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6 min Read
Equity Markets

Markets are on fire but without the ammunition of liquidity they could be no better than a damp squib. Yet, a liquidity-driven rally is considered inferior in nature until it’s backed by fundamentals.

Similarly, mining might have lost its aura among responsible investors despite it being a crucial sector for economic development, thanks to the ESG (Environmental, Social and Governance) theme, which has been gaining in popularity.

Can the world survive without iron, steel, copper, limestone, bauxite, zinc, and nickel?  Electric Vehicles (EVs) and solar panels, which are supposed to make our environment cleaner, consume lots of metal, don’t they?

Smartphones are one-smart-step ahead. They use some rare-earth metals which include neodymium, dysprosium, gadolinium and lanthanum.

You see, growth and environment cannot be either or choices. Thus, instead of painting the entire industry with the same brush, we should be able to spot companies which strive to protect the environment and the interest of society at large, irrespective of the nature of their business.

Solar Industries is one such company.

It is one of India’s leading explosive manufacturing companies and operates in a sector that has high entry barriers. Solar Industries commands a 25% market share amongst Indian explosive manufacturers.  

It has an all-round portfolio of explosives which includes, bulk explosives, packaged explosives, initiating systems, electronic detonators, high energy material, propellants, bombs and ammunition, amongst others. These products find applications in industries such as mining, housing, road and infrastructure, irrigation, hydrocarbons and defence, to name a few.

It has a manufacturing presence in some of the world’s largest mining countries such as South Africa, Zambia, Nigeria, India and Turkey. Solar Industries exports its products to 51 countries.  

The company incurred a capex of Rs 235 crore in FY20. The planned capex for FY21 has been Rs 210 crore of which Rs 113 crore has been completed in the H1FY21.

Recent performance

In Q2FY21, Solar Industries reported a 16% jump in its top line and 18% rise in Profit Before Tax (PBT).  The tax outgo increased from Rs 17.99 crore in Q2FY20 and Rs 18.44 crore in Q1FY21 to Rs 37.37 crore in Q2FY21. The explosive division, which is the mainstay of the business clocked 9% volume growth in Q2FY21 on a Year-on-Year (YoY) basis.

Numbers at glance

Solar Industries

P/E multiple and RoE calculations are based on 12-month earnings excluding Q1FY21 earnings to get the undistorted picture since the economic activity was affected to a large extent in Q1FY21.
(Source: ACE Equity)

Explosives make up 73% of the company’s revenue while initiating systems and defence segments account for 19% and 8%, respectively. As on 31st October 2020, the company’s order book was worth Rs 1,745 crore, which was close to 80% of FY20 revenues.

The company has guided margin improvements supported by the defence revenue and the better performance in export markets. To keep up with the new technology, the company has been continuously investing in R&D. Over the past five years, it has committed Rs 40 crore to research and development.

Solar Industry’s wholly owned subsidiary company Economic Explosives Limited (EEL) has already hit a milestone by successfully test-firing Pinaka rockets—first time ever manufactured by a private company in India.

Sector-wise revenue break-up

(Source: Company records)

To insulate its profitability, Solar Industries has struck price escalation arrangements with all its major clients, which helps it pass on fluctuations in the key raw material prices such as ammonium nitrite and industrial chemicals. And to avoid a loss on account of currency fluctuations, the company has started borrowing local currencies in respective global markets.

The company started manufacturing operations in Ghana in Q1FY21 and has guided that those in Australia and Tanzania will commence in Q3FY21. Ghana is world’s 8th largest gold producer and 33% of its exports comprise mining produces. Solar Industries endeavours to expand its footprint in Indonesia as well in the foreseeable future.

Performance on environmental and social parameters

The company has put in place well thought-through policies to conserve nature, serve society and ensure safety.

As mentioned in the corporate communications of the company, it conducted 416 internal audits in FY20 to ensure that it adheres to high environmental standards and its emissions always remain below the prescribed limits. The company has planned to install online emission monitors to keep tabs on emission levels at all its manufacturing facilities.

Solar has also built ponds and check-dams at its manufacturing sites in accordance with hydro-geological department’s guidelines for making efficient use of water resources. In FY20, it recycled 89,278 Kilolitres of water.

The company has been in the process to develop eco-friendly alternatives to hazardous chemicals and improve the quality of shop-floor safety of packaged explosives and detonators.

Growing participation of FPI investors quarter-on-quarter is noteworthy especially on the backdrop of stricter ESG policies many of them have been following.

Shareholding pattern

(Source: BSE India)

Growth triggers…

  • Coal India has planned to expand its production by 50% over the next 5-6 years—from 602 MT in FY20 to 925 MT in FY26. It has already secured environment clearances for many of its Greenfield projects. CILs expansion plan augurs well for Solar Industries.
  • Contribution of the mining sector in Nigeria’s GDP is expected to rise 10 times from 0.3% to 3% over the next few years. This will help Solar Industries generate more revenue from the Nigerian markets.
  • Asia Pacific-region is expected to witness a steady rise in infrastructure development which may boost the demand for industrial explosives. Cement and steel production is pivotal to infrastructure development and Solar Industry’s timely expansion in new geographies may boost its revenue from the export markets.
  • The Indian government has set a target of USD 25 billion for defence production which is to be achieved by 2025. It includes the export target of USD 5 billion. Solar Industries may strike more defence orders, going forward.
  • Solar Industries has invested in a start-up—Skyroot Aerospace—a company founded by the former engineers of ISRO’s rocket design centre as a private aerospace manufacturer and commercial launch service provider. This might open up several future growth opportunities for Solar Industries.

ISRO has been pondering on expanding its satellite launching capacity and has been on the lookout to associate with private sector companies. According to estimates of Frost and Sullivan, approximately 10,000 satellites will be launched in the next 10 years globally. India has earned a good reputation over the years for launching satellites of other nations under commercial agreements.  It has identified Solar Industries as one of its leading partners in the fields of propellant filling, propulsion motors and modular plastic bonded explosives.  

The company has guided for a double digit growth in defence orders and export markets in the next 5 years.

How has the stock been performing?

The daily chart of Solar Industries doesn’t suggest that the bulls have taken charge of this counter yet. Nonetheless, recently it saw an upswing with very large volumes. The follow-on buying seems to be missing at the moment though. But as long as the prices don’t break down below crucial moving averages, the stock will remain interesting to watch.

Firming up on good volumes…

In a nutshell

Solar Industries could perhaps be a major beneficiary of the potential upswing in the global economic growth. Given that many countries of the world including India are likely to invest in infrastructure development, the outlook of companies such as Solar Industries might brighten up in the post COVID environment.


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We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

Consult your financial advisor before taking any investment decision.

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflicts of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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