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SOLAR INDUSTRIES
UNRATED (RS558, MCAP: RS9.68BN / US$215M)
• Solar Industries (SIL), with more than two decades of operations, is the largest manufacturer of industrial explosives
in India with a 20% share of the US$535m explosives market. While its fully integrated manufacturing facilities and a
superior product mix would help sustain growth momentum in the domestic operations (growing at 25%+), SIL is
moving towards new growth frontiers.
• A unique value proposition: SIL has developed a footprint in the mineral-rich African subcontinent. With
manufacturing units strategically located in demand-centric regions, SIL is in a position to tap a wider market.
Incrementally, in a move to forward integrate, SIL has acquired two coal blocks in India with aggregate reserves of
116m tonnes. Thus, while the domestic explosives business would form the mainstay of the business, the African
expansion would provide ‘growth’ and scale, and the coal blocks would bring ‘value’.
• Core domestic business – on a strong footing: With India’s largest installed capacity of 275,000 tonnes of explosives,
SIL commands a key competitive advantage while bidding for Coal India tenders. SIL is among the largest supplier to
Coal India (a monopoly buyer – consumes over 70% of total industry production). However, contribution of Coal
India to SIL’s business is down from 60% earlier to ~35% now. Further, incremental contracts being entered with Coal
India have a quarterly price revision clause, enabling SIL to pass on any raw material price fluctuations. With private
players (TISCO, Hindustan Zinc, etc) now increasingly contributing to SIL’s business, we believe its diversified order
book will help SIL de-risk the business model and achieve scale.
• Africa expansion – adding scale: SIL has set up two manufacturing units in Africa. These are in Zambia (10,000MT
bulk explosive plant) and Nigeria (5000MT cartridge and 10,000MT of bulk explosives). These facilities are estimated
to contribute ~Rs50m to profits of SIL in the current financial year. However, the full potential of these facilities would
be visible only from FY12. SIL is also looking to expand to other regions like Tanzania and Australia.
• Coal mines – embedded ‘value’: Of the aggregate 116m tonnes capacity of the two coal mines in Chhattisgarh, 36m
tonnes is held in a consortium (SIL’s stake, 20%) of players including Ultratech Cement and Prakash Industries. The
mine is located in the Madanpur block. However, this has been identified as a ‘no-go’ area by the government. The
remaining 80m tonnes is held through SMS Infrastructure – a JV with a Nagpur-based mining company – with the
coal mine located in Bhatgaon. This block is awaiting final environment and forest clearances. With rapidly rising
demand for coal and coal blocks commanding rich valuations, SIL may look at a potential divestment of its stake in
the Bhatgaon block (invested Rs500m for a 24% stake).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SOLAR INDUSTRIES
UNRATED (RS558, MCAP: RS9.68BN / US$215M)
• Solar Industries (SIL), with more than two decades of operations, is the largest manufacturer of industrial explosives
in India with a 20% share of the US$535m explosives market. While its fully integrated manufacturing facilities and a
superior product mix would help sustain growth momentum in the domestic operations (growing at 25%+), SIL is
moving towards new growth frontiers.
• A unique value proposition: SIL has developed a footprint in the mineral-rich African subcontinent. With
manufacturing units strategically located in demand-centric regions, SIL is in a position to tap a wider market.
Incrementally, in a move to forward integrate, SIL has acquired two coal blocks in India with aggregate reserves of
116m tonnes. Thus, while the domestic explosives business would form the mainstay of the business, the African
expansion would provide ‘growth’ and scale, and the coal blocks would bring ‘value’.
• Core domestic business – on a strong footing: With India’s largest installed capacity of 275,000 tonnes of explosives,
SIL commands a key competitive advantage while bidding for Coal India tenders. SIL is among the largest supplier to
Coal India (a monopoly buyer – consumes over 70% of total industry production). However, contribution of Coal
India to SIL’s business is down from 60% earlier to ~35% now. Further, incremental contracts being entered with Coal
India have a quarterly price revision clause, enabling SIL to pass on any raw material price fluctuations. With private
players (TISCO, Hindustan Zinc, etc) now increasingly contributing to SIL’s business, we believe its diversified order
book will help SIL de-risk the business model and achieve scale.
• Africa expansion – adding scale: SIL has set up two manufacturing units in Africa. These are in Zambia (10,000MT
bulk explosive plant) and Nigeria (5000MT cartridge and 10,000MT of bulk explosives). These facilities are estimated
to contribute ~Rs50m to profits of SIL in the current financial year. However, the full potential of these facilities would
be visible only from FY12. SIL is also looking to expand to other regions like Tanzania and Australia.
• Coal mines – embedded ‘value’: Of the aggregate 116m tonnes capacity of the two coal mines in Chhattisgarh, 36m
tonnes is held in a consortium (SIL’s stake, 20%) of players including Ultratech Cement and Prakash Industries. The
mine is located in the Madanpur block. However, this has been identified as a ‘no-go’ area by the government. The
remaining 80m tonnes is held through SMS Infrastructure – a JV with a Nagpur-based mining company – with the
coal mine located in Bhatgaon. This block is awaiting final environment and forest clearances. With rapidly rising
demand for coal and coal blocks commanding rich valuations, SIL may look at a potential divestment of its stake in
the Bhatgaon block (invested Rs500m for a 24% stake).
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