Solar Explosives Ltd - Explosive Growth
Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Stock Synopsis
Forum Discription: A bried discussion of companies on very specific matters. Normally this is the prelude for further research as always members would be discussing quality companies with good management only
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=797
Printed Date: 21/Apr/2025 at 1:09am
Topic: Solar Explosives Ltd - Explosive Growth
Posted By: achilles
Subject: Solar Explosives Ltd - Explosive Growth
Date Posted: 06/Mar/2007 at 7:28pm
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The Nagpur based Solar Explosives Ltd. (SEL) is the largest comprehensive explosives and explosive initiating devices manufacturing companies in India commanding a total market share of 25%. Its manufacturing facilities spread over 350 acres of land are strategically located in and around Nagpur. SEL along with its three wholly owned subsidiaries (namely Economic Explosives Ltd, Solar Capitals Ltd and Solar Components Pvt Ltd) has a licensed & installed capacity of 175,000 MT of Explosives, 140 million Detonators, and 20 million meters of Detonating fuse, 250 tonnes of PETN, and 60 tonnes of cast boosters.
The domestic demand for SEL products is directly proportional to the growth in coal mining, metal mining, and infrastructure sector. Predominantly, the growth of the industrial explosives industry is directly linked to the evolution of the coal industry, which in turn accounts for almost 70% of explosives consumption. Likewise, 70% of coal production is utilized by the power sector. The proposed mega-power projects require excavations and huge capacity addition in thermal power, which will push the demand for coal even further and lead to an increased demand for SEL products.
To uphold the floundering power sector the Indian Coal ministry will allot 41 critical blocks of coal to public and private players (such as Tata Power, Reliance Energy and Jindal Steel), and State and Center PSUs. Since the initial mining uses up most of the explosives SEL’s growth is expected to be much higher in FY08. In addition, the margins from the private sector are estimated to be higher. Hence the Government thrust on power sector and infrastructure development is likely to act as a major growth catalyst for the explosives industry. Given its economic size and spread out presence SEL is best placed to capture the potential and bag larger orders.
To meet its expansion plans, SEL raised Rs 83 crore in its IPO in March last year at a price of Rs 190 per share. SEL's consolidated revenue and net profit for the nine months FY07 are Rs 147.97 crore and 13.80 crore. SEL’s consolidated FY07 top-line is expected to be around Rs 195-200 crore and it should easily report an EPS of 11. Solar Explosives Ltd. current market price of Rs 101 discounts into a PE of 9. FY08 results are expected to be much better.
SEL current market capital is 174 crore. Its reserves (excluding revaluation reserves) currently stand at 146 crore i.e. cash per share is close to Rs. 80! Promoters holding stands at 74.6%, while MFs/FIs hold 4.26% (mostly acquired from IPO and open market purchases at avg. prices around 200 Rs.). FIIs hold 8.45% (with JP Morgan Fund holding 5%) mostly acquired at avg. prices around 225 Rs.
Solar Explosives Ltd. is strictly not comparable with any listed entity a.k.a. Premier Explosives or Keltech Energies as both have different business models and average product base. SEL with its superior products in the industrial explosives operates in the niche emulsion/slurry explosives segment. SEL is the number one market leader; therefore you can expect an oligopolistic market (similar to NDTV, TV18 V/s TV Today).
So Basantji does Solar Explosives Ltd makes a solid investment case for itself and is it a multi-bagger in the making?
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Replies:
Posted By: basant
Date Posted: 06/Mar/2007 at 7:41pm
Hi. Nice to see you back after a while. Frankly I would have no idea about this.
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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Posted By: omshivaya
Date Posted: 06/Mar/2007 at 8:17pm
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Achilles ji, nice intro. However, have some queries like:
1) Expected rate of growth in net profit for next 2 years(if possible).
2) Last 3 years of rate of growth of net profit.
3) What do you feel is wrong with the company? Any negative points that is. Every company has one. Kindly name a few if you can sir.
Thank you very much in advance.
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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it
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Posted By: achilles
Date Posted: 06/Mar/2007 at 9:25pm
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In the very near term, the profit margin/bottom-line is under some pressure, as most large orders are from Coal India Ltd. However, this fact is being compensated with strong growth in the top-line. Additionally, the current price (101 Rs.) factors in all the short-to-mid term negatives. Markets need to segregate SEL from other non-core, small players like Keltech or Premier Explosives since both these companies have a much weaker balance sheet and lower business model.
Discounted Cash Flow: I am not sure. SEL current market capital is 174 crs. Its reserves (excluding revaluation reserves) currently stand at 146 crs. Given the current growth rate, FY08E top-line can be 260 crs. Any large orders from the Private Sector can significantly boost the bottom-line. EPS for FY07E should be 11, while for FY08E it can be 15, discounting the cmp by a paltry P/E of 9.1 and 6.7 respectively.
The fair valuation for SEL is 225 Rs. The absolute percentage gains from this level stand at a whopping 124%!
My earlier recommendation a.k.a. TV Today (for reference please check my earlier post): http://www.theequitydesk.com/forum/forum_posts.asp?TID=95&PID=5188&SID=7b9bf9adac2d2e6b1a4a8b46fe5944e4#5188 - http://www.theequitydesk.com/forum/forum_posts.asp?TID=95&PID=5188&SID=7b9bf9adac2d2e6b1a4a8b46fe5944e4#5188 achieved 146 Rs. from the recommended price 73 Rs. in just 5 months.
Solar Explosives does hold the potential to repeat the feat. However, keep in mind, there are very few sellers at this price. So if one wants to purchase a decent quantity of SEL, one should be willing to offer 10 Rs. higher than cmp. As a consolation, remember, most investors in SEL are stuck anywhere in between 40% to 120% higher than cmp J
Furthermore, most analysts + top research houses and an online stock advisory led by India’s leading financial magazine have already recommended SEL at 190, 220, 240 Rs. respectively. The last one recommended it at 150 and finally at 140. There’s an old saying: When all analysts stop recommending, it’s the best time to buy J
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Posted By: omshivaya
Date Posted: 06/Mar/2007 at 9:46pm
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What PE do you think is reasonable and what is maximum it deserves achilles ji, on a 12-month forward basis and on a Trailing Twelve month basis?
Thank you!
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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it
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Posted By: achilles
Date Posted: 06/Mar/2007 at 10:32pm
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Being the market leader with 25% share in the industrial explosives segment, Solar Explosives deserves a P/E of 15 and a minimum mcap:sales of 2x. Based on TTM, the price even in depressed market conditions should remain above 150 Rs. As of now, its P/E is less than 10 and mcap:sales ratio stands at a dismal 0.9x.
The next major trigger is the de-blocking of coal mines to the Private Sector. SEL's Phase-I expansion plans are almost complete and very soon it will be fully geared to accommodate larger orders. Its closest listed rival Gulf Oil Corporation (which is the 3rd largest player in industrial explosives, 2nd being Indian Explosives Ltd) recently received mining orders worth 400 crs from Coal India Ltd. and subsidiaries which are to be executed in the next 2 years.
Though CIL is a major client, SEL has a much more diversified clientele. And given its No. 1 market leader status and superior products, imagine the size of orders SEL can receive! BTW, SEL is currently completing the 150 cr order it received from CIL last year.
On pure valuation matrix, at cmp one gets the entire business and assets of SEL for 20 odd crs (it holds reserves in excess of 140 crs). Even this amount one can get back as estimated consolidated FY07 net profit will be close to 20 crs J
Just consider at a 2x mcap:sales ratio, and based on FY08E consolidated sales of 260 crs, the market price of SEL can be 305 Rs. However, we are not that greedy J
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Posted By: kulman
Date Posted: 06/Mar/2007 at 10:35pm
It surely looks EXPLOSIVE from Achilles' analysis!
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Life can only be understood backwards—but it must be lived forwards
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Posted By: omshivaya
Date Posted: 06/Mar/2007 at 11:15pm
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Yes I 2nd that Kulman ji. However achilles ji, what is its dividend payout history like: how many years? Has it been consistent in it?
How much is the dividend yield as per CMP achilles ji.
This seems to be their investor page: http://www.solarexplosives.com/investor.html - http://www.solarexplosives.com/investor.html
And shareholding structure: http://www.solarexplosives.com/share_holding.pdf - http://www.solarexplosives.com/share_holding.pdf
The chairman's speech gives a brief idea about the industry, competitors and itself:
http://www.solarexplosives.com/solar_annual_report_2006.pdf - http://www.solarexplosives.com/solar_annual_report_2006.pdf
If anyone wants to review SEL from above links, please go ahead and post their views here.
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The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it
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Posted By: achilles
Date Posted: 15/May/2007 at 4:50am
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A simple “Cheers” would suffice my friends, provided of course you bought Solar Explosives at the recommended price a.k.a. around 100 Rs.
30% absolute return in a little less than 3 months is not bad at all. Not to mention we may soon see higher levels i.e. >150 Rs.
A Johnny Walker’s (Black Label) Cheers!
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Posted By: kulman
Date Posted: 14/Aug/2007 at 4:00pm
http://www.bseindia.com/qresann/news.asp?newsid=%7b925DAA83-693E-49A0-BBE5-EC40D9C2BC59%7d - Solar Explosives Ltd has informed BSE that the Company has received Letter of Intent from Coal India Ltd for Rs 1116.34 Million towards supply of Bulk Explosives through Company's fully owned subsidiary Solar Capitals Ltd, to be executed within next l2 Months.
The Company is also expecting to receive Letter of Intent from Coal India Ltd for supply of Permitted explosives to be executed with in next twelve months from the date of its issue.
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Life can only be understood backwards—but it must be lived forwards
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Posted By: TCSer
Date Posted: 24/Apr/2008 at 11:23pm
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Wow Achilles ji what a call .I had purchased Solar explosives in an IPO after getting convinced by its fundamentals but after the price crash in 2006 I sold very cheap.
Anyway what r its prospects now?
Anyother pick from your end
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Posted By: TCSer
Date Posted: 27/Aug/2010 at 1:10am
This company is one of the few companies who have walked the talk n have delivered the goods.
Marwari promoters with fire in belly who is CA as well.
It had slipped out of my radar.
The company needs to be analysed more closely.
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Posted By: manish_okhade
Date Posted: 28/Aug/2010 at 3:45pm
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Solar Industries India Ltd. and Solar explosive is the same company? Moreover i am unable to open Solar explosive website!
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Posted By: TCSer
Date Posted: 28/Aug/2010 at 5:42pm
Posted By: Wasserblock
Date Posted: 30/Aug/2010 at 2:10pm
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energy, especially solar is almost every time a good longterm investment.
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Posted By: TCSer
Date Posted: 20/Apr/2012 at 11:38pm
It been a 8 bagger from recommended price of 100.
Can the story still continue?
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Share market is nothing but a game of temperament. Success mantra Right Price,Right Business,Patience, Conviction .Do not do panic buying or selling.It may be the only profession where inactivity pays
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Posted By: coolcarney
Date Posted: 20/Apr/2012 at 1:47am
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Accussed of cartelization. Penalised 3% of their avg. revenue of last 3 years.
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Posted By: wildandfree
Date Posted: 20/Apr/2012 at 7:50am
Originally posted by coolcarney
Accussed of cartelization. Penalised 3% of their avg. revenue of last 3 years.
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Curious about the source of this information. Can you quote? Thanks
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Posted By: wildandfree
Date Posted: 20/Apr/2012 at 7:54am
Originally posted by wildandfree
Originally posted by coolcarney
Accussed of cartelization. Penalised 3% of their avg. revenue of last 3 years.
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Curious about the source of this information. Can you quote? Thanks
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Never mind. I found something, here:
http://www.indiainfoline.com/Markets/News/Gulf-Oil-Corporation-Solar-Industries-and-Keltech-Engineers-penalized-by-CCI-for-cartelisation/4262060418
Thanks for alerting though.
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Posted By: gaurav12123
Date Posted: 21/Apr/2012 at 2:45pm
Originally posted by manish_okhade
Solar Industries India Ltd. and Solar explosive is the same company? Moreover i am unable to open Solar explosive website! |
http://www.solarexplosives.com/index.html
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When I Trade i Try To Earn Infinity.
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Posted By: TCSer
Date Posted: 21/Apr/2012 at 4:01pm
Still one cant deny the pricing power the co enjoys n also the export story
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Share market is nothing but a game of temperament. Success mantra Right Price,Right Business,Patience, Conviction .Do not do panic buying or selling.It may be the only profession where inactivity pays
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Posted By: wildandfree
Date Posted: 25/May/2012 at 7:10pm
Kash ispe maine jyada bharosa dikhaya hota...
Consolidated NP up 33%
Cons. EPS 58.42.
Div. final Rs 5
Hoping to see some fireworks on Monday
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Posted By: pikrohit
Date Posted: 03/Aug/2012 at 6:28pm
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Anyone tracking Premier Explosives? I think it is a competitor to Solar explosives and was recently recommended in value-picks blog (Pasting the text). I am thinking of adding it in small quantities. Any comments?
http://www.pelgel.com/ - Premier Explosives is a 30 year old Secunderabad based manufacturer of Explosives & Accessories.Company having three plants in Andhra Pradesh one each in Maharastra and Madhya Pradesh.PEL is producing a wide range of explosives used in Mining and Defense.Over the past years company established as dominant player in this strictly controlled industry with indigenously developed technology and a well established marketing network.PEL producing various types of electric & non-electric detonators , detonating cord & pentolite boosters, Smoke markers and other bulk explosives.Company having more than 90 explosives storing facilities across the country approved by the authorities and also possessing close to 125 explosive vans for the timely delivery of its products.In defense segment PEL having business alliances with http://www.blogger.com/goog_460841611 - http://www.shar.gov.in/sdsc/ - (SHAR) Sriharikota , SFC,Jagdalpur and http://www.blogger.com/goog_460841616 - http://drdo.gov.in/drdo/labs/ARDE/English/index.jsp?pg=homebody.jsp - (ARDE )Pune for supplying missile fuel .Company also started export in recent times which shows a growth of 40% last year.A major portion of its revenue is generated from the mining sector .Even the mining activities are disrupted in many parts especially in Andra Pradesh ,company showing improvement in its operations.Now the restrictions on mining operations are expected to lift at least partially in next few months which will help the company going forward.To minimize the effect of such restrictions company is now eying more exports and increasing its operation in defense sector.Government’s new policy to permit more participation for private players in defense sector is another positive for the company.Being an established player in a highly regulated industry company enjoying an early mover advantage.Due to the nature of this industry the entry barrier of new players is also very high.For the last financial year PEL posted a turnover of Rs.108 Cr ,a net profit of Rs.12 Cr and an EPS of Rs.15/-. Company also declared a dividend of 25 %.At CMP of Rs.73 it is trading at a P/E of below 5.Considering the entry barrier in this industry,its strong relations with government owned defense companies and the chances of some relaxation in mining activities – recommending a BUY only for long term investors at CMP of Rs.73/-.
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