| Solar Industries India Limited | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper of Solar Industries India Limited (SIIL; part of the Solar group).
The ratings continue to reflect the Solar group’s robust market position in domestic and overseas markets in the explosives and detonators industry, sound operating efficiency and healthy financial risk profile. These strengths are partially offset by susceptibility to regulatory changes and volatility in foreign exchange (forex) rates.
The group’s revenue is expected to grow by over 50% in fiscal 2022, supported by volume growth and higher realisations, while the operating margin will moderate to over 19% on account of higher raw material prices. The growth in revenue is driven by healthy orders from coal mining and growing demand from other segments. As on December 31, 2021, the group had orders worth Rs 2,733 crore, including orders of Rs 537 crore for defence products.
In the first nine months of fiscal 2022, the group reported revenue of Rs 2,631 crore and earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 484 crore, against Rs 1,724 crore and Rs 350 crore, respectively, for the corresponding period of the previous fiscal.
In fiscal 2021, revenue increased to Rs 2,522 crore with Ebitda of Rs 568 crore from Rs 2,240 and Rs 488 crore, respectively, in fiscal 2020, driven by the overseas business.
Liquidity of the group will remain strong over the medium term driven by accrual of over Rs 400 crore per annum against annual capital expenditure (capex) of Rs 250-300 crore. Further, net gearing is expected below 0.5 time aided by prudent funding of capex.
CRISIL Ratings takes note of the ongoing legal proceedings regarding vacation of office of an executive director, Mr K C Nuwal, of the company. The company filed an appeal with National Company Law Appellate Tribunal (NCLAT) against the impugned order passed by NCLT on February 22, 2021. The matter was on hold and expected to resume after six months starting March 7, 2022. As per discussion with the company’s management, the business of the Solar group has not been impacted. Nonetheless, CRISIL Ratings will continue to monitor the proceedings and any impact on operations will be a key monitorable. |
Analytical Approach CRISIL Ratings has combined the financial and business risk profiles of SIIL, its subsidiary, Economic Explosives Ltd (‘CRISIL AA+/Stable/CRISIL A1+’), and other subsidiaries and stepdown subsidiaries. This is because all these entities, collectively referred to as the Solar group, have common management and significant business and financial linkages.
Please refer Annexure – List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Robust market position With market share of around 24% in the explosives industry, the group is one of the largest manufacturers and exporters of explosives and initiating systems in India. Its manufacturing unit in Nagpur is the world’s largest single-location cartridge plant. It is one of the few players with complete product range and capability to develop and supply customised products. In addition to witnessing healthy growth in the domestic market, it has expanded significantly in the overseas market over the past few years. It is the largest supplier of explosives to Coal India Ltd (‘CRISIL AAA/CCR AAA/Stable/CRISIL A1+’). The group entered the defence business in 2010 and gained competitive advantage by setting up high-energy explosives, delivery systems, ammunition, rocket/missile integration, pyros, igniters and fuse manufacturing facilities. Limited shelf life of explosives, continuous consumption by the armed forces, Make in India focus and typical long-term defence contracts provide steady medium-term revenue visibility.
Backed by orders of Rs 2,733 crore as on December 31, 2021, in the domestic market and continued growth in the international market over the medium term, the group will maintain its robust market position.
Sound operating efficiency 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 stable operating margin of around 20% over the five fiscals through 2021. Also, all the bulk explosive manufacturing units are located in 50-60 km radius from major mining regions. The group has the ability to pass on fluctuations in raw material prices to customers through price escalation clause in the contracts.
Strong financial risk profile Tangible networth was Rs 1,586 crore and gearing 0.5 time as on March 31, 2021. Debt protection metrics were comfortable, reflected in interest coverage and net cash accrual to total debt ratios of 12.59 times and 0.5 time, respectively, in fiscal 2021, against 8.95 times and 0.49 time, respectively, in fiscal 2020.
Weaknesses Exposure to regulatory risks The explosives industry has high entry barriers; players require 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; accounts for 65% of the total raw material cost) is classified as an explosive. Hence, its production, distribution, sale and stocking require a licence. Sale of explosives is regulated by the Petroleum and Explosives Safety Organisation and the Joint Chief Controller of Explosives to prevent misuse of end products. Though the group takes precautions at all stages of the manufacturing process and is a member of SAFEX (an international apex body that promotes global best practices on safety standards in the explosives industry), it remains susceptible to regulatory risks.
Susceptibility to volatility in forex rates Partial import of raw material and operations in Nigeria, Ghana, Zambia, South Africa and Turkey expose the group to adverse currency fluctuations. In fiscal 2022, the group incurred translation loss of Rs 37 crore in the third quarter because of currency devaluation. To safeguard against volatility in forex rates, it has begun borrowing debt in local currency in the overseas markets, which reduces forex risk considerably. Also, it has started billing in USD in some markets. It hedges all imports and keeps exports open. However, on account of overseas presence, forex risk will persist. |
Liquidity: Strong Cash accrual, expected at Rs 400 crore per annum in fiscals 2022 and 2023, will comfortably cover yearly debt obligation of Rs 100-150 crore. Cash and equivalent stood at around Rs 100 crore as on September 31, 2021. On standalone basis, SIIL has access to fund-based limit of Rs 211 crore, which is minimally utilised. Expected capex of Rs 250-300 crore per annum will be funded through a mix of debt and internal accrual. Unutilised bank limit will be sufficient to meet incremental working capital requirement. SIIL has a policy of paying 30% of profit after tax as dividend but is expected to conserve cash over the medium term in light of growth opportunities. |
Outlook: Stable CRISIL Ratings believes the Solar group will maintain its robust market position in the domestic explosives industry and witness healthy revenue growth in the overseas and defence businesses over the medium term. Also, the financial risk profile will remain strong. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company The Solar group is one of the largest domestic manufacturers of bulk and cartridge explosives, detonators, detonating cords and components. It has manufacturing facilities in 25 locations in India, and plants in Nigeria, Zambia, Ghana, South Africa and Turkey. In fiscal 2011, the group entered the defence sector to manufacture high-energy explosives, delivery systems, ammunition filling and pyros fuses. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Interchangeable with other fund-based facilities ^Interchangeable with non-fund-based facilities #Interchangeable with fund-based facilities $Interchangeable with fund based & non-fund-based facilities |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 17-Mar-2022 in line with the lender-wise facility details as on 17-Mar-2022 received from the rated entity
*Interchangeable with other fund-based facilities
^Interchangeable with non-fund-based facilities
#Interchangeable with fund-based facilities
$Interchangeable with fund based & non-fund-based facilities
Criteria Details
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