Solar Industries Q2 Results Review - Record Margins; Benign Prospects: ICICI Securities

ICICI Securities Report

Solar Industries India Ltd.’s Q2 FY24 profitability is its best-ever. Key points:

1. Ebitda margin surged to a record 24.9% on better price-cost spread.

2. Explosive volume uptick of 13% YoY.

3. Defence comprised 8% of overall volume.

4. Order book of Rs 39.2 billion, of which Rs 10.5 billion is for defence.

Going ahead, management believes that:

1. FY24 volume growth of 20% YoY is achievable.

2. FY24 Ebitda margin is likely to be higher than Solar Industries' 20-22% guidance.

3. Defence revenue is likely to skyrocket hereon.

We believe that the stock’s current market price already has some of these benefits priced in. Taking cognisance of management’s guidance, we raise our FY24E/FY25E earnings per share by 14%/12% and valuation multiple to 45 times FY25E EPS (earlier 40 times).

Our revised target price works out to Rs 5,920 (earlier Rs 4,700). Downgrade to 'Add' (earlier 'Buy')

Key Risks

• Delay in Award of Pinaka order.

• Further fall in Ammonium nitrate price leading to negative price-cost spread.

• Slow traction in construction and infrastructure segment.

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