Solar Industries India Ltd

Transcription

1 RESULT UPDATE 15 th May, 2018

2 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 India Equity Institutional Research II Result Update - Q4FY18 II 15 th May, 2018 CMP INR 1091 Target INR 1353 Potential Upside 24% Market Cap (INR mn) 96,395 Recommendation BUY Strong operational performance! Sector Specialty Chemicals 2 Result highlights (SIIL) net sales grew by 30% y-o-y and 24% q-o-q stood to INR 5753 Mn. The superior growth was led by packaged explosives (volumes/value up by20%/18% y-o-y). EBIDTA stood at INR 1181 Mn (est. of INR 1139 mn) which was up by 29% y-o-y and 13% q-o-q while OPM stood at 20.5% as against 20.8% Q4FY17. OPM witnessed a hit of ~187 bps q-o-q on account of higher than expected input costs. PAT stood at INR 678 Mn (est. of INR 618 mn) which was up by 21% y-o-y and 18% q-o-q. NPM stood at 11.8% as against 12.4% in Q4FY17 mainly due to higher tax rates. MARKET DATA Shares outs (mn) 90 Equity Cap (INR mn) 181 Mkt Cap (INR mn) Wk H/L (INR) 1232/797 Volume Avg (3m K) 32.8 Face Value (INR) 2 Bloomberg Code SOIL IN SHARE PRICE PERFORMANCE Solar Inds Sensex MARKET INFO SENSEX NIFTY KEY FINANCIALS Particulars (INR mn) FY16 FY17 FY18 FY19E FY20E Net Sales EBITDA PAT OPM (%) NPM (%) EPS PE Healthy top-line growth led by infrastructural activities: Company during the quarter witnessed a robust top-line growth of 30% y-o-y and 24% q-oq at INR 5753 mn, as against our estimates of INR 4952 mn. Packaged explosive segment for SIIL continued to thrive with volume/value growth of 20%/18% y-o-y for Q4FY18 and 19.2%/19.4% y-o-y for FY18. On the contrary, bulk explosives under performed de-growing by 4.5% during Q4FY18 and 3% for FY18 owing to sluggish growth in coal production. Defense revenues for the quarter stood at INR mn as against INR 28.6 mn in Q4FY17. Coming to annual performance, SIIL witnessed sales growth of 21.3% to INR mn primarily led by packaged explosives segment on account of increased infrastructure activities. Further, overseas and exports business continued to fare well with revenues growing by 52.5% y-o-y to INR mn in FY18. Defense revenues stood at INR mn vis-a-vis INR mn in FY17 with current outstanding order book of INR 2550 mn. Going forward, we expect top-line for the company to witness 21.8% CAGR from INR mn to INR mn over FY18-FY20E backed by demand from packaged explosives segment led by infrastructural thrust by the government coupled with higher volume growth due to commencement of South African plant in FY18. Gradual improvement in EBITDA margins led by operating leverage: EBITDA margins for the company during the quarter stood at 20.5%; a decline of 26 bps y- o-y and 187 bps q-o-q. Likewise, EBITDA stood at INR 1181 mn (est. of INR 1139 mn), growing by 29% y-o-y and 13% q-o-q. However, annually SIIL registered EBITDA growth of 27% to INR 4116 mn with EBITDA margin of 21.5%. Going ahead, we expect operating efficiencies to inch higher gradually owing to operating leverage. Consequently, we estimate EBITDA to increase to INR 6678 mn by FY20E with EBITDA margins to expand from 21.5% in FY18 to 23.5% by FY20E. SHARE HOLDING PATTERN (%) Particulars Mar 18 Dec 17 Sep 17 Promoters FIIs DIIs Others Total % Revenue CAGR over FY 18 to FY 20E 31.7% PAT CAGR over FY 18 to FY 20E

3 3 Valuations & Views: Recently, with SIIL s response to RFP to provide 3 types of ammunition to the Army which were previously produced at ordnance factories or imported combined with TOT received from Defence Ministry to manufacture Brahmos missile provides further confidence with respect to the healthy performance by SIIL in the forthcoming years. Likewise, going ahead, we factor in a total capex of INR 6000 mn and total FCFF generation of INR 1463 mn over FY18-FY20E with stable debt-equity ratio of 0.3x. We expect revenue/ebitda/pat to grow at 21.8%/27.4%/31.7% respectively over FY18-FY20E. We estimate ROE/ROCE to surge to 27.4%/29.1% by FY20E from 21.9%/24.5% in FY18. Further, increased budgetary allocation by the GOI towards road construction and bridges (~INR 12,14,250 mn), pick-up of prodigious projects like Bharatmala and Sagarmala coupled with indigenous manufacturing of defence equipments, higher infrastructure activities and ramp-up in domestic coal production on account of reduction in imports should prove beneficial for the company. On the valuation front, At CMP of INR 1091, SIIL trades at P/E of 35.5x FY19E and 25.9x FY20E. We assign a P/E of 32X on its FY20E earnings of INR 42.3 resulting into a target price of INR 1353/share translating into an upside of 24% from CMP of INR 1091/share. We have a BUY rating on the stock. Exhibit 1: Q4FY18 Result Snapshot Particulars (mn) Q4FY18 Q3FY18 Q4FY17 q-o-q y-o-y Net sales % 30.1% Total Expenditure Cost of Raw Materials % 35.1% Employee Cost % 2.2% Other expenses % 27.0% PBIDT (Excl OI) % 28.5% EBITDA Margins (%) 20.5% 22.4% 20.8% bps -25.5bps Depreciation % 22.3% EBIT before other income % 29.3% Other income % -14.0% EBIT % 27.1% Interest % 33.4% EBT % 26.6% Tax % 39.5% NPAT % 21.1% PAT Margin (%) 11.8% 12.4% 12.7% -60.5bps -87.9bps EPS % 25.7% Key Con-call Highlights: The South African Plant was commercialized in FY18 and wishes to penetrate newer geographies mainly Australia and other mining nations. The Company expects its FY19 revenues to register healthy growth on the back of pickup in road construction activities and infrastructural thrust by the government. The management remains optimistic over defence revenue (INR 5000 mn) by FY20E. Likewise, for overseas and export revenue, the management estimates the same to reach ~10,000 mn by FY20E. On the margin front, the company believes that the EBITDA and PAT margins to improve marginally owing to operating leverage. The Company has responded to the RFP to supply 3 out of 7 types of ammunitions to the army (includes shells of 30mm and 40mm calibre, bimodular charge systems, 122 mm rockets, and electronic fuses for artillery shells). The deal is spread over a period of 10 years.

4 Exhibit 2: Income Statement 4 INR mn FY16 FY17 FY18 FY19E FY20E Net Sales Total Raw Materials COGS Personnel Cost Other Cost EBITDA Depreciation Interest & Finance charges Other Income Exceptional Items EBT (as reported) Tax PAT Min. Int Share in gain/loss of assoc APAT Exhibit 3 : Balance Sheet INR mn FY16 FY17 FY18 FY19E FY20E Equity Share Capital Reserves Net worth Total loans Deferred tax liability (Net) Capital Employed Gross Block Depreciation Net block CWIP Current Investments Inventories Sundry debtors Cash and bank Loans and advances Other Current Assets Total Current assets Total Current liabilities Net Current assets Capital Deployed

5 5 Exhibit 4 : Cash flow statement INR mn FY16 FY17 FY18 FY19E FY20E PAT Depreciation & Amortization (Incr)/Decr in Working Capital Cash Flow from Operating (Incr)/ Decr in Gross PP&E (Incr)/Decr In Work in Progress (Incr)/Decr In Investments (Incr)/Decr in Other Non-Current Assets Cash Flow from Investing (Decr)/Incr in Debt (Decr)/Incr in Minority Int (Decr)/Inc in Other reserves Dividend Cash Flow from Financing Incr/(Decr) in Balance Sheet Cash Cash at the Start of the Year Cash at the End of the Year Exhibit 5: Ratio Analysis FY16 FY17 FY18 FY19E FY20E Growth (%) Total Sales EBITDA APAT Profitability (%) EBITDA Margin 21.0% 20.5% 21.5% 22.8% 23.5% Adj. Net Profit Margin 11.3% 11.8% 11.5% 12.6% 13.5% Return ratios ROE 19.9% 20.8% 21.9% 23.8% 27.4% ROCE 21.4% 21.3% 24.5% 25.9% 29.1% Per Share Data (Rs.) AEPS Reported CEPS BVPS Valuations (x) PER (x) PEG (x) P/BV (x) EV/EBITDA (x) EV/Net Sales (x) Dividend Yield (%) Turnover days Debtor Days Payable Days Gearing Ratio D/E

6 Date CMP (INR) TP (INR) Recommendati on Our Rating Rating Legend Upside 15-May BUY Buy More than 15% 9-Feb BUY Accumulate 5% 15% 22-Jan BUY Hold 0 5% 16-Nov BUY Reduce -5% 0 22-Aug BUY Sell Less than 5% 4-Aug ACCUMULATE 31-May ACCUMULATE 15-Feb BUY 12-Jan BUY 29-Dec BUY 6 CERTIFICATION: We, Dhavan Shah [B.Com, MS(Finance)], research analyst and Neha Mehta (B.Com Financial Markets, CS), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) inthis report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH under SEBI (Research Analyst) Regulations, Wesubmitthat no material disciplinaryaction has been taken on KRCSSPL and its associates (GroupCompanies) by any Regulatory Authority impacting Equity Research Analysisactivities. KRCSSPLprohibitsits analysts, persons reportingto analysts and their relatives from maintaininga financial interest inthe securitiesor derivativesof any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein,.in reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. KRCSSPLor its Associates (Group Companies) have not managedor co-managed public offering of securities for the subject company inthe past twelve months KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Dhavan Shah [B.Com, MS(Finance)], research analyst and Neha Mehta (B.Com Financial Markets, CS), research associate, of this report have not received any compensation from the companies mentionedinthe report in the preceding twelve months. Compensation of our Research Analysts isnot based on any specific brokerage servicetransactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in marketmakingactivity of the company covered by research analyst. It is confirmed that, Dhavan Shah [B.Com, MS(Finance)], research analyst and Neha Mehta (B.Com Financial Markets, CS), research associate, do not serve as an officer, director or employee of the companies mentioned in the report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other Jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described hereinmay or maynot be eligible for sale in all jurisdictionsor to certain category of investors. Persons in whose possessionthis document may come are requiredto informthem of and to observe such restriction. Please send your feedback to research.insti@krchoksey.com Visit us at Kisan Ratilal Choksey Shares and Securities Pvt. Ltd Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai Phone: ; Fax: Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai Phone: ; Fax: