Shares of Solar Industries Ltd. rose to an all-time high as India's largest maker of explosives continues to focus on increasing exports while lowering dependence on its single-largest client: Coal India Ltd.
The stock rose as much as 2.6 percent to Rs 1,300 apiece today. Shares of the manufacturer of mining and military explosives and rocket propellants surged 18.5 percent in the last one week.
Sales volumes in the quarter ended June were driven by demand from cement makers amid the government's housing and infrastructure push. Exports jumped as well, contributing nearly 38 percent of its revenue.
Solar Industries seeks to nearly double its export revenue in the next two years by setting up more units overseas, according to its 2020 plan. Here are its key targets:
- India: 50 percent volume growth to 4,50,000 metric tonnes by 2020.
- Overseas Business: Nearly twofold jump in revenue to Rs 1,050 crore.
- Set up facilities in five more countries, taking the total to 10.
- Defence: Rs 500-crore revenue by March 2020; Rs 200 crore this financial year.
Key Risks
A slowdown in the mining and infrastructure sectors is a risk, according to Edelweiss Securities. Miners are the largest consumers of explosives in India, contributing 80 percent of the demand. The industry, according to the brokerage, faces risks of a global energy demand, volatility in commodity markets, and environmental factors.
Moreover, despite its efforts to diversify customer base and enter newer geographies and a pick-up in the defence sector, top three clients still contribute over 30 percent of the company's revenue.
Defence contracts are erratic and have a long gestation period.
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