Solar Industries India Ltd:Annual Report 2023-24 Analysis

Solar Industries India Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Solar Industries India Ltd. was established in 1995 by Satyanarayan Nuwal.

Headquarters Location and Global Presence: The company’s headquarters are located in Nagpur, Maharashtra, India. They have a global presence with manufacturing facilities and operations in several countries, including India, Africa, Australia, and South America.

Company Vision and Mission: Solar Industries India Ltd. aims to be a leading global player in the explosives and defence sectors, driven by innovation and sustainability. Their mission involves delivering high-quality products and services to meet customer needs while adhering to the highest safety and environmental standards.

Key Milestones in Their Growth Journey:

• Expansion into defence sector with the development of ammunition and explosives.
• Establishment of manufacturing facilities in multiple countries.
• Strategic acquisitions to expand product portfolio and market reach.
• Significant investments in research and development.

Stock Exchange Listing Details and Market Capitalization: Solar Industries India Ltd. is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As of late 2023/early 2024, its market capitalization is in the range of ₹60,000 - ₹70,000 crore.

Recent Financial Performance Highlights: Recent financial reports show continued revenue growth, driven by strong demand in both the explosives and defence sectors. Profitability has also improved.

Management Team and Leadership Structure: The company is led by Satyanarayan Nuwal (Chairman), and Manish Nuwal (Managing Director & CEO).

Notable Awards or Recognitions:

• Awards for export performance.
• Recognitions for safety and environmental practices.

Their Products #

Complete Product Portfolio with Categories: Solar Industries India Ltd. has a diverse product portfolio, categorized as follows:

• Industrial Explosives: Slurry explosives, emulsion explosives, detonators, boosters, and related accessories used in mining, infrastructure, and construction.
• Defence Products: Ammunition, propellants, warheads, and explosive systems for defence applications.

Flagship or Signature Product Lines: Their flagship product lines include Emulsion Explosives and Electronic Detonators.

Key Technological Innovations or Patents: The company holds patents for innovative explosive formulations and delivery systems.

Manufacturing Facilities and Production Capacity: Solar Industries operates multiple manufacturing facilities across India and internationally. The total installed capacity for explosives is substantial, making them one of the largest manufacturers globally.

Quality Certifications and Standards: Solar Industries India Ltd. adheres to several international quality standards, including ISO 9001, ISO 14001, and OHSAS 18001.

Unique Selling Propositions or Technological Advantages: Their advanced explosive formulations, electronic detonator technology, and integrated manufacturing capabilities provide a competitive advantage.

Recent Product Launches or R&D Initiatives: Recent R&D initiatives focus on developing new defence-related products, advanced explosive formulations, and more environmentally friendly products.

Primary Customers #

Target Industries and Sectors:

• Mining
• Infrastructure
• Construction
• Defence

Geographic Markets (Domestic vs. International): The company serves both domestic and international markets. International markets include Africa, Australia, and Southeast Asia.

Major Client Segments (agricultural, industrial, residential, etc.): Their major client segments are primarily industrial, catering to mining and infrastructure projects.

Distribution Network and Sales Channels: The company utilizes a network of distributors and direct sales channels.

Major Competitors #

Direct Competitors in India and Globally:

• Orica
• AEL Mining Services
• EPC Groupe

Competitive Advantages and Disadvantages: Solar Industries’ advantages include its large-scale manufacturing, integrated product portfolio, and strong presence in the Indian market. Potential disadvantages could include reliance on specific industries and susceptibility to economic cycles.

How They Differentiate From Competitors: They differentiate themselves through a combination of advanced technology, diverse product offerings, and a strong focus on customer service.

Industry Challenges and Opportunities: The industry faces challenges related to safety regulations, environmental concerns, and economic fluctuations. Opportunities exist in expanding into new markets, developing innovative products, and increasing defence sector sales.

Market Positioning Strategy: Solar Industries positions itself as a reliable, innovative, and sustainable provider of explosives and defence solutions.

Future Outlook #

Expansion Plans or Growth Strategy: Expansion plans include increasing manufacturing capacity, entering new geographic markets, and further developing defence product lines.

Upcoming Products or Innovations: Future innovations will likely focus on more advanced explosives, precision-guided munitions, and unmanned systems for defence.

Sustainability Initiatives or ESG Commitments: The company is focusing on sustainability, which involves reducing environmental impact, promoting responsible mining practices, and improving workplace safety.

Industry Trends Affecting Their Business: Key industry trends include the growing demand for infrastructure development, increasing defence spending, and the adoption of digital technologies in mining and construction.

Long-Term Vision and Strategic Goals: Their long-term vision is to become a global leader in the explosives and defence sectors, known for innovation, sustainability, and customer satisfaction.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue: FY24 revenue from operations decreased to H 6,069.52 crore, down from H 6,922.53 crore in FY23, and up from H 3,947.61 crore in FY22.
• Profit After Tax (PAT): PAT for FY24 increased to H 875.23 crore, up from H 811.17 crore in FY23 and H 455.47 crore in FY22.
• Net Worth: Increased to H 3,305.60 crore in FY24, from H 2,610.34 crore in FY23 and H 1,914 in FY22.
• Earnings Per Share (EPS): Increased to H 92.38 in FY24, compared to H 83.68 in FY23 and H 49.72 in FY22
• Return on Net Worth (RONW): 25% in FY24, compared to 29% in FY23, and 23% in FY22.
• Return on Capital Employed (ROCE): 32% in FY24, compared to 37% in FY23 and 27% in FY22.
• Debt to Equity Ratio: Stood at 0.13 in FY24, showing improvement, compared to .24 in FY23.
• Inventory Turnover Ratio: 15.29 in FY24, and 18.75 in FY23.
• Debtors Turnover Ratio: 6.51 for FY24, down from 9.09 reported in FY23.
• Total GHG Emissions (Scope 1 & 2): 70,871 tCO2e in FY24, up from 63,843 tCO2e in FY23.
• CSR Expenditure: Increased to H 12.37 crore in FY24, from H 9.11 crore in FY23 and H 6.78 crore in FY22.

Business Segment Performance #

• The Company has identified Explosives as its only primary reportable segment.

Revenue Mix (FY24) #

• Industrial Explosives: constitute a major revenue segment
• Defence: The defence sector’s order book shows significant growth.

Customer-wise Revenue Mix (FY24 Consolidated) #

• Coal India Limited (CIL): 20%
• Non-CIL & Institutional: 18%
• Housing & Infrastructure: 5%
• Exports & Overseas: 40%
• Defense: 17%

Major Strategic Initiatives and Their Progress #

• Global Expansion: Entry into new markets, specifically Kazakhstan and Saudi Arabia.
• Backward Integration: Continuous capacity expansion and backward integration in manufacturing materials, including TNT, HMX, and Pyro Propellant.
• R&D Focus: Significant investment in R&D, particularly in defense, aerospace, and industrial explosives.
• Technological Advancement: SAP IBP implementation for streamlined production planning and RPA system for managing documentation.
• Defence Sector Expansion: Securing substantial export orders, and anticipation of substantial revenue growth.

Risk Landscape Changes #

• Material Availability and Inflation: Volatility in global markets and supply chain disruptions are increasing costs and potentially disrupting production.
• Foreign Exchange (FX) Risk: Currency exchange rate volatility affects the cost of raw materials and product competitiveness in international markets.
• Cybersecurity Risk: Increasing threats due to unauthorized access, data breaches, and cyber-attacks impacting critical infrastructure and intellectual property.
• Regulatory Compliance Risk: Strict regulations, poor governance practices, and potential for non-compliance, leading to legal penalties and operational disruptions.
• Safety, Health, and Environment (SHE) Risk: Safety lapses are a concern.

ESG Initiatives and Metrics #

Environmental Stewardship #

• Transitioning to eco-friendly fuels (biomass constitutes 14% of total fuel consumption), and implementing sustainable operational methods. Certified for ISO 14001:2005.

Climate Change, Energy and Emissions #

• Total GHG emissions (scope 1 & 2) is 70,871, Waste water treated and recycled is 112,340 KL, Zero liquid discharge compliant and has zero incidents for Environmental Risk and Compliance and Biodiversity.

Social Responsibility #

• CSR expenditure was H 12.37 crore in FY24. Key focus areas include education, rural development, healthcare, animal welfare, and women empowerment.

Employee Well-being and Safety #

• 100% of the workforce received Health & Accident Insurance coverage, 81,213 Health & Safety training hours, 100% of female employees covered for maternity leave.

Governance #

• Zero instances of sexual harassment, employee complaints under Vigil Mechanisms, and cases of insider trading or corruption reported. Board diversity: 8 directors, including 4 independent directors, and 2 woman director.

Management Outlook #

• Expectation of healthy order books and high growth potential.
• Anticipation of accelerated momentum in the coming years.
• Plans for global expansion, with targets to establish plants in 2 additional countries by FY25.
• Strategic partnerships with global companies to unlock overseas opportunities.
• Focus on consistent innovation and maintaining high quality standards.

Detailed Analysis #

Financial Position: Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated) #

Assets (₹ in Crores) #

Liabilities (₹ in Crores) #

Equity (₹ in Crores) #

Significant Changes in Major Line Items (>10% YoY) #

• Non-current Assets: Increased by 21.87% YoY, primarily due to increases in Property, Plant, and Equipment, Capital work-in-progress, and Goodwill.
• Inventories: Decreased significantly by 22.87% YoY.
• Other Financial Assets (Current): Increased significantly.
• Non-current Borrowings: Increased by 23.97%, due to increase in borrowings.
• Current Borrowings: Decreased by 25.11%.
• Other Equity: Increased by 26.65% YoY, from an increase in retained earnings and other comprehensive income.

Working Capital Trends #

Asset Quality Metrics #

• Property, Plant and Equipment: Increased, indicating potential expansion or upgrades.
• Goodwill: Increased significantly, related to business acquisition during the year (Emul Tek Private Limited).
• Trade Receivables: Remained relatively stable, Impairment allowance is subject to minimal changes.

Debt Structure and Maturity Profile #

• Non-current Borrowings: Increased to ₹ 583.55 Cr from ₹ 472.71 Cr.
• Current Borrowings (excluding current maturities of long term borrowings) Decreased from ₹ 392.76 Cr to ₹ 198.88 Cr, reflecting management of short-term obligations.
• Maturity Profile: Details provided show various repayment schedules for rupee term loans and foreign currency loans, including bullet payments and installment plans. The terms includes fixed and floating rates.

Off-Balance Sheet Items #

• Contingent Liabilities: Not quantified, but related to excise, sales tax, and other claims.
• Guarantees: Corporate guarantees and bank guarantees provided by the company outstanding.
• Commitments: Capital commitments estimated at ₹ 168.79 Cr (down from ₹ 210.82 Cr in the previous year).

Operating Performance #

Revenue Breakdown by Segment/Geography (Standalone) #

• FY24 vs FY23 Overall Revenue: Decreased from ₹4162.25 Cr to ₹3717.52 Cr.
• FY24 vs FY23 Volume growth: Increased by 20%.
• Geographical Breakdown (FY24):
  • India: ₹2661.53 Cr *Rest of the world: 960.43
• Geographical Breakdown (FY23): *India: 3359.12 Rest of the world: 713.67
• India’s Revenue Growth Rate: experienced a decline.
• Rest of the World Revenue Growth Rate: Experienced growth.
• Export & Overseas Business (as % of total revenue, 5-year CAGR): 40%, growing at 33%.

Revenue Breakdown by Segment/Geography (Consolidated) #

• FY24 vs FY23 Overall Revenue: Decreased from ₹6922.53 Cr to ₹6069.52Cr.
• Geographical Breakdown (FY24):
  • India: ₹3,189.39 Cr.
  • Outside India: ₹2,719.63 Cr.
• Geographical Breakdown (FY23):
  • India: ₹3,841.16 Cr.
  • Outside India: ₹2,928.56 Cr.
• India’s Revenue Growth Rate: experienced a decline.
• Outside India Revenue Growth Rate: experienced a decline.

Cost Structure Analysis (Consolidated) #

• FY24 Major Cost Components:
  • Cost of materials consumed: ₹2,709.97 Cr.
  • Purchases of stock-in-trade: ₹402.58 Cr.
  • Employee benefit expense: ₹433.46 Cr.
  • Other expenses: ₹1,070.68 Cr.
  • Finance costs: ₹109.37 Cr.
• FY23 Major Cost Components:
  • Cost of materials consumed: ₹3,819.54Cr.
  • Purchases of stock-in-trade: ₹560.22 Cr.
  • Employee benefit expense: ₹352.72 Cr.
  • Other expenses: ₹938.52 Cr.
  • Finance costs: ₹90.38 Cr.

Margin Analysis (Consolidated) #

• Operating Profit Margin (Adjusted): 20.20% (FY24), 16.76% (FY23). Increased.
• Net Profit Margin (Adjusted): 14.42% (FY24), 11.72% (FY23). Increased.
• EBITDA Margin: H 1,413.68 Cr. (FY24), H 1,320.44 (FY23) Increased.

EPS Analysis (Standalone) #

• Basic and Diluted EPS: ₹65.90 (FY24), ₹49.22 (FY23). Increased.

EPS Analysis (Consolidated) #

• Basic and Diluted EPS: ₹92.38 (FY24), ₹83.68 (FY23). Increased.

Cash Management #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components (Consolidated) #

• OCF: For the year ended March 31, 2024, Solar Industries India Limited generated H 1406.01 Crores in net cash from operating activities, a significant increase from H 656.48 Crores in the previous year. The primary driver was a Profit before tax, further adjusted to reflect the operating cash flow.
• ICF: The net cash used in investing activities was H 726.46 Crores in FY 2024, up from H 518.97 Crores used in FY 2023. This was primarily driven by the increased purchase of property, plant and equipment.
• FCF: Free Cash Flow can be assumed as OCF - Capex.

Dividend and Share Buyback Trends (Consolidated) #

• Dividend: The Company paid a final dividend of H 72.39 Crores for FY 2023, compared to H 67.87 Crores for FY 2022. A final dividend of H 76.92 Crores is proposed for FY 2024.
• Share Buyback: No share buyback activity is mentioned in the provided financial data.

Debt Service Coverage (Consolidated) #

• The Debt Service Coverage Ratio (DSCR) for FY 2024 was reported as 6.64.

Liquidity Position and Cash Conversion Cycle (Consolidated) #

• Liquidity Position: The Company’s current assets totaled H 1,397.86 Crores, and current liabilities were H 559.58 Crores as of March 31, 2024. Cash and cash equivalents stood at H 62.95 Crores.
• Cash Conversion Cycle: The data provided does not offer sufficient information to directly calculate the cash conversion cycle.

Key Performance Indicators: Financial Analysis #

Profitability Ratios (3-Year Trends) #

• ROE decreased in FY24, due to high exchange difference impact.
• Operating and Net profit margin has improved year on year showing better cost management.

Liquidity Metrics #

• Current ratio improved, indicating a better ability to meet short-term obligations.

Efficiency Ratios #

• Inventory turnover ratio decreased, indicating a potential slowdown in inventory movement.
• Debtors turnover ratio also has decreased due to the increase of trade receivable.

Leverage Metrics #

• Net Debt/Equity ratio decreased substantially, demonstrating reduced reliance on debt financing.
• Interest Coverage Ratio is decreased in FY'24.

Working Capital Ratios #

• Net Capital Turnover Ratio for FY24 is 4.47 and for FY23 is 8.08. Ratio is decreased on account of decrease in sales & increase in average working capital.

Industry Comparisons and Deviations #

• The document does not provide industry averages for direct comparison. Therefore, a meaningful comparison with industry averages and highlighting significant deviations is not possible.

Business Segment Performance Analysis #

Revenue and Profitability #

• FY24 consolidated revenue decreased to H 6,070 crore from H 6,922.53 crore in FY23, a decline of 12.31%.
• EBITDA for FY24 was H 1,414 crore, and PAT was H 875 crore.
• Domestic business shows higher performance.
• International business generates 40% of total revenue, growing at 33% 5-year CAGR.

Customer Revenue Mix (Consolidated) #

• Coal India LTD: 31%
• Other: 69%

Customer Revenue Mix (Standalone) #

• Coal India LTD: 50%
• Other: 50%
• Volume Growth: 20% increased YOY.

Market Share and Competitive Position #

• Solar Industries holds a leadership position in the domestic industrial explosives market, driven by a backward integration model.
• The company is expanding its international presence, with a footprint in 80+ countries and manufacturing facilities in 8 countries, plans to open in 2 additional countries by FY-2025.

Key Products/Services Performance #

• The Company supplies bulk, packaged explosives, and initiating systems.
• Growing focus on Defence Products, with significant export orders secured (H 455 crore and H 994 crore), and expectations for a three-fold revenue increase in FY25.
• Solar has achieved a diversified product portfolio including products for defence applications.

Geographic Distribution and Market Penetration #

• Present in more than 80 countries.
• Manufacturing facilities established in 10 countries. Plans to add facilities in 2 countries by FY2025.
• Export and overseas business constitutes 40% of total revenue with a 33% 5-year CAGR.
• Planned expansion into Kazakhstan and Saudi Arabia.
• Face high inflation and volatile currencies in overseas markets.

CAPEX and ROIC #

• Overall capex H 668 Cr.
• Return on Net Worth: 25% for FY24, decreased from 29% in FY23.
• Return on Capital Employed: 32% for FY24, decreased from 37% in FY23.

Operational Efficiency Metrics #

• Inventory Turnover Ratio: 15.29 in FY24, a decrease from 18.75 in FY23.
• Debtors’ Turnover: 6.51 for FY24, decreased from 9.09 in FY23.
• SAP IBP Implementation: streamlines production planning and resource management.
• RPA System: Installed to manage documentation and invoicing, reducing errors and improving efficiency.

Growth Initiatives and Challenges #

Growth Initiatives #

• Significant investments and focus on indigenous R&D for ammunition and defence requirements.
• Entering new markets like Kazakhstan and Saudi Arabia, increasing the global footprint.
• Capitalizing on government infrastructure spending and Public-Private Partnerships (PPPs).
• R&D Prioritization for existing and new products, collaborations to be a proficient player in the defence sector.

Challenges #

• Global Economic Volatility: Currency fluctuations and hyperinflationary conditions in certain international markets.
• Geopolitical Risks: Geopolitical tensions impacting global defense budgets and trade.
• Material Availability and Inflation: Volatility in global markets and supply chain disruptions causing increased costs.
• Cybersecurity Risk: Potential compromise of the critical infrastructure and intellectual property.
• Safety, Health and Environment (SHE) Risk: Risks to employee and societal health, safety and environmental impact
• Regulatory Compliance Risk: Non-compliance, legal penalties, operational disruptions