Solar Industries India - Nirmal Bang

We had a meeting recently with the management of Solar Industries India (SII), the largest manufacturer of industrial explosives and explosive initiating devices in India, to get the latest business update. Following are the key takeaways: Stable domestic market: SII is a market leader in the domestic explosives industry with a 29% share. It offers bulk explosives (for large open cast mines), cartridge explosives (for small and underground mines) and explosive initiating devices like detonator, detonating fuse and cast booster. The annual demand for explosives in India stood at Rs31bn in FY13, the eighth largest in the world, with explosives consumption at 750,000mt. The industry posted a volume CAGR of 5% to 6% and a 10% CAGR in value terms over the past 10 years. Besides SII, the other key players are Orica, Gulf, IBP, Premier Explosives, KEL and Special Blast who totally hold a 70% domestic market share. SII expects the domestic industry to post a steady volume CAGR of 7%-8% over the next five years.

Increased focus on exports: SII has manufacturing bases in Zambia, Nigeria and Turkey to cater to the African explosives market, where it expects good growth. It currently has a 7%-8% market share each in Zambia (US$100mn market size) and Turkey (US$150mn market size), while it has a 50% market share in Nigeria (US$30mn market size). In addition to likely expansion in market shares in these three countries, SII also plans to use the manufacturing bases to supply cartridge explosives to neighbouring countries.

Coal India is a key customer: The mining industry - primarily coal, limestone and iron ore mining segments - is the largest consumer of explosives, accounting for 90% of total demand. Out of this, the coal mining segment accounts for 70% of the demand, thereby making Coal India (CIL) the largest customer for explosives. As much as 27% of FY13 revenue of SII was accounted for by CIL. However, the dependence on CIL has gradually reduced over the past five years (CIL accounted for 58% of SII's revenue in FY07) due to the diversification into the infrastructure sector (limestone mining segment) and rising exports. SII achieved L1 status in a large tender floated by CIL last year to procure Rs41bn worth of explosives and accessories for meeting its requirement over 2012-15. With its L1 status, SII will supply Rs11bn (27% of contract value) of explosives and accessories to CIL over the stipulated timeframe, while the rest will be spread among four other players (L2 to L5 status) by CIL at SII's L1 price.

Expansion towards iron ore mining segment: While SII has so far focused on supply of explosives to industries involved in coal and limestone mining (cement and infrastructure projects), it has not paid attention to iron ore mining segment's (steel companies) requirement. SII is in the process of setting up a manufacturing plant in Orissa to cater to the iron ore mining segment and further diversify its customer base, and it is also looking at Karnataka and Goa because it expects the mining activity to revive there. The cost of setting up a 5,000mt bulk explosives plant would be Rs50mn.

Source : Equity Bulls

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