SOLARINDS — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

INDUSTRIES · MODERATOR:

MR. SURESH MENON – EXECUTIVE DIRECTOR, SOLAR

MR. MILIND DESHMUKH – EXECUTIVE DIRECTOR,

SOLAR INDUSTRIES · MR. MONEESH AGRAWAL – JOINT CFO, SOLAR

MR. MONEESH AGRAWAL – JOINT CFO, SOLAR

INDUSTRIES · MODERATOR:

MS. SHALINEE MANDHANA – JOINT CFO, SOLAR

MS. AANCHAL– INVESTOR RELATIONS, SOLAR

Moderator · Conference Operator

MR. AMIT DIXIT – ICICI SECURITIES Solar Industries India Limited January 25, 2023

Ladies and gentlemen, good day and welcome to Solar Industries Q3 FY23 Earning Call hosted by ICICI Securities.

As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions later during the presentation.

Should you need assistance during the conference call, please signal an operator or pressing “*” and then “0” on your touchtone phone.

Please note that this conference is being recorded.

I will now hand the call over to Mr. Amit Dixit of ICICI Securities.

Please go ahead.

Amit Dixit

Good evening everyone.

And thanks for attending this call.

I thank Solar Industries for giving us an opportunity to host this call.

Today evening we have with us Mr. Manish Nuwal – CEO and MD; Mr. Suresh Menon – Executive Director; Mr. Moneesh Agrawal – Joint CFO; Ms. Shalinee Mandhana – Joint CFO and Ms. Aanchal from Investor Relations.

So, without much ado, I would directly pass control to Ms. AAnchal for taking this forward.

Over to you AAnchal.

Achal

Thank you so much Amit.

Good evening dear investors and potential shareholders, warm greetings in the New Year.

We had a fantastic year in 2022 and hope to have a similar one in 2023 and we wish the same for our investor fraternity as well.

I am Aanchal and I welcome you all to earnings call of Solar Industries India Limited to discuss quarter three earnings.

Joining us today on this call is MD & CEO Mr. Manish Nuwal, Executive Director- Mr. Suresh Menon, Executive Director-Mr. Milind Deshmukh, Joint CFO-Ms. Shalinee Mandhana and Mr. Moneesh Agrawal.

Please note that certain statements concerning our future growth, prospects our forward-looking statements regarding our future business expectations, indented to qualify for the safe harbor, which involves a number of risks and uncertainties that could cause actual results to differ materially from those in such forward looking statements.

Now, I request Mr. Manish Nuwal to give opening remarks on the performance of the company.

Over to you sir.

Manish Nuwal

Thank you AAnchal.

A very good evening to all the valued stakeholders, on the backdrop of strong performance by our international and institutional businesses.

The revenue for the quarter stands at Rs.1812 crore which is up by 78% year-on-year basis.

And nine-month revenue stands at Rs.4994 crore up by 90% year-on-year and the net profit is up by 109% year-on-year for the quarter and 110% year-on-year for the nine months, which stands at Rs.219 crores and Rs.591 crores respectively.

Defense revenue has crossed for Rs.100 crores for the consecutive second quarter and progressing towards yearly turnover of around Rs.400 crores.

Our company has participated in various RFPs which includes RFP for one of the Pinaka variant and RFP for drone base loitering munition.

The defense order book now stands at Rs.817 crores.

The company intends to offer its products for space application has also started showing results after the successful launch of Vikram S and static test of PSOM-XL motors made for ISRO.

Solar Industries India Limited January 25, 2023 The company intends to expand it further in the coming years.

Amid geographical tensions, the risk of higher interest rates and economic slowdown brings in overall volatility in the business environment.

Despite these challenges, our quarterly and nine-month revenue number gives us confidence to revise our annual growth guidance from 50% to over 65% for FY23. Going forward, we will stay focused on expanding our core businesses through continuous strategic investments to enhance the stakeholders value.

Now, I’m handing it over to Achal to take you through the summary of financials.

Thank you.

AAnchal

Thank you so much sir.

I’m extremely happy in presenting the numbers of a quarter where we have crossed the revenue of 1800 crores and profit of 200 crores for the first time.

We grew at 78% year-on-year registering a revenue of 1812 crores versus 1018 crores.

EBITDA is at 357 crores up by 93%, PAT is at 219 crores up by 109% year-on-year, demonstrating the strength of our business.

Now let’s quickly review the quarter in detail.

Explosives, the domestic volume in the quarter has increased by 17% that is 1,22,000 metric tonnes compared to 1,04,000 metric tonnes and our realization of explosive is up by 46% that is 71,000 tonnes versus 49,000 per tonne.

As such explosive revenue was up by 71% from 513 crores to 876 crores.

Revenue from initiating system was also up by 32% that is from 101 crores to 133 crores.

Coming to our customer basket

Revenue from CIL was up by 64% year-on-year from 192 crores to 314 crores.

Revenue from non-PIL Institutions was up by 133% year-on-year from 147 to 342 crores.

Revenue from housing and infra was up by 41% year-on-year from 215 to 304 crores.

Export and overseas revenue grew by 93% year-on-year from 377 crores to 729 crores.

Defense revenue was up by 51% year-on-year from 73 crores to 110 crores.

Coming to our cost breakup raw material, the percent of raw material consumption is 63.55% versus 58.92%.

In absolute terms the cost grew at 599.77 crores versus 1151.45 crores in the same quarter the previous year.

The percentage of employee cost is 5.06% versus 6.62%.

In absolute terms, the cost is 91.71 crores versus 67.39 crores.

Other expenses percentage was at 12.09% versus 16.97% as a percentage of sales in absolute terms expense crosses 219 crores versus 173 crores.

The interest cost is almost 25.46 crores versus 13.41 and the percentage is at 1.41% versus 1.32%.

Coming to the highlights for nine months

We registered revenue very close to 5000 crores that is, 4994 crores, which is up by 19% year- on-year.

EBITDA at Rs.952 crores up by 89%, PAT at Rs.591 crores, which is up by 110% year- on-year.

We have also given our investor presentation with detailed numbers.

Now, we would be very happy to take any questions, comments or suggestions that you may have.

Over to you Amit.

Solar Industries India Limited January 25, 2023

Amit Dixit

Perhaps can we have questions?

Moderator · Conference Operator

Our first question is from Garvit Goyal from Nvest Research.

Please go ahead.

Garvit Goyal: · What are the drivers for debt value growth in the domestic explosive business as one year ago

Sir what shall be the overall PAT margins by the financial year 23 and by going forward what will be the revenue growth and PAT margins stated my financial year 24 and 25?

Okay.

My next question is, what are the drivers for the value growth in the domestic explosive business as one year ago the rates went up 43,962 and now it is 71,793.

So, how sustainable these rates are going forward for say next one to two years.

What are the drivers for debt value growth in the domestic explosive business as one year ago rates were at 43,962 and now it is 71,793.

So, how sustainable these rates are going forward for approx. next one to two years?

Moderator · Conference Operator

Thank you very much.

Our next question is from Noel Vaz of Union.

Please go ahead.

Noel Vaz: · So, I just have one question which is specifically related to the order book which was given. So,

So, I just have one question which is specifically related to the order book which was given.

So, in your presentation it is specifically mentioned that your order book at the end of the third quarter stands at 3389 crores.

So, this is a sequential decrease over the second quarter.

So, I’m just trying to understand how should we see this order book going forward and how did exactly relate to does it relate to your revenues going forward as well?

Okay.

So, basically SCCL one and a half years orders are reflected in this 3300 number as well as CILs one year number right?

Okay.

And basically, quite simply put at the end of that period, then again order book can be (Inaudible) 12:50 so to say is a better way to put it?

Okay, fine.

Also, just one more thing, I just wanted to try and understand generally how your pricing mechanism works, generally speaking, when there is a increase in the raw material cost within how much of a time period is there a lag or is it a pass through in terms of product mix?

Moderator · Conference Operator

Thank you very much.

Please go ahead.

Our next question is from Dhananjai Bagrodia.

Please go ahead.

Dhananjai Bagrodia

Is international volume growth significantly higher?

Moderator · Conference Operator

Thank you very much.

Our next question is from Puneet Kabra who is an Investor.

Please go ahead.

Puneet Kabra

Question I have if is, if I have to take a three- or five-year view, considering what Coal India is planning in terms of CAPEX, mining, government initiatives, private mining in coal.

So, you know it all more, what kind of volume growth can we expect for this industry in the next couple of years or three to five years what kind of volume growth will be a reasonable number to look at?

Moderator · Conference Operator

Thank you very much.

Our next question is from Sanjay Sathpathy of Ampersand.

Please go ahead.

Sanjay Sathpathy

Sir, I couldn’t get in earlier because of link issues.

So, I may ask some questions which could be repetitive.

So, just first thing is that you have given a guidance of 65% growth, I’m assuming that it is at least 65% because otherwise Q4, which is traditionally a bigger, seasonally biggest quarter, you are looking at a significant decline compared to quarter three.

Can you please confirm that?

Moderator · Conference Operator

Thank you very much.

Next question is a follow up from Garvit Goyal of Nvest.

Please go ahead.

Garvit Goyal: · What are the drivers for debt value growth in the domestic explosive business as one year ago

My question is, in the last year volume growth in the domestic business has been 13%, how sustainable this volume growth is by going forward?

Okay.

And what is the drivers for the export businesses as year-on-year for nine month, there is an increase of 97%, what is the expected growth by going forward in next two to three years?

You are saying 18% to 21%, I am right?

Moderator · Conference Operator

Thank you very much.

Our next question is a follow up from Noel Vaz of Union.

Please go ahead.

Solar Industries India Limited January 25, 2023

Noel Vaz: · So, I just have one question which is specifically related to the order book which was given. So,

Yes, I just wanted to know what exactly are the capacity expansion plans over FY23 and using a medium term if you can give me some color on that in terms of broad CAPEX pay over the next five years or may be just the volume number that will be helpful.

Thank you.

Okay.

So, I am just trying to understand so when you are expanding to these international markets, what is the CAPEX or what is the investment that goes into setting up these kind of international businesses because I may be completely wrong so you can just tell me where exactly I am wrong but it just seems as though you just need to set up like a sales or a marketing division over that or is there something more to that?

So, we’re talking about a separate plant as well and in foreign country as well, that is also?

Okay.

And with this, just one trying to understand so these international businesses these are also for defense or these are for civilian applications?

Moderator · Conference Operator

Thank you very much.

Our next question is from Aniket Mittal of SBI Mutual Fund.

Please go ahead.

Aniket Mittal

Just a few questions.

One is from the overseas business side; I recollect we were planning some expansions in Australia and Indonesia.

If you could throw some light as to where we are on that?

Moderator · Conference Operator

Thank you very much.

Then the next question is from Prasheel Gandhi of Nirmal Bang Institutional Equities.

Please go ahead.

Prasheel Gandhi

Sir, my first question pertains to the interest cost, net debt levels could you highlight what’s the net debt level for third quarter, at the end of third quarter?

Moderator · Conference Operator

Thank you.

Our next question is from Jenish Karia of Antique Stock Broking.

Please go ahead.

Jenish Karia

Sir, if you can help for the reason for declining gross margins on a year-on-year basis?

Moderator · Conference Operator

Thank you.

The next question is a follow up from Dhananjai Bagrodia.

Please go ahead.

Dhananjai Bagrodia

Sir most of my questions have been answered.

But just on the other flip side is there any risk we see in terms of global slowdown and are we seeing there anything in terms of the maybe order enquiry pipeline or how customers are reacting?

Moderator · Conference Operator

Thank you very much.

Our next question is also a follow up from Sanjay Sathpathy of Ampersand.

Please go ahead.

Sanjay Sathpathy

Sir, can I just ask what is the top country that you export to from here in India?

Moderator · Conference Operator

Thank you, sir.

Then our very last question is from Prasheel Gandhi of Nirmal Bang.

Please go ahead.

Prasheel Gandhi

Sir just a question in earlier calls we were guiding for a 25% value growth over medium term.

So, with expectation of ammonia nitrate prices correcting and hence the expectation of our realizations to come down.

So, do you still maintain that guidance?

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen we have reached the end of our question-and- answer session and I would like to hand the call back to management for closing comments.

Aanchal

We appreciate the time given by everyone.

Thank you so much.

See you again in the next quarter.

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen on behalf of ICICI Securities that concludes this conference.

Thank you for joining us and you may now disconnect your lines.