Omnia Holdings Limited (OMN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Solar Industries business update call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Singh from ICICI Securities. Thank you, and over to you, sir.

Thank you, Steve. Good morning, everyone. A warm welcome to Solar Industries con call. We would like to thank the management to give us the opportunity to host them. From the management side, we have with us Mr. Manish Nuwal, Managing Director and CEO; Mr. Suresh Menon, Executive Director; Mr. Milind Deshmukh, Executive Director; Mr. Moneesh Agrawal, Joint CFO; and Ms. Shalinee Mandhana, Joint CFO. Without taking any much time, I'll hand over to Manishji for his opening remarks. Over to you, sir.

Good morning, everyone, and thank you for joining us today. On behalf of Solar Group, I, Shalinee Mandhana, would like to extend a warm welcome to all our investors, analysts, shareholders and stakeholders participating in this call. Today marks a significant milestone in Solar Group growth journey. We are pleased to announce that Solar SA Investments Proprietary Limited, our wholly owned step-down subsidiary has signed definitive agreements for the proposed acquisition of Omnia Holdings Limited, a leading diversified mining and aggregate company headquartered in South Africa. Before we begin, I would like to remind everyone that certain statements made during this call may be forward-looking in nature. These statements are based on current expectations, assumptions, estimates and projections. Actual outcomes may differ from these expressed or implied by such forward-looking statements. I would also like to highlight that the proposed transaction remains subject to customary regulatory shareholder and other closing approvals and conditions. Until completion of the transaction, Solar and Omnia will continue to operate as independent businesses. Consequently, there may be certain matters relating to funding, integration, synergies future financial performance and other transaction-related effects on which we may not be able to provide detailed commentary at this stage. We look forward to sharing more comprehensive insights as the transaction progresses. Further, I would like to clarify that today's call is being conducted specifically to discuss the proposed acquisition of Omnia. Accordingly, we'll not be taking questions related to Solar Group's current business operations outside the scope of this transaction. With that, I would now like to invite our Managing Director and CEO, Mr. Manishji Nuwal, to take you through the strategic rationale and highlights of this proposed transaction. Over to you, sir.

A very good morning to all of our beloved shareholders and stakeholders. The strategic rationale for this proposed acquisition of South Africa's Omnia Holdings Limited is to create a most integrated global platform for commercial explosives and blasting solutions. Over the past 3 decades, Solar has built a strong position in the global explosives industry through its focus on innovation, reliability and manufacturing excellence and customer-centric solutions. The Solar Group has steadily expanded its footprint across Africa, building customer relationships, operational capability and market access across key mining jurisdictions. Solar first entered the SADC region in 2010. With the establishment of its first overseas manufacturing entity in Zambia, it expanded its operation in South Africa in 2015 through a distribution platform, followed by the commissioning of its manufacturing facility in South Africa in 2017. These investments has enabled Solar to establish a strong operational foundation and become a trusted partner to the region's mining industry. In 2024, Solar strengthened its South African presence through the acquisition of Problast, a local South African company specializing in open cast mining, drilling and blasting operations. Building on this foundation, the proposed acquisition of Omnia by Solar South Africa represents the next strategic step in Solar Group's SADC journey, significantly expanding its operation, manufacturing and distribution capabilities across the world. The proposed transaction marks a transformational milestone in Solar Group's strategic ambition to become a leading global explosives and mining solution provider by enhancing its scale, market access and competitive positioning across Africa and other international markets. Omnia's mining business operating under the well-established BME brand brings significant expertise in open cast mining, bulk explosives, electronic detonation systems, digital blasting solutions and mining chemicals alongside a strong presence across Africa and international markets. The combination will serve -- Omnia's Agriculture segment provides a compelling platform that promotes sustainable agriculture and biological solutions, leveraging its proprietary Nutriology model and AgriBio Solutions, the business delivers science-based crop nutrition products and services to customers across multiple geographies. A key strategic attraction of the transaction is Omnia's integrated manufacturing infrastructure. The Agriculture segment operates nitric acid and ammonium nitrate production facilities, which is the largest, most reliable and sustainable in the region. In addition, Omnia has recently expanded its ammonium nitrate storage infrastructure through a new 5,000 tonne storage tank, which has doubled its storage capacity. These capabilities are expected to significantly strengthen the vertical integration, enhance security of supply, improve raw materials availability, increase operational flexibility and reinforce Solar Group's long-term cost competitiveness across the explosive value chain. Together, Omnia's Mining and Agriculture business, supported by a strong integrated manufacturing and supply chain platform provides a robust industrial base to support the combined Solar Group's long-term growth ambition. Omnia is also led by an experienced management team with deep operational [ leasing ] and sector expertise with a proven track record of executing its growth strategy. The proposed acquisition is expected to drive commercial growth and operational efficiencies through technology innovation, broader customer coverage, enhanced supply chain resilience, greater product and service integration and accelerated development of advanced blasting solutions. The combination will serve as a significant catalyst for Solar Group's next phase of growth. The transaction would create one of the largest and most integrated explosives and blasting solution platform globally with expanded manufacturing capabilities, enhanced market reach and to access strategically important mining jurisdiction. The benefit of this expanded footprint, strengthened industrial base and broader customer access are expected to become increasingly visible from FY '28 itself. It increased Solar Group's revenue in the Africa's mining market by multifold growth. The acquisition is, therefore, expected to be highly complementary to Solar Group's long-term vision of becoming a leading global explosive blasting solutions and industrial chemical enterprise. Thank you very much.

[indiscernible] the question-and-answer session.

[Operator Instructions] Our first question comes from the line of Amit Dixit with Goldman Sachs.

So first of all, congratulations for this acquisition, a big step in the Solar's growth journey. Two questions from my side. The first one is essentially just wanted to understand a bit more on the value chain integration that we are planning to achieve in SADC region. We have about facilities like Problast, an existing facility in South Africa. Omnia, of course, have got its own upstream operations. So if you could throw some more light on how we are going to integrate this entire value chain and the benefits that it will serve to us? That is the first question.

Thanks for your compliment. If you look at the overall positioning of Solar and Omnia together, definitely, it creates a lot of synergy benefits for both the companies. If you look at Omnia's current strength, they have a large state-of-the-art facility for manufacturing ammonium nitrate. They also have large capacities to handle explosives, which Solar also have. Apart from that, Solar's initiating system business will also fill up the vacuum, which Omnia have at this moment. And if you integrate all these 3 basic business value section, along with the down-the-hole services through Problast, definitely, these will add lots of value for Solar in the future.

Okay. The second question is essentially on the funding part. Now we have like -- it's an all-cash deal, I understand. And maybe we would be required to take some debt to kind of fund this deal. Just wanted to understand any peak net debt-to-EBITDA number that you might have in mind? I know that the balance sheet is very robust to support such an acquisition. But just wanted to understand your thoughts on it that in case we leverage our balance sheet, how soon we are going to, I mean, get rid of this additional debt on the books?

Yes. Since the question is related to what will be the leverage position of Solar as a whole after the acquisition gets over, definitely, we cannot just answer by saying that what will be the multiple. Before that, we need to understand the basic fact that what Omnia is doing at present, what Solar is doing and what they are going to do in next 2 years. If you look at Omnia's current cash generation in the business, if you take the profit after tax and depreciation, it's around $110 million based on FY '26 results. And going forward, based on our internal estimation, without taking any synergy benefits, they should be reaching around -- or they will be doing around $180 million of EBITDA. If you take this figure and if you take the Solar current year's projection of around INR 14,000 crores of top line with an EBITDA of, say, around 28%, 29%. And if you just add around 17% to 20% growth for the FY '28, so Solar will reach to, say, around INR 16,500 crores. And if you multiply that revenue with a 29% margin, that EBITDA, along with the Omnia's EBITDA of around $180 million without synergy will reach us to around INR 6,600 crores, INR 6,700 crores. And if you add the synergy benefits and operational efficiencies together, so definitely, we should be able to reach around INR 7,000 crores on EBITDA level. So based on this EBITDA projection, which we are trying to achieve, if you factor in the acquisition debt plus the regular debt which we have, could be around INR 10,000 crores to INR 11,000 crores by FY '28. So in any situation, the EBITDA -- if you take the EBITDA and debt position, it will always be lower than 2. So that is the current estimation based on our working what we have done as of now.

The next question comes from the line of Subhadip Mitra with Nuvama.

I hope I'm audible.

Yes, you are audible. Please go ahead.

Perfect, sir. So I just wanted to dive a little deeper that with regard to the synergies that you're mentioning which will benefit, I think, the consolidated entity post the acquisition. How are you seeing these synergies pan out any potential range of EBITDA margin for the consolidated entity? And could you see some higher benefits on the export's piece, whether it's on the margin front or on top line?

So if you look at what I answered just now, basically the revenue of Solar and Omnia together in FY '28 would be plus INR 30,000 crores. And if you take EBITDA of INR 6,800 crores to INR 7,000 crores, which we are targeting, so that will give you a range of 22% to 23% on EBITDA margin percentage. But if you look on the real incremental advantage of this acquisition, so last year, the EBITDA of Solar was around INR 2,700 crores, which is precisely INR 2,750 crores. And if you look at INR 7,000 crores in FY '28, in just 2 years, the EBITDA has increasing from almost INR 2,750 crores to almost INR 6,800 crores to INR 7,000 crores. So it's a big jump as far as EBITDA numbers are concerned. And even if you look at EBIT numbers, in '25, '26, Solar was around INR 2,500 crores. And if you just do the math of combining the Omnia with Solar, the EBIT level will be around INR 6,000 crores plus. So those are the margins that will achieved by Solar and Omnia combined entity, and that gives a trajectory at how Solar is moving towards.

Perfect. This is [indiscernible]. Is there any additional, let's say, a lever on margins or on exports, which can happen, which, let's say, is not built into the current projections?

Yes. Basically, like I said, if you look at the overall strategic asset, which we are building in the system, which creates a top-class state-of-the-art ammonium nitrate manufacturing facility. On top of that, the kind of agro biostimulant and agritech platform, which the company have, if you combine this together, along with the kind of knowledge and expertise, which is available within the Omnia is quite significant. And if you add the Omnia's and the BME's current distribution network and if you add the Solar distribution network on top of that, so our distribution presence will increase to more than 100 countries. And manufacturing presence, which we have as of now is in 11 countries, so that will expand to 25 countries. So we have been saying for so many years that this kind of geographical diversity and presence across the globe is helping our company. And that is the belief we have as of now. And the same reason was there to have this kind of acquisition opportunity. And with the kind of facilities they possess, definitely gives a strategic advantage for Solar as a group to position itself as one of the most strongest player in that region. So that is the basic rationale, and that is going to help us in even increasing export from India to that region and even other portions of the global market.

[Operator Instructions] The next question comes from the line of Sanjaya Satapathy with Ampersand Capital.

Sir, my question is relating to one part of the business that is the agriculture, which is going to be a little bit unrelated to your current operation. So can you just help us think about that part?

Yes. So basically, definitely, it's a perception that Omnia has an agri business. Yes, there is no doubt about that. But we are looking at this business vertical as an additional complementary business vertical, which is a technology-driven integrated crop nutrition, biological and [ biostimulant ] products and services which they provide. And if you look at the advantage which they have in the form of the knowledge of the soil [indiscernible], which they do from last many years, adds a lot of benefit to that. So definitely, it's a new vertical for us, but definitely, it adds complementary support to the Solar ambition of becoming a global explosive company. Definitely, it's a complementary business vertical. And if you add the technology strength of Solar with the Omnia, definitely, we will see a lot of improvement in the business as a whole.

Understood. And if I can just ask 2 questions quickly. One is that is there any possibility of you funding it by equity issuance? And the second one is, does it any way dilute your focus on the new growth vertical that is Defence?

Basically, as far as dilution is concerned, definitely, no, because we have been spending into the Defence when nobody was looking into this section. And over the last 15 years, we have created one of the most integrated defence facilities across the world. And going forward, we have announced a CapEx program of around INR 12,000 crores 2 years back, and we are working on that program quite aggressively. And if you look at the product portfolio, which we have lined up till now and with the products which are likely to come up in the next couple of years, it's quite significant. So definitely, our focus and our capital allocation for Defence will not go down. Rather, as we move forward, it is going to go up and up.

Understood, sir. And is there any possibility for equity issuance by Solar to fund this acquisition?

No. We are not planning to raise any equity through any kind of dilution in any of the parent company or subsidiary. We are quite comfortable to manage this acquisition through our internal accruals and debt, which can be available to Solar.

The next question comes from the line of Pinakin Parekh with HSBC.

Sir, you clarified that the agriculture segment is a new segment that you are effectively entering by -- driven by the acquisition of Omnia. So would that segment remain only in South Africa? Or are you looking to expand in the agriculture fertilizer business across India as well?

It is too early to comment on this question. But like I said that the kind of business which Omnia do is in agriculture, but that is not a purely agriculture play. It's a technology-driven product, which they have started rolling over in the last couple of years and the kind of growth they have seen in one of their products is quite promising. And we would like to utilize these knowledge-based products across the world. So wherever we are present, we would like to utilize this strength which Omnia possess. But we have no intention as of now to expand agriculture business into the Indian market.

Got it, sir. Sir, my second question is that this acquisition value of $1.35 billion, that number all-cash transaction, would there be leverage at the acquired entity? Because at $180 million EBITDA without synergies, with synergy, it can also support a debt or would effectively that entire debt-related cash outflow come at the Solar stand-alone?

So as of now, what we have planned is basically that we have to utilize the strength of Omnia's balance sheet, which has a cash surplus position in the account. And on top of that, we will definitely take debt on Omnia's books. And wherever there will be any shortfall, that will be arranged through our -- the company, which is acquiring the Omnia Holdings. It will be a structure which we will definitely finalize as we move forward, and we will be waiting for the approval from shareholders and regulatory body before we give a concrete structuring program.

Got it, sir. And lastly, sir, do you have any target net debt-to-EBITDA number in mind which you would not want Solar to cross over the next 2 years?

Like I said, by the end of FY '28, the EBITDA should be in the range of INR 6,800 crores to INR 7,000 crores and the kind of cash generation in next 2 years will definitely help us to acquire Omnia Holdings plus continue our Defence CapEx program. So we believe that in any situation, the debt will not cross the 2x of EBITDA generation.

The next question comes from the line of [ Bharat Shah ] with BCS Capital Ideas.