Solar Industries India Limited (SOLARINDS) Earnings Call Transcript & Summary

Yes. Sir, I've got 2 questions. The first one is on the Pinaka. Sir, as we have successfully tested our materials. Sir, so what does it mean in terms of opportunity size? And have we participated in any tender related to it?

Pinaka, as you must have read that this was the first time in the history that any private sector company has manufactured, and those have been successfully test fired. Now this definitely opens a huge door of opportunity for us supplying them to defense. So now they have -- as of now, they have placed order related to hardware with all the companies, which you must have read. And soon, yes, 6 regiments, so they are trying to built up for that, the required hardware for Pinaka, they have already placed the order. And definitely, soon within another span of, say, 6 months, you will see that some orders will come for integrated Pinaka rocket, inquiries will start coming in.

Okay, sir. And sir, would it be possible, sir, just to give the range what can be an order size, whatever it is [Foreign Language] whatever best visibility that you have for the 2 hardwares that we have bought and after 6 months, which we are -- which may come?

Like Mr. Nilesh has said that inquiries are expected to come. Once inquiries comes in, we can respond to this kind of question, please.

Yes. Okay. Okay. Sir, regarding this Multi Mode Hand Grenade, where price finalization it has already...

Hello?

Yes?

Mr. Mohta, can you speak closer to the handset, please? You're inaudible. Seems like we lost the connection for Mr. Mohta.

Okay.

[Operator Instructions] The next question is from the line of [ Sunil Jain from ASK Investment Managers ].

Yes. Am I audible?

Yes, you're audible.

Yes. Sir, if you can explain, which you've mentioned in the annual report, the center of excellence of life assessment, how it helps us in terms of having incremental revenues, et cetera, especially in explosives and ammunition? Also, a question is on the -- now the extended part of this family, which, I believe, was handling the institutional business development responsibilities sitting in Rajasthan. So who is taking care of that portfolio? And they still have a large stake. What if the demand a [ boat seat ], what would be our response?

Firstly, I would like to say on the percentage holding, which they are holding that is around 28%, which they will continue to hold. As far as the part is concerned, basically, it was an automatic vacation from the office. So that is what their concern is. So a legal thing is going on that. And as the matter is sub-judice, as and when it will come, we will take the best course of action. Now as far as the part of business, which he was looking, was basically from Bhilwara, so under him, he already had a professional team, which was looking after that. Now Mr. Menon, who is there with us as Executive Director, he will be managing that. So that will continue without any interruptions.

Thank you.

Thank you.

Yes. And you've -- I've asked you about the center of excellence of life assessment, if you can elaborate on that, which you have opened recently.

This center of excellence for lifetime assessment is basically the country has observed over number of years, that in our country, there is a lack of capability to see the life of the ammunition. So we rely on the certifications of the vendors who are supplying the products from overseas countries. So once the product comes to the country, after certain years because of any one part or other part if the life of the ammunition can be predicted, then country can save thousands of crores every year. So based on that requirement, company came forward and set up this center of excellence. It will help our country a lot. As far as revenue is concerned, the establishment is not from that perspective, but to help the country, and that will benefit everybody. Thank you.

The next question is from the line of Pankaj Bobade from Axis Securities.

Sir, I have 2 questions. First is regarding defense. How do you see this business? I want a broad color. I mean how do you see this business over next 3 to 4 years or 5 years, whether it would be comparable to our current core business? And what would be the margins in that segment? And second thing -- second question would be, so with mining opening up for private parties, what type of business opportunities do we see?

Okay. Let me answer the second question first. And this is with the private mining that's opening up, coal mining opening up for the private sector. This is part of our overall strategy of the country reaching 1.5 billion tonnes of coal production. So we are well geared for that. I think we have a fairly large contract already in place with lots of private mining parties. So we are well prepared for that. So there is opportunities that is going to come up in that sector. Now for the second.

So when we talk about the defense business, yes, it is a long-term business, and the product really takes a long time to get fortified and stabilized. But if you look at the delays in starting the releasing of RFPs and finalizing, so over the years, earlier, there was no policy in place to buy ammunitions for private sector. Second, the real push was not there. But I mean with the recent in place and with the push there for Atmanirbhar Bharat, the government has taken various measures, like any import of ammunition, if it is INR 200 crores, the government has said -- forwardly announced that they will not be importing that if it is beyond this limit. And then that will definitely open a gate of opportunity for players like us and as has been explained few time back by our MD that we have so many types of ammunitions. We have such an integrated plant that we can -- our company will be in the best position to take care of the -- of to take -- avail that opportunity. And these various items, which will be required by the services, we will need a very small CapEx in the nature of INR 40 crores, INR 50 crores, INR 70 crores to be ramped up from here onwards. So let us see now how government, what their plan about defense how they come out with various inquiries. We will be definitely participating in all those and get benefit of these things. As far as one product starts flowing, then we can give you the, like, Multi Mode, which is, as we said, is coming up, we already have an order book in hand. So a gradual period of years -- over the period of next 3 years, we'll see a very good ramp-up in our revenues from defense. And we will keep updating you probably more clarity in the next conference call, which we'll have for Q2.

Sure, sir. So sir, so the margins in this new business are they comparable with the old core business? And second thing, how do you see this ramping -- I means do we see the revenues from the new business as good as the core business over, say, 4, 5 years?

So as defense in the long gestation period is there in defense. So definitely the -- and we had this more CapEx oriented long gestation. So definitely, EBITDA margin will be better than the explosive margins. And so definitely, we expect the margins will improve going ahead once we have revenue flowing in from defense.

Sir, so could you be able to give a trajectory because we have been -- this -- as you said, this is long gestation period.

Right now, we are doing around 21%, 22%. And we say there is an improvement in that. So you are asking for EBITDA or you're asking for trajectory?

No, I'm asking for scale. Scale.

Scale?

We have been doing this for -- we have been investing for last 7-odd years. And as you said, it is long gestation period. I very well take that into account. But going forward, say, in the next 5 years, do we see the scale of the business being ramped up to the level as it is as our core businesses?

No. Our core business, no, we are there in Indian market and overseas market. So that will also grow. So you can expect that out of this total basket, 40% will be our Indian market, maybe 40% of domestic and exports, and balance 20% from the defense.

And the basic questions from your side was that how defense business will reflect in the overall business of the company. So let me clarify you that since we are making explosives. For us, making explosive means we can handle the products for civilian and defense applications, both. Over the years, we have expanded the product portfolio even in civilian explosives product. And recently, over last 7 years, we have expanded into defense products. Going forward, the same kind of experience will help us to expand our reach for the products like space related requirement also. So if you look at this kind of diversification within the same explosive family, it means that company is expanding its geographical reach, company is expanding its product portfolio. That will help the company to sustain any kind of situation, and that will enhance the sustainability of the company. And that is the strategy behind all these diversification within the same explosive segment. And going forward, definitely, like we have been saying that defense will become one of our major contribution -- contributing product for our overall business portfolio. How much it will contribute? That is difficult at this moment. But as government is very clear that they want to implement the practically 100% indigenization as good as 100% indigenization. And because of that policy push, they have came out with the Atmanirbhar Bharat scheme and they have very clearly spelled out that so many items of ammunition will be procured from India. So those kind of policy push will definitely help our company to contribute for making our country self-sufficient in ammunition. And once we reach to that stage in next couple of years, as we have already started exploring the sales of these products for the overseas market also. So this is a journey, which will definitely unfold in the years to come. So we have to wait for those kind of total clarity because it's an evolution of the business. Thank you.

[Operator Instructions] The next question is from the line of Siddarth Mohta from Principal India.

Yes, sir. Sir, my question is on this Multi Mode Hand Grenade, where price finalization has happened, and soon order is going to be finalized. So can you please quantify the order size and the execution time? And is there any follow-up order on this MMHG, that is a Phase II.

We can share the information like this, the order, which is going to come is for almost 1 million pieces, 1 million, 10 lakh pieces. That needs to be delivered in a period of 2 years from the date of order. Second, the price for this product, it is difficult to share at this moment. Just wait for another couple of weeks, we will share with the investors. As far as the follow-up order is concerned because since it was for the first time that our company has really made it successful after almost more than 22 years of research on this product. So once the product starts flowing into the Army soldiers, definitely more orders will come up. That is what is our expectation. Thank you.

Okay. Sir, regarding this Singareni order, re-tendering was supposed to happen in June 2020. So any update on that front?

The Singareni tender is already over, and we are -- the sales orders will be in that state. Once order comes, we will share with you.

Okay. And would it be possible for you to quantify the order which was there this time?

It will not be wise on our part to share the order quantity at this moment. But definitely, orders will be more than the last year -- last tender.

And might be in a month or so, sir, we can hear something on this front?

We are expecting that within a month's time, we should get an order. But because of COVID situation in -- especially in Singareni Collieries' mines and offices, so they are not working at the same speed at which they were working for -- working at.

Okay. Okay. Sir, South Africa, our loss was around INR 55 crores in FY '20. And you have mentioned that we have won some of the contract. So what can be the quantum of loss of profit might be in FY '21 and '22? And the same question is applicable for our new facility, Australia and Ghana.

What you can share at this stage that as far as South Africa business, Mr. Menon has already shared the intent at which -- for which we have entered into the market. If you look at an opportunity, the initial year where we have really lost big amount in that subsidiary. But as per the current order book and execution stage, we are confident that in this year, we should do -- we should reach to a breakeven level. And in Ghana, we are already operationalized. So definitely in this year itself, we will see profits. As far as Australia is concerned, once production starts, so then definitely we will reach to the breakeven level within a period of 6 months. That is our expectation.

Okay. Okay. So the loss, which was seen in the South Africa, it would not be repeated in Australia and the Ghana because we might have also learned from our experience in operating overseas entity.

Like we have been sharing that every geography had its own unique challenges, otherwise we would have replicated the same Indian experience with the South Africa also. We were already there in Zambia, Nigeria and other parts of the world, like Turkey also. So every country has its own unique challenges. And the basic thing is that we are into explosives. Our vision is very clear. And we have to be there in practically all parts of market, which gives an advantage to remain or become a major global player in the market. So based on that vision and strategy, we are entering into those markets. So like we have also seen the similar experience in the Turkey also, that initially for 2, 3 years, we were making losses. And then the company and the country started giving us good results. Similar thing we will see in South Africa also. We have to have some patience to see the fruits coming out of our investment and the efforts we have been done in last 3 to 4 years' time. We will see the positive results very soon.

Yes. Sir, my final question is that you said the breakeven in all the 3 entities. So I assume it is at the PBT level or it is at the operating profit, which is EBITDA?

I cannot share the breakeven level for each country.

The next question is from the line of Rohan Gupta from Edelweiss. It seems like we lost the connection for Mr. Rohan Gupta. [Operator Instructions] The next question is from the line of Sujit Jain from ASK Investment Managers.

Sir, we mentioned about 450,000 tons of capacity and production of 435,000 tons in the annual report. And in the Q4 presentation, we talk about close to about 335,000 tons of sales. So if you can reconcile these numbers, what is our capacity, fill it into domestic and overseas? And what's the capacity utilization?

Okay. So we'll take the next question, till we give you these figures.

The next question is from the line of Rohan Gupta from Edelweiss.

Yes. Hope, sir, you can hear me now?

Yes, we can hear you.

Sir, a couple of questions from my side. Sir, first is on our international operations. So given the uncertainty of COVID, earlier we had planned almost entering to every new country -- almost 2 countries every year. Have we changed any strategic plan in that current year? And over next 2 years, how our global operations will pan out, sir?

Rohan, we have already shared recently in our -- this conference call itself about South Africa, Ghana and Australia and Tanzania as well. I think that should suffice your question.

No. Sir, when we enter into any new country, we must -- we have been planning almost 1 year in advance. So I'm just saying that over next 2 years, are we going to continuously add new countries over next 2 years? Or there is going to be some slowdown in our international operations when adding a new country, sir?

So basically, you are mixing both questions. First is are we going into new countries and/or we have slowed down our efforts. First point is what countries we have already shared in our -- that our target is already there, efforts are already going on where the targets or countries are identified. So we are continuing with those efforts. But major point is the investments which were high in nature, especially for South Africa. That share is -- I can say, is almost over.

Okay. So as you sir mentioned that South Africa from this year onwards, we can expect breakeven. And Australia also, maybe over next 2 years, can be brought back to breakeven. Is that right? Because after that, probably all other countries, we will be on a breakeven point, right, or on the profitability zone?

Absolutely. And another factor we should keep in consideration that once we enter into different level of market, which Mr. Menon has said, that we have entered into the advanced market as far as mining is concerned. Once we are through from that phase, definitely, we need not to relearn the same thing again and again on that kind of requirement, say, product requirement, service requirement or cultural related issues. So we are -- we will be out of all these 3 new things, which we have to feel or pass-through when we enter into big new mining markets. So those learnings and experience and the reputation which we have recently built even in South Africa, that will definitely help us a lot.

Sir, that was exactly my question that in last 5 years, our learning curve has stepped up a lot. So over next 3 to 4 years, given these major countries we have already covered and most of them now above breakeven, so can we expect a significant jump in profitability over next 3 years from all these countries where we are already in. That's what my, I mean, question was, sir.

You're very right. Once we are out of those -- that phase, which we have already shared. That in this year, we will see a significant increase in top line and bottom line from overseas market despite of the COVID-related challenges. And definitely, you are right, we will see the similar improvement in coming years to come.

Okay. Sir, second question is on defense. So similar thing has happened in defense as well because our huge investment has gone there, but we are still struggling with the lower revenues that none of our fault but continuous delays in government order. Sir, do you see that in last 6 months, given the escalating border tension and government focusing continuously more on in the Atmanirbhar Bharat, do you see that something has changed in last 6 months, where we continue to see, sir, more RFPs are coming in. But when it comes to the order inflow or getting orders converted into revenues, that is not happening. So do you see, sir, that over next 1 year, 1.5 years, now the time has come where this order -- defense business is now ready to take off significantly?

What I can say that there is a positivity as far as sourcing of ammunition from indigenous sources, indigenous suppliers. But same thing, I would also like to submit that in the years -- in the past years, we have seen, there was no policy in place to buy the ammunition from private sectors. If you look into the both the sides and the kind of preparations which we have been doing in last 6, 7 years. So at this stage, we are ready, government is also ready with the policies in place, and there is a special push under Atmanirbhar Bharat. So these 3 things if we combine, we will see definitely a bigger pie of buying ammunition from private players in India. And that will definitely help us. As far as whether significant or not significant, I can say that one of the orders, which is Multi Mode Hand Grenade, it will be the first time from Indian private player, that government will buy the ready-to-use ammunition. And once this starts, it will reflect the government's intent also. And once it starts, definitely we will see more clarity on various other products also.

Okay. And just last one, sir, third one. Sir, on CapEx. So this year, you have roughly INR 200 crores. So going forward, over next 2 to 3 years because you mentioned that you want to maintain debt equity of 0.5x, given our solid cash flow generations on the global operation. So it means that -- and with our balance sheet size growing, it means that we are looking at large CapEx going forward. I just wanted to understand that over next 2 years to 3 years, what will be our cumulative CapEx and which part of the business it will be?

We will share on these issues as and when time comes. Otherwise, our policies were clear. We are -- we do our business by maintaining the financial position as a -- in a conservative manner. And we believe debt equity ratios around 0.5 is a very good reference benchmark, and we will keep exploring the opportunities by maintaining few of the basic benchmarks. Thank you.

Yes. Now I would quickly like to answer Mr. Sujit Jain's question. What we had mentioned in the annual report, the total production of 437,500 was our global production of explosives, which we did. But in the domestic market, we did a production of 337,000. Our domestic production capacity is 450,000 and our overseas capacity is 127,000. So that makes us 577,000 as our global explosive capacity. So I think hope it clears it well.

We take the last question from the line of [ Santosh Vechalapu from Ashika Stock Broking].

Sir, Manish sir, I just wanted to understand what -- are we facing any specific challenges to pursue a $6 billion kind of an offset obligation that is to be met yet. So are we getting any challenges in pursuing this opportunity it means a lot can be doable there, given the pricing dynamics in favor of us what stops us from pursuing this opportunity? Just I'm trying to understand if you could throw some color on it, please.

Yes. So definitely, offset policy is there, but this offset policy will come and there are foreign suppliers who are willing setting up a JV are -- and for that, they will need to transfer that technology and share their products and facility. So there are lot of not only company level issues, there's government level issues and global political issues which are there concerning to this. So as we have said that all these things to get the clarity to set up policy, [ Santosh ] you have been tracking defense so well. And from last 7 to 10 years, you have been associated with the 2 major companies who are working in defense. And you have shared with us so many thoughts on this and have been really telling us how things are moving. So you are very well informed that earlier when we started, there was no policy at that time, whether private sector can supply to defense or not. So from there, the journey started. Then there were obstacles like single party, which was their supplier. So that got cleared. Then you are well aware that there were so many product qualification and validations, which need to gain. So how long it takes, then you are well aware that we didn't have the -- since you were importing all this. So it was all -- we didn't have the testing facility. We didn't have the life assessment center. So over a period of time, it has taken the policies and steps to reach at this level. So this is how the defense business has evolved and now we are seeing a clarity in few of the products where we have worked over a period of 7 years and got this supply chain in place and received the orders. And even after receiving the orders like we had, they were -- they asked to defer the delivery schedules. So all these things till now they have given that INR 200 crores, less than INR 200 crores contract, they should -- if there is an Indian capacity, they should buy from India, but the defense requirements are huge. So normally, they will come in, let us see which segment that comes into play, then they have now banned 101 items, but that is about phases. So even they have their contractual obligations with those suppliers or vendors from this thing. And so it will -- everything will take and happen at an appropriate time. And now as we said, that for Multi Mode Hand Grenade for the first time, like the contract rates, everything is finalized, quantity is finalized, contract terms are finalized. And within 2 weeks, we'll get that, which we will share with you. And even the Pinaka rocket, like the technology has been so this thing and we got the technology transfer. We developed the same with the help of DRDO, and it was like mentioned that all 6 were successfully test fired and hit the target. So now let us wait and see how the government goes ahead, what item they are trying to take, where their INR 1,000 billion will get offset. So as the -- as and when the clarity comes on that, we will definitely share with you, and we will -- we are in the right position, well placed with the best integrated facility anyone could have to take advantage or to get benefit of this opportunity, which is open for us.

Okay. Sir, one -- I had one small request. The way we put the order book details for the Coal India for Singareni and for the defense, now that you are having such a wide presence in the international market. I would request if you could share some order book numbers for the international markets consolidated. That should see some color towards quarter-on-quarter and what's happening on the international front.

Yes, just what happens in domestic market now, we have a clear-cut tender of 2 years from Coal India. We have a clear-cut tender of this Singareni. Similarly, we will look, so if we have such big tenders in all the this thing, as you have suggested, we'll definitely consider that, and we will start putting that on next time that what orders we have from this outside countries plus exports.

As there are no further questions, I now hand the conference over to Mr. Chirag Muchhala for closing comments.

Yes. We thank the management for taking time out and sharing their valuable insights on this call. And we also thank all the participants for their presence. Sir, do you have any closing remarks?

So we would just like to thank all the investors and our stakeholders which were there for attending this call and hearing to us and giving us suggestions and their variable guidance. And we assure that your company will take all the right steps to ensure what is most beneficial in the interest of all the stakeholders, and we will do our best to reach to the performance which is expected out of us. Thank you so much.

Thank you. Ladies and gentlemen, on behalf of Nirmal Bang Institutional Equities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.