Solar Industries: Explosives Company

Solar Industries India Ltd (SOIL) is one of the leading Explosive manufacturing companies in India. Solar manufactures a complete range of industrial explosives & explosive initiating devices. The company has pan India presence with 25 manufacturing facilities. At global level Solar Industries' presence is in more than 51 countries with manufacturing facilities in 5 countries.

Incorporated on February 24 1995 with the name Solar Explosives Limited the company is now celebrating 25 years of excellence in the field of Explosives.

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(A) Solar Group Family

solar industries stock research with details of management family

B) Executive Management

1) Mr. Satyanarayan Nandlal Nuwal - Chairman and Executive Director

Mr. Satyanarayan Nandlal Nuwal found the Solar Group. He started his career with trading activity in the field of explosives and explosives' Accessories in 1995. An year later, he started the manufacturing business of explosives & explosives' accessories. But initially he began his business journey in 1984.

His age is 67 years. His remuneration for FY20 amounted to Rs 2.70 crore which is 0.12% of net sales and 0.97% of net profit for the year. He holds 14.63% of total shares as on 30 September 2020.

2) Mr. Kailashchandra Nuwal - Executive Director & Vice Chairman

He is younger brother of Mr. Satyanarayan Nandlal Nuwal. Mr Kailash vacated the office of Director with effect from November 7, 2019. His vacation is on account of operation of law arising due to failure to make appropriate disclosures.

He held 28% shareholding in AG Technoolgies Pvt Ltd which is a related party of the company. He did not disclose the same as necessitated by law. In addition, Mr Kailash Chandra Nuwal facilitated a related party transaction (rent agreement) without prior approval of the Audit Committee.

Against such vacation, Mr Kailash, his son Mr Rahul & his wife Ms Indira Kailashchandra Nuwal filed a petition before NCLT, Mumbai bench. But the management is confident that it has strong merits in the case.

His remuneration for FY20 amounted to Rs 2.70 crore which is 0.12% of net sales and 0.97% of net profit for the year. He also holds 23.08% of total shares as on 30 September 2020.

He has also serves as Director in Economic Explosives Ltd, Sunbeam Explosives Ltd, Sunrise Explosives Ltd, Solar Mines & Minerals Ltd, Solar Mining Resources Ltd & Solar Initiating Systems Limited.

3) Mr. Manish Satyanarayan Nuwal - Managing Director & CEO

Mr. Manish Nuwal is a Chartered Accountant . He is with the company from very beginning stage of his career.

His age is 45 years. He received remuneration of Rs 2.70 crore which is 0.12% of net sales and 0.97% of net profit for for FY20. Mr Manish also holds 27.88% of total shares as on 30 September 2020.

He also serves as Director in Economic Explosives Limited, Sunbeam Explosives Limited, Sunrise Explosives Limited, Solar Mines & Minerals Limited, Solar Mining Resources Limited, Solar Initiating Systems Limited and Navbharat Coalfields Limited.

4) Mr. Anil Kumar Jain - Executive Director

Mr. Kumar did his graduation in B.Sc. and B.E. in Chemical Engineering. He strengthens the company with his extensive experience in the management of operations of explosives plants. He is associated with the Solar Group since past 14 years. The company appointed him on the board in May 2015.

His age is 69 years. He received remuneration of Rs 0.48 crore which is 0.17% of net profit for for FY20.

He is also the director of Economic Explosives Ltd.( Subsidiary of Solar Industries India ltd.) as well as Emul Tek Pvt Ltd.

5) Mr. Suresh Menon - Executive Director

He is into Solar Group’s marketing functions since 11 years. Mr. Suresh Menon did his Bachelor of Technology in Mining Engineering from IIT Kharagpur. He has over 34 years of experience in the coal, mining and explosives industries.

His age is 60 years. The company appointed him on the board in 2018. He received remuneration of Rs 0.51 crore which is 0.18% of net profit for for FY20.

Total managerial remuneration for FY20 amounted to Rs. 9.25 crore which is 0.41% of net sales & 3.32% of net profit for the year.

C) Group Structure

The company's presence is across 51+ countries.

Indian Subsidiaries of Solar & holding structure

Indian subsidiaries of Solar Industries

Overseas Subsidiaries of Solar and holding structure

overseas subsidiaries of solar industries

D) Shareholding Pattern

Mutual Funds hold 16.61% of total shares of Solar Industries as on 30 September 2020. Foreign Portfolio Investors hold 4.83% of total shares. The company's majority shareholding is with the promoters as well as institutions. Retail investors hold negligible stake in Solar Industries.

stock research of solar industries with details of shareholding pattern
solar industries stock research with details of major shareholders

(E) Product Segments

stock research of solar industries ltd with detailed revenue segments

E) Products Description

1. Industrial Explosives:

Solar provides complete blasting solutions which includes packaged, bulk explosives.

solar industries Industrial explosives

(i) Packaged Explosives

These further classify into Permitted Explosives, Non-Permitted Explosives & Seismic Explosives. Their applications vary as per their distinct technical properties.

Non-Permitted Explosives

In Non-Permitted Explosives solar provide Superpower90, Superpower80, Solar Prime, Solar Gel, Solar Gel-E , Solarprime-E and Superpower-Gold.

Permitted Explosives

Permitted Explosives are the explosives characterised by a very high degree of intimacy between oxidizer and fuel which leads to high V.O.D and high explosive energy release and with excellent water resistance.

Seismic Explosives

Seismic Explosives designed for seismic exploration (search for commercially economic subsurface deposits of crude oil, natural gas and minerals).

(ii) Bulk Explosives -

Bulk explosives are used in mining applications and Solar provides Solar BE-201, Solar BE - 101 and Solar BE- 909 for this range.

2. Initiating Systems :

Initiation system provides the initial energy required to detonate an explosive used for rock blasting. The company provides wide range of initiating systems which includes Electronic detonator, Non-electric detonator, Electric detonator, Plain Detonator, Cord Relay, Cast Boosters, Detonating cords, and Aluminium Elemented det.

3. Defence :

Solar provides a wide range of products, at the forefront of indigenizing technology and are developing new products for Defense & Military applications which includes Military Explosives, Bombs & Warheads, Ammunitions, Initiating systems and Pyros and Integration of rockets.

Also, Solar Industries is the 1st Private organization in India that fully manufactured Pinka Rockets which have been successfully test-fired.

(F) Explosives Industry Highlights

Global Explosives Industry

  • Manufacturing, trading and selling of explosives is a highly regulated industry, because of various approvals & licenses required, which acts as a key entry barrier.
  • Globally, the mining segment dominates the global market, accounting for a market share of over 80%. This trend shall continue due to increasing mineral extraction.
  • The largest consumers of explosives include China, United States, Australia, Central & South America.
  • In addition to consumption by the mining industry, infrastructure development & the construction industry consume a significant volume of explosives. Coal mining is by far the largest consuming sector for industrial explosives, accounting for about 40% of the total consumption.
  • Secondly, metal mining accounts for about 33% of the total consumption.
  • Also, production of stone for construction & production of cement from quarrying operations accounts for an additional 16% of the world mining market for explosives.

Indian Explosives Industry

(a) Coal Mining

  • The mining sector in India continues to be the largest consumer of explosives and accounts for 80% of the total explosives consumed in India.
  • The major producer of coal in India is Coal India Ltd. Coal India is the largest coal producing company in the world & also the single largest consumer of explosives in the world. Secondly, the other major coal producing companies include state owned Singareni Collieries Company Ltd (SCCL), captive coal mines and private mines.
  • In last 3-4 years, Coal India announced to reach target production of 1 billion tonnes by FY20. But now the target production is revised.
  • Coal India now plans to increase the production of coal from the current 602 million tonnes to 925 million tonnes by FY 2025-262.

Coal forms the dominant fuel for Power

  • However, the production of coal is likely to slow in the near term as the sector has been impacted by the recent outbreak of Covid-19 that led to a lockdown in March 2020 & the impact is likely to continue till the 1st and 2nd quarter of FY 2020-21. Although, long term prospects of the sector remain intact as government initiatives and company specific measures are likely to fuel growth.
  • The government is also determined to reduce the country’s coal import from 242.9 million tonnes & reduces its foreign exchange outflow which stands at about Rs 2 lakh crore.
  • Despite growth in the non-conventional power generation, coal will be the dominant fuel for the power sector considering the country’s rising demand for energy with increase in consumption.
User industry for mining explosives

(b) Steel and Iron Ore Mining

Though, steel users currently lack the demand due to overall effects of Covid-19 pandemic. However, in the long run, demand for steel is likely to grow keeping in line with improved GDP numbers.

(c) Cement & Limestone Mining

Approximately 65% of the total cement production goes into housing construction, 25% in public infrastructure development and 10% in industrial development. Hence the growth in demand for cement is largely dependent on the growth in housing and Infra development.

(d) Construction Industry

The industry has been witnessing a significant interest from international investors. For instance, Initiatives like 100% FDI through automatic route in Construction-Development projects like development of townships, construction of residential/commercial premises, road or bridges, hotels, resorts, hospitals, educational institutes, recreational facilities, city and regional level infrastructure and townships will help boost the sector.

(e) Other related industries that boost the demand for explosives include Housing, real estate and infrastructure

(f) Indian Defence Industry

  • Currently, India spends about $18.52 billion annually on weapons and platform purchases, out of which 60% is sourced from domestic companies, thus with remaining supplies coming from foreign vendors.
  • Therefore, over past 5 years, many Government policy reforms focus on wider private sector participation, to bridge the gap between defence modernization & indigenization.

G) Customer Segments

solar industries stock research with detailed customer segment bifurcation
solar industries stock research with change in customer segments in last 5  years.

The share of revenue from Coal India Ltd reduced significantly over last 5 years. Moreover, the company aims to bring down the contribution below 10% in next 2 years.

Exports & overseas as well Defense segment's revenue increased in last 5 years. This is because Solar is adding overseas manufacturing locations over these years.

Moreover, as per management, defense revenue can ramp up to 20% of the revenue.

Currently, Solar is the sole manufacturer of HMX, RDX, TNT & their compound products in the private sector & also have a large Composite Propellant plant under defense segment.

H) Financial Parameters

  • Debt equity ratio of Solar Industries is 0.51 for FY20 & the management shall further maintain the ratio at 0.50 level.
  • Company's net sales, net profit & operating profit grew at a CAGR of 14% for 2011-2020.
  • Solar Industries is into capital intensive business.
  • Due to expenditure on plant & machinery acquisition, free cash flow is negative or low for few years.

(a) Net Sales

solar industries stock research with details of net sales for 10 years

High Monsoon as well as various trade restrictions in the country became the major reason of decline in growth rate of sales in FY20.

(b) Profit After Tax

solar industries stock research with details of PAT for 10 years

(c) Free Cash Flow

solar industries stock research with details of cash flow for 10 years

I) Significant Ratios

The company enjoys expansion in net profit margin as well as operating profit margin in last 10 years. The company secures 3 main competitive advantages:

  • Location benefit of manufacturing plants' presence close to mines.
  • Secondly, Price escalation clause in customer contracts.
  • Thirdly, In-house manufacture of raw materials except ammonium nitrate.

ROCE & ROE remained stable in last 10 years. ROCE fell for FY20 due to fall in profit & 30% increase in borrowings.

(a) ROE

solar industries stock research with details of ROE for 10 years

(b) ROCE

solar industries stock research with details of ROCEfor 10 years

(c) PAT Margin

solar industries stock research with details of profit margin for 10 years

(d) PBIDT Margin

solar industries stock research with details of operating margin for 10 years

Market Share of Solar Industries

market share of Indina Explosives market players

Manufacturing Capacity of Solar Industries

For the year ended 31 March 2020:

  • Global explosives capacity of Solar = 5,77,000 metric tonnes
  • India Capacity = 4,50,000 metric tonnes
  • Overseas Capacity = 1,27,000 metric tonnes
  • Global Production = 4,37,500 metric tonnes
  • India Production = 3,37,000 metric tonnes

Future Outlook of Performance

The management gave the following growth outlook for FY20 in 2018:

  • Sales volume growth from 3,00,000 tonnes to 4,50,000 tonnes in India.
  • Moreover, Capacity expansion in India to reach 7,00,000 metric tonnes.
  • Increase the overseas revenue by 3 times from Rs 350 crore in FY17. Overseas revenue shall surpass Rs 1,050 crore by 2020.
  • Earn Rs 500 crore of revenue from defense segment by FY20.

Ahead of FY20

Sales volume did not cross the above targets announced by the management by FY20. During 2019-20, the company faced challenges of a slow economy. The unusually heavy & prolonged monsoons further accentuated the same with rains having ravaged the central & eastern India all through to November 2019. The same affected the coal mines where many mines were flooded with a considerable drop in production. The Infrastructure segment as well as housing impacted, as well.

Overseas revenue reached Rs 866 crore in FY19. But the same fell to Rs 793 crore in FY20. Current revenue from defense segment is Rs 122 crore.

The company further expects to achieve defence & overseas business revenue targets in FY21.

Order Book size at year end 31 March 2020 (estimate):

  • Coal India: Rs 710 crore
  • SCCL: Rs 105 crore
  • Defence: Rs 338 crore

The company received a defence order from ISRO of Rs. 364 Cr during the FY20.

  • In addition, Solar Industries is the 1st Private company in India which fully manufactured the Pinka rockets which have been successfully tested fired. The same opens opportunities for supplying these to defense.
  • The RFP (request for proposal) made by the company for multi-mode hand grenade is also in the final stage of approval.
  • The company is also getting into Digital Engagement Blasting Segment. The management is expecting that it will take about a year to get to reach somewhere for getting that digital dignitaries, wireless dignitaries.


As on 4 November 2020

  • Market Cap = Rs 9,409.61 crore
  • Cash & Investments = Rs. 122.49 crore
  • Trailing P/E = 37.82
  • EV/EBITDA = 21.03
  • Earnings Yield = 4.75%
  • Earnings Growth is good over last 10 years at a CAGR of 14%
  • The company has stable Return ratios

J) Growth Opportunities & Strengths

Privatisation in mining

The opening of the mining sector for private players, will result in enhanced mineral extraction activities coupled with increased road and tunnel construction and other development projects.

Atmanirbhar Bharat Abhiyan

India imports various defence products form different countries as a result their is huge amount of cash outflow every year but the government initiative of Atmanirbhar bharat will give an boost to domestic defence industry therefore the domestic market will grow.

Opening of space sector

The government’s initiative of opening up the space sector for private participation will certainly unlock India’s potential in the space sector as a result it will provide the growth opportunity to the company as well.

Growth in International Markets

In FY15, company's manufacturing operations located in Zambia, Nigeria & Turkey. Now, the company's manufacturing presence is in South Africa, Autralia & Ghana as well. Moreover, 3 new locations may be added ahead.

Company's market share in explosives exports is more than 40%. Export & overseas operations cover more than 50 countries across the globe contributing 35% to the total revenue. The same count for FY15 was 22 countries.

Entry Barriers for Explosives Industry

The explosives industry has high entry barriers as it requires industrial licensing, and various clearances from government, chief controller of explosives, and directorate general of mines safety. Furthermore, as per the Ammonium Nitrate Rules 2012, ammonium nitrate, key raw material (comprises 70% of the group's total raw material cost), has been classified as an explosive. Hence, its production, distribution, sale, and stocking require a license. Sale of explosives is regulated by Petroleum and Explosives Safety Organization and Chief Controller of Explosives to prevent misuse of end products.

Thus, due to such regulations, entry barriers restrict new players' entry.

Proximity to Mines

Solar's bulk explosive plants have presence in mineral-rich states like Maharashtra, Jharkhand, Chhattisgarh, Odisha, etc. One of the key success factors in bulk explosives is proximity to mines. This results in effective delivery system.

Strong operating efficiencies with significant backward integration

Majority of raw materials (apart from ammonium nitrate) such as detonator components, emulsifiers, sodium nitrate, and calcium nitrate are manufactured internally, leading to cost savings, quality control and a stable operating margin of 20%.

Also, all of the group's bulk explosive manufacturing units locate in a 50-60 kilometre radius from major mining regions. Solar group is able to pass on the variations in raw material prices to its customers through the price escalation clause in the contracts thus maintaining margin even in volatile raw material price movements.

K) Risks/ Threats

Economic Risk

A slowdown in the global and domestic economy is unavoidable amidst geo-political tensions, trade wars and recent outbreak of Covid-19 virus. Continued sluggishness in domestic mining as well as infrastructure activities results in delay in revenue contracts.

Moreover, Solar has manufacturing facilities in 5 overseas countries & products are consumed in more than 51 countries. Unrest & instability in countries of operation can significantly impact the business.

Currency Risk

The company operates in various countries & due to currency volatility the company incurs translation loss every year.

Raw material/Commodity prices

The price of raw materials like Ammonium Nitrate, fuel and industrial chemicals (that are linked to international traded commodities) might affect profitability. Lower commodity prices globally have impacted the visibility of mining efforts, particularly in high cost regions. Continued uncertainty can impact overseas revenues.

But customer contracts of Solar include price escalation clause to combat raw material price volatility.

Compliance risk

Because of various hard rules & regulations, there is a risk of failure to comply across multiple geographies (that Solar is present in). This may challenge company's operational functionality.

Also, Solar is exposed to a wide spectrum of safety, health & environment (SHE) risks, given the diversity & complexity of the industry, it operates in. A major SHE incident, such as fire, SOP violation, security breach can result in loss of life, environmental degradation and overall disruption in business activities.

Environmental factors

Various Environmental factors such as climate change could result into shift from Coal based thermal energy to renewable energy. Because of the shift from coal to renewable energy the demand for explosives may decrease. This is specific to the overseas locations. Although the management is confident that the demand shall grow over next 10 years.

The demand of explosives are also affected by monsoon and rainfall during heavy rainfall the demand of explosives and other initiating systems decreases. For instance there were heavy rainfall in India in last two years as a result the demand of explosives decreases.

Competitive Bidding process

The tender system of supply to Coal India poses a constant risk of loss of business to
competitors of the Company. Aggressive bidding by competitors may impact margins to some extent.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications. 

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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