limits granted to the company because of which its instruments command a healthy rating of P1+ and AA- from CRISIL.

  1. Companty has a planned CAPEX of Rs. 200 cr. over next two years including the current year which management is confident of financing purely with internal accruals without much increase in debt as also without any significant equity dilution.

  1. With the planned CAPEX, management is confident of achieveing 30 % annual growth in topline with improving EBITDA margins each year over next three years including FY12.

  1. Now, let's assess Solar Industries' operational segment, its positioning in its operational segment as also future plans based on which management is confident of 30 % growth each year over coming 3 years.....Solar Industries operates in Explosives Industry which is dominated (domestic) by Orica (MNC), Gulf Oil, Indian Explosives and IBP in addition to Solar.

  1. Solar Industries dominates the market at No.1 position with an approximate overall share of 22 % in domestic market. If we look more deeply into the sub-segments of main operational segment, then, Solar is No.1 in Cartridge Explosives, Detonating Fuse and Cast Booster and No.2 in Bulk Explosives and Detonators.

  1. Company has always remained ahead of its peers by proactive and efficient strategy execution like backward integration into raw material manufacture (except AN) and bulk purchase and trading of main raw material AN (Ammonium Nitrate) which has given it a high operational efficiency and highest EBITDA margins in the industry (only Orica which is MNC player in India enjoys such high EBITDA margins).

  1. The operational segment enjoys high entry barriers like industrial license requirement, clearance requirement from Home Ministry and IB, etc. because of which there is least chance of much competition emerging in the segment. As far as growth and expansion of the market segment goes, it has a very bright prospect as each of the commodity like Cement, Steel as also Power indirectly require explosives. To elaborate, 1 MnT Cement requires 1.45 MnT Limestone while 1 MnT Limestone requires 166 MT Explosives; similarly, 1 MnT Steel requires 1.70 MnT Iron Ore while 1 MnT Iron Ore requires 200 MT Explosives; to add, Per Unit Thermal Power requires 0.74 Kgs Coal while 1.00 MnT Coal requires 1080 MT of Explosives. Hence, since domestic demand for Steel, Cement, Power and Coal is not expected to slowdown significantly in foreseeable future, demand for Explosives is set to show a growing trend in near future and exponential growth thereafter.

  1. Coal sector is atpresent the largest consumer of Explosives domestically with 70 % of that consumed by Coal India. Solar Industries is the largest supplier of explosives to Coal India and already 2011-12 tender of Coal India is through in which Solar has garnered a 8-10 % growth over last year. The contract is immune to price fluctuations in raw material with a quarterly cost-escalation clause.

  1. Derisked business model as well as proactive management quality is evident from the fact that Coal India which contrbuted more than 40 % to Solar Industries' revenue 5 years before is today, as of FY11, contributing only 24.79 %.

  2. The most significant point to take note of in the business strategy of Solar over last two years is its expansion into global marketplace and its robust growth there. Exports, which were insignificant before 3 years are today, as of FY11, contributing 13.53 %.

  1. The growth in exports is likely to strengthen considerably in FY12 and FY13 as the current exports are on back of only one plant of the company being operational in Zambia (capacity â 10000 MT). Already in Q1FY12, another plant in Nigeria with similar capacity has become operational and is undergoing stabilisation and is expected to start production in Q2FY12. Construction on third plant at Turkey has commenced in the month of April 2011 and this plant in expected to start production in Q4FY12.

  1. FY13 will be the blockbuster year as far as exports of the company are concerned and coming 3 years are expected to see an exponential jump in exports of Solar.

  1. On the domestic front, company is planning to almost double the present capacity of each of its existing product in coming two years to cater to the rising demand of mining and infrastructure sectors.

  1. Solar Industries also possesses a kind of Hidden Treasure in the form of its interest in two Coal Blocks, one located at Madanpur and another located at Bhatgaon. Madanpur Coal Block in which company has a 20 % interest is classified as 'No-Go' area and a new application is made with MOFE for clearance of the same. As far as Bhatgaon Coal Block is concerned in which company has a 24.5 % share, all the formalities including Public Hearing is complete and Rehabilitation & Resettlement has been accepted. The company has already submitted revised mine closure plan and final clearance from MOFE is expected shortly after which land acquisition and development work will commence. The production from Bhatgaon block is expected to commence from FY14.

  1. In our valuation matrix we have not incorporated any upside arising out of any of the Coal Blocks that company has interest in and have only valued upsides from the core business of the company.

  1. In another significant development which is expected to boost already high profits margins of Solar further going forward, in Q1FY12, companty has got 'Mega Project' status from the Government for its CAPEX at Nagpur. This status will entitle it to many tax benefits and management conservatively expects this development to add ~Rs. 10 cr. at PBT level in FY12 itself.

At current market price of Rs. 721, Solar Industries is available at a P/E of just 11.9 its FY12e earnings and at a mcap-to-sales of just 1.3 FY12e sales and at a P/E of just 9.6 and a mcap-to-sales of just 0.9 on FY13e numbers. A company with :

  • a RoE of 24.35 % ,

  • which has consistently demonstrated high growth rates with healthy EBITDA margins over last many years,

  • has just started scratching off huge international market by setting up manufacturing plants overseas without burdening balance sheet or any form of equity dilution,

  • has also forward integrated by investment into coal blocks and,

  • is also having a high promoter as well as institutional holding (combined comes to 89.97 %) and a low floating stock,

should actually command a scarcity premium and the whiff of the smallest positive trigger could start-off a rerating process for this company.

Past Financials of Solar Industries

( alongwith key expenses as % of sales/ebitda/pat to assess earnings quality as also Last 5 Years RoE & RoCE to assess management quality )









(Fig. in ` cr.)




























Dividend Declared

80 %

70 %

45 %

30 %

15 %

15 %



Div.Payout Ratio as % of PAT

18.31 %

20.68 %

17.65 %

14.34 %

13.48 %

11.68 %



Taxes Paid

(% of EBITDA)


(30.36 %)


(28.74 %)


(22.86 %)


(26.48 %)


(22.11 %)


(21.85 %)


(16.52 %)


Interest Paid

(% of EBITDA)


(8.58 %)


(11.92 %)


(24.52 %)


(14.85 %)


(18.28 %)


(8.99 %)


(9.8 %)




24.35 %

22.43 %

20.24 %

19.61 %

11.75 %





25.56 %

24.36 %

22.14 %

21.68 %

13.19 %





At last I have found company apart from Tulsian !

Hi Mahesh,

Thank you for the detailed report as always. And what a com, explosives manufacturing!! :slight_smile:

The balance sheet of SIIL is very strong and most of the capex has come thru internal accruals. The African expansion seems to be a great move and the profit margin is better there. With export contribution increasing, the margins will only increase. Hopefully there wont be any political/social issues there. The venture into coal mining looks promising assuming that the com doesnt faulter in managing a new business alltogether (though they have been involved in the “explosion” part in mining) and th “no-go” area becomes “go” area.

The growth in the last three years doesnt look asgreat as the 5 year figures due to the muted growth in 2009-10 (11%in 09-10 and 22% in 10-11). Keeping aside the African venture, the growth is tightly linked to the infra space in India. I hope the Infra space will pickup soon (the market does not think so with most Infra cos crashing big time). Mining, Cement, roads are all in a state of perplex badly in need of favourable policies/action from the government.

Any idea about the prospects of the exportthis year? I believe the Tanzania plant will become operational this quarter.

The stock price has been moving steadily up and with very low free float the volatilitycould also be less (unless HDFC Sec and ICICI pru sells). Wondering wether we will get better prices in the coming days.



I went thru the recommendation as well as the AR for FY 11. Excellent company in an excellent space. My only grouse is valuations which of around 10 times fy 13 earnings.

If one looks at some other choices available in the markets due to the current correction, this looks expensive. First company that comes to mind is mahesh’s own find-- PI inds available at roughly 8.5 times fy 13 earnings expected to be around 110 (and i feel these are conservative). Many other companies are out there with similar attractive discount tags attached.

Again Solar inds might not get cheap soon enough because of low floating stock, but upsides also need to be looked up.

All in all a good company to keep in one’s radar to lap up if there is sharp price correction due to a poor quarter or due to market correction bringing it down.

Hi Vinod,

As far as coal mining goes, they have ventured via JV with the company of expertise in mining… Also, the investment done in both the ventures are provided as a loan and they earn interest on it… In the present valuation matrix which I have provided, I have not atall factored in the positive development on any of the coal bloacks (although one coal block is through) and have valued it only based on core business…

**Yes the growth was muted in FY10 because the company invested heavily and was building exports presence then and so once the first plant in Zambia got operational in Q2FY11, the growth has been excellent…As far as your take on infra space goes, the muted valuations of the sector are because of balance sheet and other non-ethical practices issues and there is no doubt regarding the prospect of infrastructure growth in India because its a natural progession which is a compulsion… **

Nigeria plant has become operational already and exports will contribute satisfactorily this fiscal and heavily from next fiscal…

When a story is promising and convincing one can’t wait for better rates… Agreed better rates might come but will only come once there is some negative news specific to co. and in such a scenario our entire basis goes wrong and so we need to reassess the investment prospect post that development… Its like basing our investment on hope and no investment has to be based on hope but real facts…


explosives manufacturing!! :)) asgreat exportthis volatilitycould

Thank You Mahesh,

Forgot to add, the company’s AR and investor presentation in their websiteare very well detailed and nicely presented. There is a mention of venturing into the defense sector, woudnt that also be a good verticle? Growth in exports, revenue from coal mining (if they havegiven a loanfor this, is there profit sharing aswell?) and defence bus could give great impetus. Any idea if these will impact this year and to what extend?

How would you rate this compared to PI, both at current valuations.

Thank you again


Sorry forgot to ask you about the seasonal impact. Normally mining bus will be down this quarter. Solar’s bomb woudnt expolde in rainy conditions I guess :slight_smile:

Accepted that facts should be looked to build conviction, but still a hope if general market conditions and poor quarterly results will lead to better prices…greedy.

Thank You


Hi Hitesh,

PI Ind. is a great company and is very different from Solar and I must admit that we rarely get an opportunity to invest in cos. like PI at current valuations… If both are compared, definetly PI will be a winner by a wide margin…

But while looking at cos. we can’t compare them unless they are in same space…Hence, if anyone goes deepand analyses Solar from all angles then there is a chance of judging its prospect…

Two main things that justify the current valuation as well as future upsides are (1) 30 % growth guidance till FY14 and (2) Co’s. succesful diversification overseas, especially in rich mining areas like Zambia

Now, here, I must say frankly that we need to wait for Q2FY12 numbers togauge the exact prospect of this co. but if its able to achieve a topline of 210 cr. + in Q2FY12 then a significant rerating of this counter is iminent as second half is always better than first half and it will mean that it will be crossing the expected topline of 965 cr. for FY12 quite comfortably and might touch four figure sales mark this year itslef…

Also, because of the MegaProject status granted to the capex at Nagpur, co. has to give employment to atleast 600 labourers which itself is a sign of growth expected by the company in future and hence, 30 % p.a. growth guidance till FY14 looks achievable…

Now, when you have a 1000 cr. sales co. growing at, even if we don’t consider 30 %, say 25 % p.a. and is trading at just 11.9 p/e FY12e EPS, it can’t remain there for too long… Also, in my experience over last many years, I have observed that the cos. which operate at high EBITDA margins always trade at a premium and this co. has never in its history of existence gone below the EBITDA margin of 17 % and so it deserves to trade at a forward 15 p/e which means that if the calculations that we are assuming are correct, there is minimal downside from current levels.

Also, I have studied many international cos. in this space including Orica,Maxam, Enaex and the way Solar is going, within few years it will be a name to reckon with on international arena… remember, out of India’s total exports of explosives, Solar contributes more than 60 %… Still, Solar has just scratched the surface of the international potential considering its lack of presence in North America, world’s largest consumer of explosives… So far, to start with, it has started with Africa which consumes only 7 % of global explosives, Now, till FY13 it will be venturing into Euope which consumes 11 % of global explosives… The most significant thing is, all these is done without sacrificing growth, profitability as well as with confortable leverage position…This strategy is interesting and commendable and deserves much premium valuations…

Thanks to all for your candid views and keep sharing your views…


**Vinod, **

First rgdg. your second query, yes, monssons dampen mining activities but growth might not be muted to a significant extent and thats why in my reply to Hitesh I said Q2FY12 is key monitorable…

Rgdg. defense sector foray, its just a token foray and in FY12 they will be supplying only small small items to DRDO and revenues from this will be hardly 1 cr. this fiscal…

With rgds. to comparision to PI, I have already stated in my reply to Hitesh rgdg. this that two cos. can’t be compared as both are in different spaces but PI is a great company with good visibility because of its order-book and efficient management while Solar is a great company because of its positioning in its operational segment as well as the strategies of the management.


websiteare …

Link to latest research report post Q1FY12 from KR Choksey – Target - Rs. 976 :

GV raised some interesting queries on Solar and I am posting my replies to it below :

Hi GV,

**Please find replies in bold…

  1. Any where have they mentioned the potential in those foreign countries (like Namibia, Turkey & Zambia where they have opening/opened factories)?

Ans.- In Nigeria they have indicated potential market-size of 200 cr. + of which they do around 70 cr. (they had acquired distribution co. there so the sales don’t reflect only from nigeria)… In Zambia the potential market is huge as its the main mining area and new mines are being set-up there… At present they are doing there only 14 cr… Rgdg. FY12 they have indicated 40 cr. from Zambia, and 100 cr. from Nigeria. Rgdg. Tanzania they have not indicated anything…

  1. How many years they may need to reach 80 to 85% of capacity utilisation at these places?

It depends on many factors, but it might take roughly 1.5-2 years…Also, its safe to assume that such high utilisation might not be feasible as explosives is a different business and depends on mining activities which itself depends on various factors like monsoons, etc.,

  1. Will they have same type of margins in those foreign countries also?

No… Margins are better, stable in upwards of 18 % + (they indicated till 20 % for zambia in FY12) as compared to domestic 17 % +. Also, here you need to understand one thing that margins will be much superior atleast for coming 2-3 years in Africa as there is least formidable competition there and Solar’s management was proactive and was right in judging the future potential and so will have first mover advantage… Orica, the main competitor of Solar in India has followed Solar’s footsteps and is now in the process of setting up 10000 MT plant in Zambia… For this plant it will take few years to come up but the plant of Solar in Zambia which started in 2010 is now fully stabilised and is ready to increase utilisation levels from this year , i.e. FY12.

  1. If local demand does not grow, then it may be difficult for the exports to add to this local shortage?

Agreed… But GV I can’t understand what you are thinking… Are we going to come to ground-level zero on infra space… Its impossible… Also, the thing which you are seeing in urban area, the picture is totally different in rural area… You just see there the construction projects going on… the infra initiatives of Gujarat & Bihar which are slowly reaching rural area… Here , I am not talking about just from the news items but with personal experience… I have one servant from a far away village to patna, now he doesn’t have to go via weak roads, perfect concrete road is in place and is getting constructed for reaching every villages, near his village a big power plant is being set-up, there is a labour shortage there and wages have shot up and so have his land prices… and this I am talking about just latest one month before experience when he came back from native place…Similarly, when I researched for PI and interacted with ground-level knowlege-bearing people of villages in Gujarat, a complete transformation is taking place and there are hoards of infra initiatives lined up…

Apart from these experiences, lets talk about figures… Coal industry which consumes 70 % of explosives, lets talk about it… India has the fourth largest coal reserves after US, Russia and China… India’s domestic demad for Coal is rising at the rate of 11 % p.a., India’s coal imports are likely to rise more than 50 % in 2011-12 while domestic production of coal which was forecast to grow by 7-8 %, is scaled down to grow at 3-4 % for 2011-12 becuase of delay in clearnces…Now, a country with 4th largest reserves has to suffice its almost 20 % domestic demand by inports, its highly unlikely…Govt. will step-up and issue clearances soon so that coal output can be increased…Even if it doesn’t, a 3-4 % rise in coal production (mining) could very well mean a 10 % growth for explosives industry, specifically Solar… and that is what management has indicated by garnering 8-10 % growth in coal india tender for 11-12.

You see, to look at other way round… India is the third largest Asian economy which is growing at 7-8 % and Coal accounts for more than half of the power generation of India… Hence, coal production has to go up which will hugely benefit explosives industry…

Now, take the example of Steel, production of Steel has increased from 65 MTPA to 80 MTPA in 2010-11 and is forecast to touch 120 MTPA by 2012-13… This forecast is made just last week…Steel requires Iron Ore which in turn again requires explosives… To just clarify here, karnataka mining ban for iron ore should not hugely affect Solar as it doesn’t have operations there.

Now, to come to Cement, India is the second largest Cement producing country whose production has increased to 315 MT from 300 MT this year… Out of the 137 large plants and 365 odd small cement plants that India has, only large plants themselves employ 1,20,000 people…Now, can a govt. afford slowdown here… a clear no… This is the reason why in a recently published report in which all the leading cement cos. were partcipants, they have forecast CAGR of 12 % for cement production in the period 2011-12 till 2013-14… Now, Cement requires limestone and limestone requires explosives…

The exact qty. of explosives required each for coal, limestone and iron ore are given in my research note…

Hence, what I want to say here is that domestic demand can’t die down completely and Solar is the only company from India which has shown reselience and has grown despite all odds by proactive strategy… 2008 meltdown also didn’t affect this co. which can be seen from the numbers posted by the co. since last many years and on first signs of slowdown in domestic demand co. ventured overseas to sustain the high growth rate achieved by the co…

  1. Any idea what would be the difference between cartridges and bulk explosives?

Bulk Explosives, as the name suggests, are high-grade explosives used for explosion in large open cast mines whereas Cartrdge Explosives are Small and Large diameter packaged explosives which are used for small open cast mines, underground mines and infra projects… Margins are better in later…

  1. SIL’s growth in future purely depends on Coal, Cement, Steel & Road sectors performance?

Yes… but not the performance but the core growth…

  1. Who are the major competitors? What prevents their customers from shifting to them?

As mentioned in my research note also… its Orica, Gulf, IBP, Keltech and Premier…

First and foremost the growing market-size, capacities of Solar, quality of products as also reliability and ability to deliver which is crucial…

Also, here I think you have not focussed on details of my research note in which i have given positioning of Solar in each of the sub-segments of industry… will touch on it in your query no. 10.

  1. Other than licenses and regulatory approvals, is there any entry barriers for others to enter?

)— Industrial License Required
)— Home Ministry Clearnce Rqd.
)— IB Clearance Rqd. Rgdg. Safety of Location
)— NoC rqd. From District Magistrate
)— Police, PWD and Grampanchayat Clearance Rqd.
)— License rqd. From Chief Controller of Explosives, GOI
)— DGMS permission rqd. For underground use

  1. Any idea how much market share they have in India?

Solar – ~22 %
Orica – ~ 19 %
Gulf – ~ 13 %
IBP – ~5 %
Keltech – ~5%
Premier – ~4%

  1. Are they in a position to pass on the increase in prices (even may be a after a lag)

Yes… they pass on price on a quarterly lag… every contract they enter into provide for that…

  1. Coal India which is a PSU is their main customer giving almost 25% of their business. Is their contracts with them allow SIL to pass on the increase in prices?

Yes since last 2 years the contract provides for a quarterly revision in prices…

  1. While it used to be quoting more than 20 PE, but after 2008 crash, it has been quoting between 18.5 to 5.65 forward PE. Assuming they will do Rs.50/-, at CMP of Rs.745/-, it is already at 15forward PE Any PE expansion is possible?


Well… what happens GV is, in this markets you hardly find quality with growth and with both of these if we find reasonable scale then its the opportunity we need to latch on… Thats why I was maintaing since last 8 months or so that PI is the safest pick in the market as it offered excellent quality with tremendous growth coupled with reasonable scale… It had a unique business model and it operated at high margins and so even today I will say that if I had to invest I will first prefer PI and there is no doubt about that…

But, Solar is in a different space and has its own positioning in the protfolio… you see it has to its side excellent growth track-record and proactive management, its expanding overseas presence is hearty, its scale near to 1000 cr. is un-ignorable and above all its consistent 17 % + EBITDA margins is the biggest asset…Now, if I forget this fundamental aspects and look at technical side of it then with 74.6 % promoters holding and 15.37 % FI holding with good credible names like HDFC, Icici, Birla, Reliance, Religare and now Kotak… minority shareholders like us have less to loose than them…Becuase, evenif we consider that FIs buy for profits then also for exit from this illiquid counter they need to sell it as a compelling story and go for bulk as 150 cr. + investment they have made here can’t be absorbed even at rate 0… Now consider the rate of their purchase… This co. came with an IPO in i think 2006 at Rs. 190 and post that there is not a single equity dilution done by the co… Only once it went below offer price and consistently after that it has traded above it… HDFC was the lowest entrant in this co. at around Rs. 180-250 (i am considering the lowest rate based on shareholding) in 2006-07… 4 years hence, evenif HDFC thinks of exiting its 9 % stake in this co. (which it has not atall intended and has infact increased exposure over last year), then also for that it needs liquidity or takers of the story… Now, on ground we have in these 4 years, the growth achieved by the co. for us to see as also 30 % p.a. growth guidance given by the company till FY14… The coal block investment is a plus and when it materialises it will be a added bonus… Hence, on the whiff of the smallest positive trigger, it could rerate significantly becuase of the same rangebound consolidation it has shown over last 2-3 years as such rerating is in best interest of promoters and Fis becuase of their 90 % stake in the co.

On a 30 % growth and EBITDA margins of 17 % + it has to trade at a reasonable forward 15 p/e at one point of time only based on its core business, which might come soon which reaches to around 910 for FY12 and 1126 for FY13… Any positive development on coal blocks will be an added bonus and if in FY13 the discounting of Bhatgaon coal block getting operational in FY13-end or FY14 is made then it could easily overshoot the target price…

Having said all these, I must admit here that PI and Solar form part of my core portfolio (Solar I have invested and is still adding) and so my views have to be taken with that regards… I have tried to be as genuine and as honest as possible in my replies but do your own due diligence before taking any call…

**Thanks for sharing your views and keep sharing…


Link to Latest 12th August HDFC Sec. Report on Solar Industries…


Some of the Queries raised by GV based on the FY11 concall of Solar

)- Management was not feeling comfortable about sharing the capacity at Turkey. I don’t know why?

Yes… that pinched me too… but I think one of the reasons might be not disclosing much to competition (I have experienced this in case of PI Ind. wherein they are refraining to talk rgdg. Nominee’s revenues publicly whereas all other cos. including Dhanuka and Rallis share the info in public domain)…

)- I heard Nigeria they have done 17Cr. Is it right?

Its 70 cr. that they told…rgdg. which I have explained you in my previous reply to you…

)- Tanzania : when will they start manufacturing?

Very uncertain as clearances are not received…It is safe to assume that they might drop the plan there

)- They want to spend around 200cr for capex during next two years. He says all these would be from the internal accruals. Do they have so much of cashflow?

**Yes… they can with a mix of debt and internal accruals… last fiscal they had already incurred CAPEX of around 95 cr. and managed it very well… They are just utilising 50 % of the bank limits they have and so they are getting very high rating from CRISIL… This year expected net has to be 100 cr. + … **

)- They have already spent 97Cr on the two blocks. While they r not sure when they will start Madanpur, Bhatgaon is expected in another two years. Any idea with which company they have the tie up?

CMDC and SMS Infrastructure

)- Is their entire business is on tender basis like even to private miners and others?

Don’t think so as CIL is a PSU so its a compulsion… But, in any case private guys will go with whom will offer best quality at reasonable price…

)- Of the competitors names you had mentioned, anyone has better margins than Solar? If not what makes Solar to have such better margins?

Orica has better margins

)- Don’t you think, HDFC Securities for a change has given very aggressive targets?

No… Still I feel KR Choksey and HDFC both are underplaying topline growth of FY12… Let Q2FY12 pass…

-Do they have expertise in the mining? OR since they have JV, they will supply explosives, rest will b done by the JV partners?


)- Isn’t it something similar to diworsification?

Ans.- No…They don’t have core expertise in mining…

They will supply explosives as well as do financial investment (which is atpresent done via loans to JV) and will have specific % interest in the produce…

Now, … you see this is not atall “diworsification” but a forward integration… The term “Diworsification” is apt for a foray into an unrelated area of core expertise but this Coal Mining is a related area of the company’s core business and if it succeds in this it will be one of the few cos. in India with complete integrated operations in mining (although this is many years away as for it it will have to faray into other areas too related to mining)… You should remeber that Coal sector contributes alost 70 % to the operational market demand…

Also, this might be a foray to acquire expertise in this area as internationally, the companies in explosives segment normally offer end-to-end solutions for mining including mining consultation and core minining… If this is so then Solar could some years down the line pitch itself, nationally and internationally, as an end-to-end products and solutions provider in minining segment which will open up huge market with great margins for Solar…

Lastly, if this expansion would have been done by budening balance sheet or raising some form of significant equity, it could have been risky, but company has played very safe and invested the generated money into forward integration which is good for future growth and stability of the company…

)- They hardly make money in trading. Then any particular reasons for doing it?

Ans. - They need to trade AN, the key raw material, to ensure stability of operations as well as enjoy economies of scale and its the compulsion… Once Deepak Nitrite’s AN plant is operational by next year the import dependency might be less…

)- Where would you see the company three years from now?

Ans.- This company is in a growing operational segment which is still nascent and has huge unpenetrated market as well as scope of huge market expansion on domestic front… Even in the turbulent periods this company has shown reselience and maintained profitable operations while maintaing leadeship position… This company has succesfully carried out overseas expansion and is the largest explosives exporter of India…Over these many years, company has grown swiftly without any sort of equity issuance or debt pile-up… This is the reason why my tag-line of the research note says, Its the Rare Combination of Growth with a Conservative Approach towards leverage which, if maintained for few more years, will take the company to the next level on onternational front…

3 Years down the line I see Solar maintaining domestic leadership position (on an expanded market) and see its name getting recognised internationaly as a player to reckon with in mining industry… Key monitorable will be offcourse, for the near term, Q2Fy12, for the medium term, FY12 and events like developments with rgds. to its coal blocks and defense sector strategy which should be charted out by FY14…Financially, EBITDA Margins and topline growth are key monitorable…

Mr. Manish Nuwal, ED of Solar Industries gave an interview to ETNOW yesterday (19th August)… Key Takeaways :

(1) Company sees no threat to growth and is confident of 30 % p.a. growth in FY12 and FY13.

(2) Till date, company has faced no slowdown in demand for its products.

(3) Via Zambia plant, company is targetting the rich copper belt there.

(4) So far, Nigeria and Zambia is not seeing much uptick in mining activities but construction activity there is robust which is fuelling the demand for company’s products.

(5) Company expects Nigeria and Zambia revenues to top Rs. 160 cr. in this fiscal (FY12).

(6) Within two years, company plans to ramp up the contribution of exports to total revenues to 30-35 % from current 13 %.


Coal India Ltd., Solar’s largest customer has indicated huge push for underground mining… For underground mining usually cartridge explosives are used in which Solar Industries is the undisputed leader… News article which appeared in DNA is attached for ref.


Coal India seeks allies to unlock 1.6 billion tonne

Published: Monday, Aug 22, 2011, 8:00 IST

Coal Indiaâs attempt to reopen 18 abandoned mines and start new underground mines through partnerships flopped as none showed interest.

Indiaâs most valuable company is not giving up. It is working on a revised limited tender document with softer conditions, and if that fails too, global tenders would be floated, chairman NC Jha said.

In 2008, CIL first sought expression of interest from global mining giants to reopen 18 abandoned underground mines owned by three of its subsidiaries â Eastern Coalfields Ltd, Bharat Coking Coal Ltd and Central Coalfields â which have reserves of about 1,647 million tonne.

ArcelorMittal, Rio Tinto, Reliance Natural Resources, Sterlite, JSW Steel, Monnet Ispat and Essar Steel were among those responding to the call to revive the mines where work was suspended owing to lack of technology.

A parallel effort to develop underground mines on a turnkey contract basis also drew a blank due to unattractive tender conditions.

Efforts are now on to rework these too.

A special purpose tender document was formulated for developing seven high grade capacity underground mines.
The tenders were issued to shortlisted parties. In the absence for any response from the parties, subsidiaries were advised to reframe tender documents to make them more attractive to bidders and go for open global tender.

Jha said in his address to shareholders on Saturday that one subsidiary has been able to finalise bids for four underground mines.

Bharat Coking Coal chairman T K Lahiri recently told _DNA _the company has awarded contracts for these four mines to foreign mining companies under mine developer and operator model and plans to invite partners for another 6-7 mines soon.

Overseas, efforts are on to acquire further mines in Mozambique via its existing wholly owned subsidiary Coal India Africana Limitada.

The subsidiary plans to start shortly drilling and exploration in the leasehold area over 22,400 hectares for which tenders were floated in February. Bids from interested parties, the letter said, are being evaluated.

Jha said CIL is examining and evaluating 19 proposals from 5 companies in response to a global expression of interest for contract for long-term offtake of coal floated earlier while offers are being made to acquire coal blocks overseas.

âAfter an initial due diligence in association with technical consultants and merchant bankers of identified coal assets in Indonesia, Australia and US, non-binding indicative offers were sent to selected companies,â Jha said in the letter.

_Planning Commission concerned at coal shortfall _

27 Aug, 2011, 07.54AM IST, Devika Banerji

NEW DELHI: The _Planning Commission_ has sounded the alarm over falling coal supplies, saying that special consideration should be made for projects in environmentally sensitive areas.

In its approach paper to the Twelfth Five-Year Plan, the commission has sought a thorough review of the current approach to the environment-versus-development debate, clearly according top priority to the country’s development agenda.

At the centre of the commission’s critique is the ‘go and no-go area’ policy for coal blocks and the Comprehensive Environmental Pollution Index, or CEPI, norms adopted by the environment and forests ministry.

“Part of the reason for the shortfall in coal production is the implementation of tighter environment-related regulations, and problems in rehabilitation and resettlement and land acquisition,” the document notes.

The commission had originally targeted coal production at 680 million tonnes during the ongoing 11th plan (2007-12), but scaled it down to 630 million tonnes during the mid-term appraisal in 2010. The target was further lowered to 554 million tonnes. Coal output expanded at 7% a year during 2004-05 to 2009-10, but stagnated in the previous fiscal. In the past five years, demand grew at an average 8% and is expected to continue at the same rate during the next plan.

Coal projects have struggled to get environment clearances since 2009, when the ministry’s no-go classification disallowed mining in 203 coal blocks. According to a coal ministry’s projection, the output from those 203 blocks, estimated at 660 million tonnes annually, could have been used to generate around 1.3 lakh megawatts of power a year.

“The environment ministry had adopted the policy of 'go, no-go’a This would have severely impacted the ability to expand domestic production of coal,” said a commission official. "The policy had to be reviewed and now some coal blocks have been cleared. This has to be continued to ensure coal availability.’’

In January 2010, the environment ministry imposed a temporary ban on development works, including some coal mining projects in Jharkhand and Chattisgarh in industry clusters identified under CEPI norms. CEPI is an index of 88 industrial clusters across India, ranked according to their impact on environment and was developed to plan developmental projects in tandem with environmental protection.

The commission said the CEPI norms had prohibited mining in areas with high pollution index even if pollution was because of some other industry. “Coal being location specific, there is clearly a need for review of this (CEPI norms) approach,” the paper notes. Currently the issue is under consideration of a group of ministers headed by _Finance Minister_ Pranab Mukherjee.

The commission estimates a significant rise in reliance on imported coal as it would not be possible to meet the increased demand from domestic sources. Coal imports are expected to rise to over 200 million tonnes from the current 90 million tonnes by the end of the 12th plan.

The increase in reliance on imports not only portends a significant increase of 30% to 50% in costs for power plants, it also necessitates expensive technological upgradation as the units are not designed to take more than 10-15% of imported coal at present.

CCL to double output to 4 million tons per annum over three years

Aug 28, 2011 | PTI_mumbai_

At a time when mining companies are facing difficulties in land acquisition and getting clearances from the environment ministry, state-owned Central Coalfields (CCL) is planning to expand its operations to meet the increasing demand.

‘Mini-ratna’ CCL, a subsidiary of the industry leader Coal India, plans to more than double its coal production to 4 million tons from the present 1.5 mt through underground mining over the next three years.

“We plan to increase our production to 4 mt per annum from the present 1.5 mt through underground mining by 2013,” Central Coalfields Chairman and Managing Director R K Saha told PTI over the phone from Ranchi.

The company is slowly increasing its underground mining in a phased manner. “It is a challenging job, but CCL is handling very carefully,” Saha said.

It can be noted that strict environmental laws have put on hold many a coal and power project, apart from the iron ore mines and steel plants.

A prominent example is the Rs. 51,000 crore Posco Steel project in Orissa which even after seven years remains on paper as the company has not been able to acquire the land for the project.

There are similar other mega projects, from Tata Steel to Vedanta and ArcelorMittal in Orissa, Bihar and Jharkhand, which are pending for want of environmental clearances and lands.

While the Posco project has a conditional green nod, it is stuck with land acquisition due to stiff opposition from the local population.

The previous environment minister Jayaram Ramesh had declared dozens of coal and iron ore mines as no-go areas, which had put the projects in a limbo.

CCL recently received clearance from the Environment Ministry for its two open cast coal mines in Magadh and Amrapali. It targets to produce 20 mt per year in Magadh and 12 mt in Amrapali.

“We have floated tenders for the two new open cast mining projects and are taking steps carefully to achieve the target,” he said, adding that company requires railhead closer to the two mines.

“We have requested the government to complete the Tori-Hazaribag line early. Otherwise, it will be difficult for us to transport the produce,” Saha said.

When asked how does the company acquire land despite stiff opposition from locals, Saha said, “It is a major problem for every company. We always give priority for the welfare of the affected people.”

Coal sector has been the largest consumer of explosives in India and the growth expected in coal production augurs very well for the explosives industry, especially, Solar Industries India Ltd., which is the domestic leader in the field…

Also, the push towards underground mining planned by Coal India, Solar Industries’ largest customer, augurs very well for high margin Cartridge Explosive business in which Solar is No.1 in India.


In its latest issue dated 8th September 2011, Moneylife Magazine, in its cover story “6 Stocks for a Bear Market” recommends a Buy on both PI Industries and Solar Industries.

I am an employee in open cast Mining company. It is true that this company has been doing good business in mining companies.

The above detail data are very informative and worth to take a note.

Every thing is very interesting except the current price of the company !!!