ICRA stated that the reaffirmation of the rating takes into account the leadership position of SIIL in the industrial explosives industry, supported by a large manufacturing infrastructure with some units in proximity to mines, a backward-integrated facility in India as well as manufacturing units in select countries. In addition to a dominant market position in India, SIIL has developed a reasonable global footprint in recent years with supply to over 75 countries. Exports and overseas sales accounted for 40% of the Group’s total revenues in FY2023 and 41% in H1 FY2024.

The rating considers the favourable medium-term demand outlook with increased demand from the end-users in the mining, infrastructure, housing and defence sectors. The order book, indicating revenue visibility, is strong at Rs. 3,912 crore as on 30 September 2023.

SIIL has established relations with reputed clients in the mining and infrastructure industries which ensure repeat orders. Additionally, in the last few years, the company has been manufacturing and supplying products to the defence sector under a technology agreement with the Ministry of Defence, GoI, and has also developed products to meet the indigenisation requirements in defence supplies.

The rating favourably factors in a healthy revenue growth of 75% in FY2023 at Rs. 6,922.5 crore along with expectations of a 20% volume growth in FY2024, even though there has been a sharp decline in realisations in the current fiscal on the back of a decline in raw material prices, mainly ammonium nitrate or AN. The operating profit margin (OPM) remained healthy in the range of 20-22% for FY2023 and H1 FY2024, and the company expects the operating margin to improve further in FY2024 due to operating efficiencies.

The rating, however, remains constrained by the vulnerability of SIIL’s margins to any fluctuation in the prices of its key raw material i.e. AN. The company’s capital structure remained strong with a gearing of 0.4 times as on 30 September 2023, backed by a strong net worth. The expanding operating profits and cash accruals would continue to support healthy debt coverage metrics and a favourable liquidity profile.

The company faces high sector concentration risk with a considerable portion of its revenues derived from the mining sector. Any operational or regulatory impact on the mining sector could, therefore, impact SIIL’s revenue and cash generation.

SIIL’s profitability remains vulnerable to the volatility in foreign currency exchange rates, given the sizeable revenue contribution from exports and the overseas sector. ICRA also notes the highly regulated nature of the explosive manufacturing industry with the need for licensing of various products. The company’s operations, therefore, remain vulnerable to any changes in the regulatory framework.

Solar Industries India (SIIL) is the flagship company of the Solar Group. SIIL, along with its subsidiaries, manufactures bulk explosives, packaged explosives and initiating systems, which find application in the mining, infrastructure and construction industries. The Group forayed into the defence sector in 2010 and diversified into the manufacturing of propellants for missiles and rockets, warheads and warhead explosives.

The company's consolidated net profit rose 13.47% to Rs 200.14 crore despite a 13.99% fall in sales to Rs 1,347.46 crore in Q2 FY24 as compared with Q2 FY23.

The scrip shed 0.31% to currently trade at Rs 6643.40 on the BSE.