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Solar Industries India Ltd
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Ladies and gentlemen, good day, and welcome to Solar Industries Q3 FY '23 Earnings Call hosted by ICICI Securities.
[Operator Instructions] 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.
Yes. Hi, 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.
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 [indiscernible] sale for our investor faculty as well. I am Aanchal and I welcome you all to earnings call of Solar Industries India Limited to discuss quarter 3 earnings.
Joining us today on this call is MD and 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 consist of forward-looking statements regarding our future business expectations intended to qualify for the safe harbor, which involves a number of risks and opportunities that could cause actual results to differ materially from those in such forward-looking statements. Now I refer to Mr. Manish Nuwal to give opening results and the performance of the company. Over to you, sir.
Thank you, Aanchal. A very good evening to all the valued stakeholders. From the backdrop of strong performance by our international and institutional businesses, the revenue for the quarter stands at INR 1,812 crores which is up by 78% year-on-year basis. And 9-month revenue strength at INR 4,994 crores, 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 9 months, which stands at INR 219 crores and INR 591 crores, respectively.
The bank revenue has crossed INR 100 crores for the consecutive second quarter and progressing towards clearly turnover of around INR 400 crores. Our company has participated in various RFPs, which includes RFP for one of the Pinaka variant and RFP for drone-based working ammunitions. The defense order book now stands at INR 817 crores. The company intends to offer its products for state application, has also started showing results after the successful launch of Vitran and static test of GEM XL rocket motor made for this role. The company intends to expand it further in the coming years.
Amid geographical tension doesn't cause higher interest rates, economic slowdown, bringing overall volatility in the business environment. Despite of these challenges, our quarterly and 9-month revenue number gives us confidence to revise our annual growth guidance from 50% to over 55% for the FY '23. Moving forward, we will stay focused on expanding our core businesses through continued strategic investments to enhance the stakeholders' value.
Now I'm handing over to Aanchal to take you through the summary of financials. Thank you.
Thank you so much, sir. I'm extremely happy in presenting the numbers of the quarter where we have crossed the revenue of INR 1,800 crores and profit of INR 200 crores for the first time. We grew at 78% year-on-year in quarter 3, production revenue of INR 1,812 crores versus INR 1,018 crores. EBITDA is at INR 357 crores, up by 93%. PAT is at INR 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 had increased by 17%, that is, 122,000 metric tonnes compared to 104,000 metric tonnes. And the realization of explosives was up by 46%, that is 71,000 tonnes versus 49,000 per tonne. As such, explosive revenue was up by 71% from INR 513 crores to INR 876 crores. The revenue from initiating system was also up by 32%, that is from INR 101 crores to INR 133 crores.
Coming to our customer market. Revenue from CIL was up by 64% year-on-year from INR 192 crores to INR 315 crores. Revenue from non-CIL & Institutional was up by 133% year-on-year from INR 147 crores to INR 342 crores. Revenue from housing and infra was up by 41% year-on-year from INR 216 crores to INR 304 crores. Export and overseas revenue grew by 93% year-on-year from INR 377 crores to INR 739 crores.
Defense revenue was up by 51% year-on-year INR 73 crores, INR 107 crores. Coming to our cost breakup, raw materials. The percent of raw material consumption is 63.55% versus 58.93%. In absolute terms, the cost deal at INR 599.77 crores versus INR 1,151.45 crores in the same quarter of the previous year. The percent of employee cost is 5.06% versus 6.62%. In absolute terms, the cost is INR 91.71 crores versus INR 67.39 crores. Other expenses percentage was at 12.09% versus 16.97% as a percentage of sales. In absolute terms, sales for INR 619 crores versus INR 173 crores. The interest cost is almost INR 85.06 crores versus INR 79.41 crores, and the percentage is at 1.41% versus 1.62%.
Coming to the highlights for 9 months. We registered a revenue of very close to INR 5,000 crores, that is INR 4,994 crores, which is up by 90% year-on-year. EBITDA at INR 952 crores, up by 89%. PAT at INR 591 crores, which is up 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.
Yes. Chris, can we have questions?
[Operator Instructions]
Our first question is from [indiscernible] of Investor Research.
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 exceed by financial year '24 and '25?
Yes. For the current year, we are giving a projection of 11% to 12% for the PAT margin. And for next 2 years, we will come up with a great guidance in our quarter 2 results.
My next question is what are the drivers for the value growth in the domestic explosives business? As 1 year ago, the rates were the INR 43,962 crores, and now it is INR 71,793 crores. So how sustainable these rates are going forward for, say, next 1 to 2 years?
I'm so sorry, can you just come up with your question? Could you clearly -- we're just unable to hear clearly.
What are the drivers for that value growth in the domestic explosives business, and 1 year rates were at INR 43,962 crores and now it is INR 71,793 crores? So how sustainable these rates are going forward for, say, next 1 to 2 years?
Yes, like we have mentioned that in this quarter, our volume has increased by 17% and price increase was there by 46%. Going forward, we are expecting that commodity prices should start to correct. And accordingly, our finished good prices will also get corrected.
And because it is -- our finished good prices are linked to the key raw material prices like ammonium nitrate and crude oil. So at this moment, it is not a certainty that prices will fall in a particular percentage. So as we move forward, we will keep giving or revising our guidance. But as far as for next few years are concerned, we believe that there will be some corrections that it should stabilize in next 1 or 2 quarters. And based on that, we will give you the future guidance.
Our next question is from [indiscernible] with [indiscernible] Union.
Congratulation on the good results. So I guess my one question, which is specifically related to the order book, which you have given. So in your presentation, you just specifically mentioned that your order book at the end of the third quarter stands at 338 -- INR 3,389 crores, right? And 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 it exactly relates to your revenues going forward as well.
Yes. The order book -- for that defense order stands at INR 817 crores and the rest order of around INR 2,572 crores is from CIL and singular salaries. When these orders are received for a period of 2 years, so the CIL, the next orders will be coming in the month of October '23. So through that period, the order is there from [indiscernible]. And so similarly, it will come in 2024, April. So till that the orders are inclined, in line with singular salaries directly. So 1.5 year order for singular salaries are captured in this.
Okay. So basically SCCL, 1.5 year's orders are, let's say, 302,300 number, as well as CIL's 1 year number, right?
Yes, yes.
Okay. And basically, we put actually end of that period, then again, this order book is going to be 3%.
Yes.
Okay, fine. And also just one more thing. I just wanted to try and understand just generally how your pricing mechanism works. Generally speaking, when there is an increase in the raw material cost, within how much of time period is there a lag or -- in this or near pass-through in terms of the other periods?
Yes, we have contractual obligations with the customers. So really that is in between 1 month to 3 months. So in the -- in guiding as well as following trend, there's always a lag of that much period.
[Operator Instructions] The next question is from [indiscernible] Sharma of [indiscernible] Research.
[Operator Instructions] Our next question is from [indiscernible].
Congratulations on a good set of numbers. Is international volume growth significantly higher?
It is in line with our annual guidance. We have taken that, the volume growth will be in the range of 15% to 20%. So the international business is in that range.
Okay. So it's in line with 15%, 20% rest of the business?
Yes.
Okay, sure. And my follow-up question is so what would be the current inventory better than paid?
So the current working capital gains are around INR 100 crores.
Okay. And how would you see that ending for the end of the year?
So we see around 90 to 100 days of working capital cycle.
Okay, okay. And one second, as current realizations are down or stable Q-on-Q, what we're seeing right now?
It's stable Q-on-Q.
And lastly, what will be the CapEx in Q3?
CapEx, the current CapEx in Q3 -- currently 9 months of CapEx is around INR 350 crores.
INR 350 crores?
Yes. And annual target is around INR 450 crores to INR 500 crores.
Okay. Annual target is INR 450 crores to INR 500 crores. And what do you expect that to be for next year?
So this quarter, we revised the guidance for the current year to around 65%. So next year it will come up in quarter 2 results.
[Operator Instructions] Our next question is from [indiscernible] who is an investor.
Yes. Congratulations on another great set of numbers this quarter. Question I have is if I have to take a 3- or a 5-year view, considering what Coal India is planning in terms of CapEx, mining, government initiatives, private mining and 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 3 to 5 years? What kind of volume growth would be a reasonable number for that?
[indiscernible], we have been repeating or giving our positions of growth as far as volume is concerned. We still believe that we should be able to actually have growth of 15%, 16%, 17% year-on-year basis for next couple of years because there is a plenty of demand on coal mining, which we all are overall. So that gives us a lot of confidence in giving that kind of guidance that we are expecting a growth of around 15% in volume terms.
Our next question is from [indiscernible].
So I couldn't get in earlier because of some 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 3. Can you please confirm that?
So we have given the guidance of over 65% for the year '23.
So my question is that will you continue to do the 15%, 17% volume growth which you said that you will be doing each year for the next couple of years, will that continue in quarter 4 as well? And are you seeing some kind of a decline or a dramatic change in the realization or in raw material cost?
Yes. As with the volume, we do see 15% to 17% growth. And on the basis realization during the quarter, the allocations were stable. But yes, since the raw material that is especially the ammonium nitrate is already at very highly elevated level. We see that should coming down and subside in coming quarters.
Ammonium nitrate?
Yes. That is the basic raw material for us.
So if that falls, then it will be a pass-through. So it can have some kind of impact on your revenue or realization. But your overall profitability per unit may continue to be as good or maybe better. Is that what we should conclude?
Yes, that is correct. At highly elevated values, the margins are generally less as compared to end price of [indiscernible].
Okay. But does it affect your unit profit? That is in terms of rupees per tonne of exclusive that you sell?
We generally -- do not looking that way for us. When we speak on margins, we see the EBITDA margins for which we have given you guidance that at average level, 18% to 20% should be there.
[Operator Instructions] The next question is a follow up on [indiscernible].
Am I audible?
yes.
My question is in last 1 year, volume growth in the domestic business has been 13%. How sustainable this volume growth is by going forward?
[indiscernible] that we see sustainable volume growth of around 15% to 17%.
15% to 17%. Okay. And what is the driver for the export businesses as year-on-year for 9 months, there is an increase of 97%. What is the expected growth by going forward in the next 2 to 3 years?
Yes. our exports will continue to be growing as indicated to you, giving you an overall growth and EBITDA level at 18% to 21%. So we expect the same kind of a growth to take place for -- in the near term.
You are saying 18% to 21%, am I right?
EBITDA level, yes. [indiscernible]
Our next question is a follow-up from [indiscernible].
Yes, I just wanted to know what exactly are the capacity expansion plans over FY '23 medium or medium term. If you can give me some color on that in terms of broad CapEx, say over the next 5 years or maybe investor volume number that will be very helpful.
So our current year CapEx plan, like Shalinee has mentioned, that we are targeting around INR 450 crores or maybe around INR 500 crores. So it will be in that range. And in coming years also, for next couple of years, we believe that our CapEx program will run around INR 450 crores, INR 500 crores levels on annualized basis.
And our lower CapEx programs are for increasing the defense product portfolio, including the geographical presence within the country, and increase our international presence in either new territories or expanding the current capacities of our major geographical -- geography where we are present like Turkey, Nigeria and South Africa and Australia.
Okay. So I'm just trying to understand. So when you are expanding the international markets, so what exactly are these -- I mean 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'm wrong. But just in going to, you just need to set up expect sales or marketing division over there? Or is there something more to what I mentioned?
Yes. We have each country operating on their own and taking decision at that level to grow the business. The growth in the business would be within the region that they're operating and the nearby operating region that they are in. So we have a separate set of people in these countries to handle the business.
So we're talking about a separate plant as well as the foreign countries as well?
[indiscernible]
Okay. And about this -- just one time to understand for these international businesses, these are also for defense, or is this legal for civilian applications?
This is for only civilian applications.
[Operator Instructions] Our next question is from Aniket Mittal of [ HBR Neutrasal ].
Just a few questions. Manish, on the overseas business, I recollect you were planning some expansions in Australia and Indonesia. If you could throw some light as to where we are on that?
Yes, we -- our expansions in Australia and Indonesia is online now. We expect our Australian operations to start in Q1 of financial year '24. And in Indonesia, we have partially started the -- and actually 1 on day, which we will start in the year '21 and '24 also.
Okay. And what are the capacities that we've set up over here?
We don't share the capacity for each product or country rate. It is generally -- we share the territory where we are expanding. And on an overall basis, we give a good guidance. That's all.
Okay. so one is maybe for the current year itself, we've been seeing a fairly decent growth in the international market. If you could just highlight total dynamics in the individual geographies as to how they are planning what is the growth that you're currently seeing within your geography, maybe from a volume perspective, that would be helpful.
So the growth from international market is coming from couple of factors, like first is volume growth of around 15% to 20% in various product ranges.
And second is, like we have said that in last couple of years, we were investing and start the new territories. So those territories have started [indiscernible]. And in near future, we are planning to expand in the nearby market. So all these 3 factors are giving the growth from international markets. And in future also, similarly, we will keep growing.
The next question is from [indiscernible] Gandhi of [indiscernible] Institutional Equities.
Am I audible?
Yes.
Sir, my first question pertains to your interest cost or net debt levels. Could you highlight what is the net debt level for third quarter, at the end of third quarter?
So for the group level, it's around INR 1,400 crores.
INR 14 million? Net rate?
Sorry, net is INR 1,200 crores -- INR 1,258 crores. That was gross.
Okay. And my second question pertains to the interest cost. We have seen a huge jump in interest cost for the quarter. So is this something that we have -- we need to assume for quarter going ahead? Or is it just when we can expect the interest cost to come down?
So the interest cost already the [indiscernible] rate have been going up.
Can you hear me?
Yes, yes.
Yes. The [indiscernible] rates have been going up. And in the quarter earlier, the average cost of borrowing was around 2.5% [indiscernible] have increased. So as a result, the interest cost has also increased.
And my final question pertains to the loan. There is lightening ammunitions. So could you highlight the potential of new market? And what are -- what revenue potential that we can expect from this segment over the next 2 to 3 years?
I think this is very difficult to do any such kind of guidance on up to the potential for doing this ammunition. So like we have been mentioning that company is increasing its product portfolio for a variety of applications. So doing those ammunition on new technologies on which company is investing.
And like we have mentioned that few of our products are qualified, and we have participated in various RFP for these products. And once we receive any significant orders, commercial orders, we will definitely [indiscernible] state business.
So could you highlight the competitive intensity in this place? Are we the only players? Or how is the competitive intensity in this place?
We are yet to receive any kind of opportunity or information that who our participated. So it is difficult to share at this stage.
Okay. And my final question pertains to market share. Could you highlight market share of key overseas geographies? What are the current market shares that we have?
We don't have the market share of these countries wherever we are operating. So it is difficult to answer this question.
Our next question is from [indiscernible] of Antiques Stockbroking.
Sir, if you can help us with the reason for decline in gross margins on a year-on-year basis?
We have mentioned that in this year also, the raw material prices are also highly elevated levels. And despite of these testers, we are extracting margins to around 15% to 20% level.
EBITDA, so to point out [indiscernible] is there any inventory that have been incurred during the quarter?
So if you look at our annual guidance, what we have shared is that the revenue, which we are targeting to grow more than 65%. And even factor the growth into our revenue side. And what we are saying is that we are expecting EBITDA margins of around 18% to 20%.
So we have also said that there is always an inventory which we have to carry to run our operations. And there are always some contracts which keep going on with our customers. So as we carry inventory, there are also contracts which are still in running conditions. So every month or every quarter, there are some escalation. And accordingly, our inventory will get addressed to those customers. So we don't see much impact due to these factors.
Okay, understood. And sir, one last question. Actually, the other expenses have declined on sequential basis. I'm not sure if you've answered this here, or if you could just give us the reason for decline in other expenses on a sequential basis.
So if you capture the material engines and other expenses, when both are moving in a similar way what we have seen in the last couple of quarters. So we don't see no change on that account. All these changes partially because they're changing either customer mix or product mix.
The next question is the follow-up from [indiscernible].
Sir, mostly 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 that anything in terms of the maybe order inquiry pipeline or how customers are reacting?
We have factored in various kind of challenges, whatever we can foresee. And based on those challenges, we have given a guidance which we have issued in this financial year, we are targeting to raise our revenue by over 65% in this year. So I think that captures the variety of challenges which we are facing at this moment.
[Operator Instructions] Our next question is also a follow-up from Sanjay [indiscernible].
Sir, can I just ask what is the top country that you export to from there in India?
We don't share the countrywide revenue, countrywide because which we are...
I'm just asking the name of the country, the top 2 -- the top 1 or 2 country that you export to.
So that also we don't share.
And the thing that I just wanted to confirm from you is that you just mentioned that you are getting into Australia and Indonesia. So am I to understand that you didn't have much of revenue from this 2 geographically yet?
Yes, you can assume like this, that these countries are here to start. So revenues from Australia and Indonesia is yet to capture fully into the -- our revenue numbers. So this is -- these trajectories are at a very natural state. We are expecting revenues to grow up from these markets in coming years.
And as far as your exports are concerned, bulk of it is for coal or let's say, or it is diversified?
Our exports are mainly from India to our overseas subsidiary, where we have geographical business. And apart from our overseas subsidiaries, we are supplying to a variety of customers, and those customers spread to almost over 60 countries and...
Are your [indiscernible] predominantly or for noncore [indiscernible]?
It's a mix of uses. Some of them are all coal, but most of them are for infrastructure-related activities.
Okay, okay, okay. And the same thing which you will try here in Australia as well. Why are you giving this guidance of 15% to 17% growth overall, can I ask that how much you are looking at within India? And how much export system will continue to grow?
So this was your last question. I will answer to that. So we are expecting volume growth of 15% to 17% in India and outside as well.
And then our very last question is from [indiscernible].
Sir, as for question. So from earlier calls, you were guiding for a 25% value growth over medium term. So with expectation of ammonia nitrate prices correcting and hence for that expectation of our realizations to come down, so do you still maintain that guidance?
Yes, after capturing all these kind of scenarios we believe that we should grow by over 65% in the financial year.
No, no, sir, for the coming quarters of over medium term, we were maintaining some 25% growth guidance over the medium term. So could you highlight that?
So we have shared that we are targeting a volume growth of around 7 -- 15% to 17%. And as far as value growth is concerned, it is difficult to share at this stage, which we will definitely share when -- after Q4 results are over.
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.
We appreciate the time given by everyone. Thank you so much. See you again in the next quarter.
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.