Hold Solar Industries India; target of Rs 1071 KRChoksey

KRChoksey's research report on Solar Industries India

Solar Industries Ltd.’s (SOIL) revenue from operations decreased by 20.8% YoY to INR 491 Cr (down 10.3% QoQ). The total order book in hand at the quarter end was INR 1,153 Cr (Coal India- ~INR 710 Cr, SCCL- INR 105 Cr, Defense- INR 338 Cr). Gross margin for the quarter stood at 45.1% (vs 42.6% in Q1FY20), an improvement of 249 bps YoY (down 79 bps QoQ). EBITDA margin of 18.7% in Q1FY21 was down 137 bps YoY (+233 bps QoQ) due to low operating leverage. Net Profit stood at INR 42 Cr for the quarter; down 40.8% YoY (down 15.7% QoQ) and EPS stood at INR 4.65 per share. The total capex for the quarter was INR 48.78 Cr, while planned capex for FY21 is INR 210 Cr. Total net debt stood at INR 609.1 Cr vs INR 615.6 Cr in Mar-20. Debt equity ratio also improved at 0.46 times as against 0.51 times in Mar-20.

Outlook

We expect company to show improvement from H2FY21 onwards & are optimistic of international business as most of the countries are nearing breakeven levels. In anticipation of better H2FY21, and improvement in margin with lower commodity prices, we raise our P/E multiple to 29.5x ( previously 27.5x) on FY22E EPS of INR 36.3/share and raise our target price to INR 1,071/share (previously INR 998 per share). Accordingly, we maintain our rating at “HOLD” on the shares of Solar Industries.

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