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

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings conference call of Solar Industries, hosted by Antique Stockbroking. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stockbroking. Thank you, and over to you, sir.

Thank you, Ritu-ji. On behalf of Antique Stockbroking, I would like to welcome all the participants on the call of Solar Industries. From the management, we have Mr. Manish Nuwal, CEO and Managing Director; along with Mr. Suresh Menon, Executive Director; Mr. Moneesh Agrawal, Joint CFO; and Ms. Shalinee Mandhana, Joint CFO on the call. Without further ado, I would like to hand over the call to Manish-ji for opening comments, post which we will open the floor to -- for question and answers. Thank you, and over to Manish-ji.

A very good afternoon to you all, shareholders and potential investors. I'm [ Atoo ], representing the Investor Relations team of Solar Industries India Limited. A very warm welcome to the earnings call to discuss quarter 4 and earnings -- annual earnings of FY '21. I would like to make a gentle reminder here to mind and note that anything that we say, which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that company faces. A full statement and explanation of these risks is available in our filings with regulatory authorities, which can be found on the stock exchange website. We will start the call with some remarks on the performance of the company by Mr. Manish-ji Nuwal. Over to you, sir.

Good afternoon to all the valued investors. I do hope you all are doing well and staying safe. Our Q4 FY '21 and full year result reflects Solar's effectiveness and ability to pass through the extreme challenges posed by the COVID-19 pandemic. I would like to place on record my gratitude to all our stakeholders who continue to show faith in us. The meticulous planning and execution by our team has enabled us to surpass both the revenue and bottom line of the previous year despite of lockdown restriction caused by COVID-19. Solar continued focus and efforts on adapting to the new changing times helped it to thrive in the environment and demonstrate its true strength. Driven by a favorable macroeconomic factors in the quarter, we witnessed increased sales to Coal India, housing and infra sectors as apparently seen in the results. Similarly, upside was also reflected in our export and overseas business. We continue to build on this positive momentum and by combining it with our results optimization measures, we saw improvement in our bottom line. In defense, owing to the COVID-19, there were some disruptions in new orders processing and execution of existing orders. We have received production clearance for multimode hand grenade recently. We are now expecting strong upside to happen in FY '21-'22 and envisage an increased revenue contribution from this sector. More than a year out since the onset of the pandemic, there have been so many changes in the business landscape and will be there in coming time as well. Even though we navigate in this difficult time, we are targeting a business growth of 30%-plus in FY '21-'22. Our optimism is built on expected growth from all the operating sectors. As the economy is facing a confluence of risks, the company believes that profits being retained in the business shall protect it from the unforeseen circumstances without compromising its aggressive growth plans. Keeping that in view, our company has decided to keep dividend intact at INR 6 per share. Our ethos is to give back to the society and make a difference. We have made various contributions for the society to win the fight against coronavirus pandemic and continue to remain committed to support the government's efforts and play our part responsibly. Now I'm handing over the call to [ Atoo ] to take you through the financials. Thank you.

Thank you so much, sir. So the key financial highlights for quarter 4 are -- is the positive net revenue is up by 44.55%, which is INR 791 crore versus INR 547 crore in the previous year. Domestic explosive revenue is up by 41.85%, which is INR 417 crore against INR 294 crore. Domestic explosive revenue was increased by 13.7%, wherein the quantity was increased by 107,336 metric tons versus 94,927 metric tons. Domestic realization of explosives has grown by 26%, which is 31,027 versus 38,922. Initiating systems revenue increased by 51.42%, which is INR 111 crore versus INR 73.3 crore in the previous year. Coming to our customer sector, Coal India as a percentage of revenue is constant, which is almost 18% versus 19% in the previous year. Non-CIL and institutional revenue as a percentage of sales has slightly gone down by 2%. However, in the absolute terms, it is INR 89 crores versus INR 70 crores, which is growth of 27%. As I mentioned in the previous quarter, we estimated a good quarterly growth in housing and infra sector. The revenue is up by a stellar 50%, which is INR 163 crore, which is -- which was INR 163 crore against INR 244 crore this year. Our exports and overseas revenues continue to show a healthy growth. The sales increased from INR 174 crore to INR 291 crore, which is a growth of 67%. However, defense revenue is down by 26%, contributing INR 26 crores against INR 19.54 crore. Coming to our material consumption, the raw material cost is 55.18% compared to 54.12%. The trend -- the change is mainly on account of increase in our commodity prices. And employee cost, the cost of sale has reduced by about 2%. That is 8.38% against 10.49% in the previous quarter last year. Other expenses as a percentage of sales has decreased from 19% to 15.65%, showing our efficiency. As far as EBITDA is concerned, we have used the EBITDA numbers at INR 167 crores against INR 110 crore against margin of 21.10% compared to 20.01%. Interest and finance costs decreased 1.3% from 2.6% year-on-year due to lower rate of interest. Depreciation has increased from INR 22.14 crore to INR 22.53 crore due to increased CapEx on the previous year. Coming to PBT, PBT increased by drastic 84% year-on-year. The reported PBT of INR 134 crores compared to INR 73 crore, with the margin increased to 16.93% from 13.33%. Coming to our PAT, PAT increased by 79% from INR 53.18 crore to INR 95.04 crore. The margin increased to 12.01% from 9.71%. These were the updates for the quarter. Let me now take you through yearly performance. [Audio Gap]

[Operator Instructions] The first question is from the line of [ Anjaya Prawashkar ] from [ Cognito Advisers ].

Yes. Congratulations, sir, for a truly explosive set of numbers. I had 2 or 3 questions. The first question I had was that your realization had sharply increased from 31,000 to 38,000-something. So could you explain the reasons why that has happened? And how is that likely to pan out in the future? And within the 30% revenue guidance that you have given, could you tell us as to how this would be broken up by domestic versus exports? And finally, the incremental CapEx that you're doing, both this year and next year, what kind of asset turnover should we assume for that?

If I take your first question that the current realization has gone up from 31,000 to 38,922, it is mainly because of the rise in the commodity prices. And like we have been explaining that most of our contents are linked to a formula. And as a result of this, whenever there is an increase in the raw material prices, our material prices also goes up. So most of the price increase is because of those factors. An increase is also there because of the expansion in the overseas territory, so it is because of that factor also. Second question, can you repeat again?

My question was that you have given a guidance over 30% revenue top line growth. So how would this be broken up between domestic and exports?

Yes. So like we have said, we are likely to grow more than 30% in the next year. It is across our expected volume increase in Indian market by more than 15% and then price increase is also there by around 15%. So top line overseas, both sides, we are expecting around 30% increase in our top line. And it will be added by the increases in defense. So overall, we are expecting we should grow by 15%.

That's right. And my final question was on asset turnover on your CapEx last year and this year, for next year.

The CapEx for the current year, which around INR 261 crore and next year, we are projecting CapEx of INR 315 crore.

My question was what kind of asset turnover should we assume for this incremental CapEx this year and next year?

2 to 2.5.

Sorry?

Since you are aware that our -- most of the CapEx program, which has happened in last couple of months for, say, around four years, and that means -- that was mainly for defense and overseas, and we have added capacity in India, Indian products also. So the realization of those investments will start in the domestic side then increase overseas volumes. And as a result of which we are expecting the asset coverage ratio will go up. So currently, if we take 30% increase in our top line, definitely, that will help us increase that debt turnover by almost 30%. So the realization investments will reflect in '21-'22 and '22-'23 numbers.

Right. So what would be the final asset turnover, rough range?

It will be around 2.5.

2.5. Okay. And again, congratulations on a great set of numbers.

Thank you very much.

The next question is from the line of Abhishek from DSP Mutual Fund.

Sir, I have a couple of questions. Are there any currency translational losses in the current quarter's number?

Yes. Your voice is this breaking. Please repeat again.

Sir, I was trying to understand, are there any currency translational losses in the current quarter's P&L?

Yes. It is around INR 34 crore.

That is for the year, ma'am?

No, no, that is for quarter. And for the year, it's around INR 125 crores.

So this is the impact due to the currency movement that we have seen in the P&L, right?

Correct.

Okay. That's helpful. And Manish, just wanted to understand one thing. In the last interaction, you have kind of mentioned that you are looking to increase capacity in the domestic segment. Have you been able to kind of finalize anything on that? If you can help us understand that.

Yes. In the last quarterly call, we have said that we have decided to confirm the capacity in sort of the plants under new restriction. So since you are aware that in last 2 months, there was pandemic-related restriction on the movement of people and layperson, so that has not yet taken place, but we are expecting that in 3 months, we will be able to finalize the decision and we will share when it comes.

Sure. And sir, just lastly, before I get back into the queue, if you can just help us understand a very strong -- a traction that we have seen in the domestic segment, but we have seen an export in the fourth quarter has been little muted. So if you can get some commentary around maybe Turkey, Ghana, South Africa, what's the thing and the expectation now, that should be helpful.

Yes, if you look at the annual numbers, the sales have increased. If you look at the annual numbers, the sales have increased by almost 10% sales to the Coal India and increase of non-CIL reduced by 8%. Housing, infra was reduced by 2% -- increased by only 2%. And if you look at exports and overseas, it increased by 32%. So there is a traction in export and overseas. But like you say and like we have been saying, like in the Q1 and Q2, housing and infra sales was low due to COVID-related impact. Now that has picked up, and that is reflected in our quarterly numbers. And as a result of this, the sales in housing and infra increased by 50%, if you compare it with the last year. Export and overseas increased by 67%, which is more than the domestic sales. And similarly, Coal India and non-Coal India has also increased by 30%. So there will be traction in all these sectors.

And sir, anything on the overseas bit in terms of -- particularly in terms of Turkey, Ghana, South Africa? Any comments?

Yes. Mr. Menon can comment on this.

Yes. In the overseas segment, we had COVID-related issues in South Africa. And we also seen COVID-related activities or restrictions in Turkey in the last quarter, which I think is opening up in Turkey. There are restrictions in South Africa continues because the -- mainly in underground mines because the -- it is an indoor space, we didn't want to allow new people to come into the mine. And though we were able to get an entry, but entire progress was actually a slowdown in South Africa. The rest of the countries is normal and despite of all this, we have been able to maintain our expected sales and revenue.

Sure. Okay. So that is very helpful. I'll come back in the queue.

One point I would like to add here, sir. We are not only making this -- we have increased the sales by almost 30% despite all the COVID-related challenges. So we have seen that situation is improving, but the real improvement will be seen in coming quarters.

Next question is from the line of Mayank Bhandari from Nirmal Bang Securities.

Sir, I just wanted to understand in terms of business or if you have different domestic lines, so are the margins different in, let's say, defense, housing and infra and business from Coal India Ltd and for export?

Like we have been explaining that our business is mainly explosives. We make products for various application, which includes mining, housing, infra side, defense, transport-related things also. So if we take the margin, definitely, margins will be better and different because of the long decision time line, lower EBIT turnover ratio. So EBITDA margins will be better. But if we make it an average for all these, then definitely margins will be around 21%, 22%. And our current margins are around 20%, 21%, which is likely to go up when the different pace start in due time.

Okay. And then given the guidance for 30% both in housing and infra side, if I want to understand the status that we are in right now, what kind of guidance you will give for next year approximately in terms of rate?

Your voice is not clear. Can you repeat again, please?

Yes. You have given guidance of 30% growth next year.

Right.

So I just wanted to know what guidance you can give for next 3 years, let's say, in FY '24, in terms of growth, considering that we have raised CapEx now.

We are expecting a growth of around 20% once these COVID-related things happen. But for '21-'22, we are giving a guidance of 30% at this stage. And once situation increase, we will be better. We will be a better position, there will be more clarity on businesses after a year or 2 years.

Okay. Sir, what was the execution time line for our defense order book? Like -- so what would typically be the execution time frame?

Mayank, continue understand surely placing the order for material, the time line they have given is 2 years. But I mean they have been experiencing COVID-related challenges at their side also and there are some challenges on the supply side as well. So if we cover the -- if we eliminate the COVID-related factors, normal cycles are around 2, 2.5 years.

So if I -- can you tell us your -- how much defense backlog order is on an absolute?

The current orders is -- going out of multimode is INR 450 crores. The current order book from defense-related products is INR 680 crores.

No. Out of that, how much is your multimode hand grenades?

Yes, it is INR 450 crores.

Okay. INR 450 crore. And INR 450 crore has an execution time line of 2 to 2.5 years or something?

As per the contractual condition, it is 2 years, not 2.5 years, like semicon is impacted on the supply and the user guide as well. So we may expect 3, 4 months runover on that side.

Okay. And any other ordering pipeline, any other default order you are waiting for on defense?

We share when those orders are received with all the investors. So we will definitely share with you as well. At this stage, there is no order received after the multimode.

Okay. And lastly, on the Coal India target of achieving 1 billion tons for FY 2024-'25 then 2 billion for 2030, so I wanted to understand in terms of market share, like how much market share would you be having by supplying to Coal India? I mean I just wanted to understand from their perspective, like how much percentage of exposure you are supplying to them.

Yes, I mean, let me answer that question. This is -- our market is roughly about 25% in Coal India. And Coal India is poised to reach that 1-billion-ton mark. Last -- this current year, that is 2021, they were down by roughly about 2% on the previous year's production. That is because I think offtakes is working off coal. But they could stretch this time line probably to '24-'25 to reach that 1 billion ton. Where they've reduced? Probably they are targeting to reduce the import of coal by about 100-odd million. But we also see government awarded about 30 mines, new mines to Coal India for starting up the mines. So that's the investment going on. So I think they have focused on reaching that 1-billion-ton mark. And this 1 billion ton coal production also necessitates that they will be removing overburden almost to the tune of 2x. And last year, we have progressed well by produce -- I mean, removing additional 16% more overburden than they produced coal than the previous year. I think they will try to maintain this at 20% level, growth level for the overburden, and that's helpful for us in the explosives industry.

[Operator Instructions] The next question is from the line of [ Amit Sahuji ] from SageOne Investment.

Manish is -- first thing is, your voice is not clear.

My voice or...

Clear, clear.

That's better? Are you getting my voice now clear?

We are getting your voice, but it's not clear.

Sorry to interrupt you, sir, but I can hear the management loud and clear.

Okay.

Okay. Something problem in my side, then.

Please go ahead.

Yes. Basically, I'd like to understand the order book of defense.

We have already explained on this point that total order book is INR 680 crore and multimode is almost INR 450 crore out of that.

Anything regarding the missile program?

Yes, we have orders for missile program as well. So those all the products like missiles, pyros, fuses, mine and multimode, high-energy materials, all these products combined together has resulted into a total order book of INR 680 crores.

Okay. And regarding your guidance of 30% on the top line, what will be the guidance for the bottom line?

We are expecting more than 30% growth on the bottom side as well.

Okay. Okay. And again, congratulations for your great numbers. Keep it up.

Thank you very much.

The next question is from the line of Sujit Jain from ASK Investment Managers.

Manish and team, congratulations, a very tough year both within the company and outside, and you really managed it well. I have a few quick questions. As you've explained, the housing and infra sales have done well Q-o-Q, Y-o-Y. Even if I compare that with March '19 quarter, it's a 5%, 6% growth. I wanted to check with you what would be our market gains in the domestic market. That is question #1. Question #2 is on the overseas operations. If I take out the difference between the consol and the stand-alone, the margins there are to the tune of 25%, 26%. Is it safe to assume now that these losses in the Australia and South Africa are behind us?

The first point is that what is the market share of Solar in Indian market. Like Mr. Menon has explained that as far as Coal India and other bigger mining companies and other ones as well, we have market share of around 25%. As far as nonmining sector is concerned, this is mainly housing and infra, our market share is also around 26%, 27%. To increase the wholesale or to increase the market share, we are -- decided to expand our footprint in southern part of India and then extreme north as part of the India. So once those things are in place, definitely market share will grow. Second, as far as losses in South Africa and Australia is concerned, compared to the last year, despite of all the COVID-related challenges, Mr. Menon was explaining that this is to remind you that new people were not allowed. And these were the real challenges for us. Despite of these things, our sales in Australia and in South Africa has now increased. In our annual report, we will differentiate those numbers, which will be uploaded very soon. But in overall, South Africa, revenue has increased by almost 49%. And in Australia, also very healthy numbers. We can see a very -- that has increased from INR 3 crores to almost INR 23 crores.

I'm sorry to interrupt you, but we were not able to hear you properly. So may I request you to please coming out of your -- to the device?

Sure. I will answer the thing again. As far as the market share in India is concerned, in Coal India, our market share is around 25%. In non-Coal India side and mining side, our market share is around 27%, 28%. We are planning to set up new facilities in the southern part of India and a new plant in northern part of India. That will help the company to increase its footprint and, as a result, it will increase in market share as well. As far as the losses in South Africa and Australia is concerned, we were having the orders. But due to COVID-related restriction, we could not start the supplies. And the decision was extremely challenging in those parts. Despite of all this, our sales in South Africa has increased by 68%. In Australia, it has increased by [ 530% ] because of the lower base in the previous year. So we believe that since the COVID situation will definitely be better than the last year, the sales from these 2 subsidiaries will grow significantly. And as a result, definitely, we will reach to the breakeven, and that will result into the profits. I hope I have answered your point? Yes.

So these numbers that you have given are for the quarter, 68% and [ 530% ] yoy increase.

No, I didn't give any for the whole year.

And which also means that when the losses get retained and reduced, the margins will look up further in the subsidiaries.

Yes.

Great. And in terms of organization, I wanted to ask you. This is a great opportunity. Our price is still small. When I look at the global opportunity that we are participating in. In terms of the organization structure, we have had some people leaving from the promoter side as well and the responsibility for which has been given to [ Mr. Menon ] in terms of the institutional business, et cetera. And one understands that some of the family members have also come in the business, such as your son. One also understands that you have hired professionals in Australia, one professional who was one of the heads of a mining giant there. So how do you basically build the organization for this company, which you have grown in the past at 14%, 15% CAGR, and which I'm sure you plan to grow at that rate going ahead.

Yes. [ Life into Menon ] in our quarterly call, as explained, that our company is like in [Foreign Language], and people are like [Foreign Language]. So [Foreign Language] can keep moving from one person to another, but as now will remain same. So we also believe that it's a part and parcel of the life, people will keep coming in and will go out. If you look at last 25 years of our presence in the market, the market share has gone up of solar in all aspects. And that is how we have transformed our company from India to a global India-based [ and Hindi ] company. We have higher selling shares companies, international companies and domestic companies as well. If you look in to the south of it, which are -- hello. If you look at the businesses and the people in Southern -- in Africa Nation, we have the best [Foreign Language] at the market. Similarly, we have the talent in Turkey also, we have been as strong team in Australia also. Similar reports will be there in future as well because of our strong HR policies and strong HR section, the company keeps the industry in renewed sets of people. They're growing the people to take the more leadership role. And that has been experienced and you can experience in the last couple of years our successful planning as well. As far as the impact on the business is concerned, Mr. Menon has already explained in the last call and this call also the sales from all these sectors has started improving. And similar things we will see in the coming years as well.

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

Yes. And congratulations on a very strong set of numbers. Maybe a couple of questions. Sir, first is about sales this time in this current quarter have benefited and have seen significant improvement in initiative systems, which has shown almost 50% kind of revenue growth. I just wanted to understand any delayed order has been executed in the current quarter? Or it just only on a low base of last year? Or has there been any change in our business mix in the current quarter? That is one. Also, second, this quarter, explosive's rates have gone up significantly. I understand it's mainly driven by [ Anonim Sirketi ]. So that overall gross revenue growth of 40%-plus is driven by 25% price increase-led growth in explosives. But in the same basis, our margins generally because we work on a margin per tonne basis. So our margin in percentage has actually remained similar of the previous quarter. It means that on our margins [indiscernible] has also improved significantly. I just wanted to understand that is there any inventory-led gain, which has been there in the current quarter? Or it's just all coming from the change in product mix? These are the 2 questions, sir.

So the first part more on the sales of initiating systems. In Q4, definitely, sales has increased from -- sales has increased and started with new shipping systems or content in the rest of [ the EU ]. So initiating system sales has increased mainly due to the last year when our exports were held up and the sales in domestic market were also held up due to lockdown. So in this quarter, there was no substitution, and that's why sales of initiative systems has gone up. It is not like that the orders of initiating system gets converted only in this quarter. It's not like that. This is my first question. Secondly, you also asked about the inventory-related deals. So the inventory level in our company is not very huge because of the supply chain-related disruptions, which we have been observing in the last 6 months. So there is no specific or significant inventory gain assets. And like we have been explaining that the raw material sizes have reduced the Coal India prices increase after 1 of 3 months, and this based on different contractual loans. So there is no significant gain arise of the big part of inventory gain. The third. So it means -- yes.

So sir, because our margins -- EBITDA margins at almost at 20.8% compared to Q3, 20.5%, while the AN prices and the product prices had gone up sharply. So I just wanted to understand is because our margin is more like 6% kind of margin. So have we seen any significant improvement in per tonne EBITDA margin in our company, sir?

No. I don't think that your perception is right. We won't work on a percentages. But definitely, every industry is when we are selling in balance, so our margins are also based on [ net gain ]. But as far as percentage, EBITDA margin is concerned, our -- most of the contracts are linked to the raw material. And over a lap of one or 3 months, we keep existing. And our margins are moving around [ 20% ], 22%, plus/minus [ 0.5% ]. So -- and we believe that this will keep doing well. As far as percent margin is concerned, it is practically same. But definitely, as our prices are moving up, we are also including prices and some other sector exports, domestic market, so percentage are almost same.

Okay. That's helpful, sir. Sir, if I'm allowed to ask another question, I'll go ahead. Sir, you gave almost 30% kind of guidance for the growth in top line, right, for the current year?

Correct.

Yes. That's -- if you can just give some slight breakup on that, that -- what are the growth drivers for this 30% growth in the current year? It's all coming from the domestic or exports or defense? If you can just further dig in, if you can give us further look about that.

We are expecting growth of 25%, 30% in [ others ] and export/overseas and decide which definitely [ correspond ] at current levels. And if you combine all these same sections, definitely, growth will be around 30% plus.

So it will be driven from both domestic as well as international business, both in the same percentage, like domestic market also will grow by 30%, sir?

We are expecting 30% percent rate growth in India and export/overseas business as well.

Sir, just one clarification because this year has been a pandemic year and government is definitely very tight on their budget, and they have to do a lot of other social spending. Do you think that the government's focus on defense will be slightly lower in the current scenario? And ordering from the government could have taken hit, which probably is already seen in last 6 months that government is right now not want to focus much on that and not want to spend much on that because their focus is right now on something different. And that now you may continue to [ honor ] 6 months to 9 months or maybe a year until the time they streamline their budgets, and that can fit their defense allocation and our revenue or other orders?

So on this aspect, just to keep in mind that we are supplying the products, which are revenue or recurring innovation. Second, based on the government recent push of Bharat [Foreign Language], they also want to indigenize the ammunition production as much as possible. At the moment, it currently buys these products from [ Anglo ], prices will definitely be higher. As the [ ammunition ] resource concerned, we believe that this trial will go faster, and we will take advantage of that. If you look at the current -- if you look at the government updates on these items, the total coverage of ammunition in the country is not up to the expected level or desired level. So there is still a big vacuum. And we believe that our products, which we have already developed and which we have already received the orders. And we are likely to receive a few more RFPs in the coming months. Based on all these 3 factors. First is the government [ calibration ] to reduce the budget for any sector other than health-related issues, but [ our duty ] is to supply the products and replace the import of ammunition.

[Operator Instructions] The next question is from the line of Gaurav Chopra from Union Asset Management.

Am I audible?

Yes.

Yes. So my -- so I just had one question. I could see in your [ non ] store counts that you had set up 2 subsidiaries in two countries. So just on that note, like how many countries do we have operations in and how many countries do we intend to sort of capture in, say, next 5 years time period?

Currently, we have operations in Six countries, including India. This year, we have a [ Sandanya ] plant operational by second quarter. And in the next 5 years, we will be having around the next 3 to 4 companies will be adding -- sorry, countries.

And that basically expands the overall market size, too? In terms of like the countries which you are going to enter will have similar market potential, right? Or any color on that front?

Yes. We -- where we are entering it basically a mining entry. So the potential, like, for example, in Australia, it's a $2 billion market size. So we would say that [ balance ] countries would have similar size.

Okay. So potentially doubling our market potential in the next 5 years through the overseas expansion. Is that in the sense correct?

Yes.

The next question is from the line of Abhijit Mitra from ICICI Securities.

Congrats on a great set of numbers. My question is more on the cost savings that is possible. Because what we understand is that out of FY '22 top line guidance, which has been given, almost 15% is coming from prices, which is having a very strong, positive impact on operating leverage and therefore, margins. So FY '22, it's expected that probably the margin trajectory would be a bit higher than we have seen for the last couple of years. Any way to sort of cement those margins through cost improvements? Any sort of plans to -- because as the price drops, if we can retain some part of that increase, it would be great.

So if you look at our normal EBITDA margin, it is around 21%, 22%. Most of the contracts are linked to the basic raw material [ driver ]. So we don't see much scope in reducing the cost on that side. But definitely, just all other costs like logistics costs, even our procurement side efficiency increasing, the utilization of manpower in [ better use ] and reducing the cost on some small, small accounts. That has been going on in the last 1 or 2 years, and that we have reflected in our annual reports also the actual source of in additional prices continuing. And as a result of which, we have been able to improve the margin despite all the different challenges. So on one side, we are saving from various initiatives. But on another side, we have to spend, and we have to spend more and more on the contribution toward the society. That is going mainly in CSR and donation side. So the situation is like this, where all savings, whatever we will garner, will not be coming into the bottom line. Some of that will keep going for all these initiatives. But these initiatives will help us in the years to come. And I'm pretty sure about that. And as a result, our EBITDA margin will definitely keep going up. The second reason of increasing EBITDA margin will be the increased sales of defense and our increasing sales from overseas market. So a couple of all these key factors on cost of the resource optimization side, defense increase and overseas, our margins should be better or it should improve, [ continue to develop ].

Great. Great. And also, if you can just broadly give us a number for the capacity for the current year and for the next couple of years. I mean, how is it going up? Because last year, I think it was around close to [ INR 3,50 ] if I refer to the annual report data. How has that moved? And how is it expected to move over the next couple of years?

Last year, we have sold 3,57,000 metric tons. And in this year, we sold 3,33,000 tonnes. And we increased in capacities, we have decided to set up to new plants. So once those plants get fixed, we will show more on the capacity side. But we are working for the next 5 to 10 years of growth plan. And accordingly, we will keep the decision. And I can keep giving with all the stakeholders.

Great. That's all from my side. And again, congrats on a great set of numbers.

Thank you.

The next question is from the line of from Gagan Thareja from Kotak [ Investment ]

Am I audible?

Yes, definitely audible.

Congratulations on this year and regarding the import [ course ] and performance. Okay. I have one question on the return on capital. Over the last few years, we have done investment. But somehow, that is not reflecting in the return on capital because from 25%, 26%, 27%, which we normally use to [ uplink ], we have come down to 21%, 22%. With all the things which you related in the call, margin, revenue [ adjustment ], is there a belief that your return on capital moves back towards 40%, which we, in the last decade you used to have? Or will you be quick to be -- have to get to mid-20s and how you push the growth level higher? Just wanted your thoughts on that price?

Yes. If you look at the previous year's number of 25% this year, it has reduced to almost [ 21%, 22% ] levels. And if you look at the projected sales growth of 30% in '21, '22, and there will be a similar growth of around 20% in '22, '23. If we couple these growth plans, which we are expected to happen, then definitely, the return on capital employed, which grow up from 25%, and it can be reaching around 27%, 28%. So we are quite optimistic now, and we are quite -- we have -- we believe that definitely the return on capital employed will grow up and will grow around 27%, 28%, and it can reach to 30% level also.

Okay. That's fair. And coming to your defense portfolio, you spoke about in the call, you spoke about hand grenade. But how is the pipeline looking like? Because what you're working today probably will be recommend over the next 3 years. So we spoke about this year the execution stack on hand grenades. But how is the pipeline looking like? And what would be the export opportunity on the defense? That will be interesting to understand, and that will be really helpful.

So the current order book is INR 680 crore. And out of that [ INR 450 ] million is from maintenance. And the other products are mainly from IROPS, small, small mines. And the upcoming products are mainly from upcoming RFPS, which we are expecting in [ fiber optics ]. Already, the RFP is quoted and we have participated, that is for BMCS. Earlier it was got [indiscernible] and they are refloated again. There is an RFP for procurement and ammunition also, which is available in the public business, we are likely to participate in that. So the -- as far as pipeline is concerned, there are various RFPs like BMCS, I'm repeating again, BMCS procurement ammunition, [ and Nikkon and Eresman ]. So these will definitely help us to build our order book and increase the sales. As far as export opportunities are concerned, we have already received an order of multimode hand grenade from Southeast Asian countries. So this is an opening up. That is what we have started, say, almost 15 years back when we started our export and overseas. We believe that similar opportunities will come for supplying these products in various parts of the world. We have an advantage of supply chain network across almost 50-plus countries. So that will definitely help us to penetrate those markets. So this will be a big push. And we have been observing the government of India is also pushing a lot to make India an exporter, not only dependent on -- they not only want to indigenize the ammunition production, they want to make India an exporter. So all these policy push are reflected in their existing decisions, and we believe that thing will help our company a lot.

The next question is from the line of Abhishek from DSP Mutual Funds.

Manish, just wanted to understand a couple of things more around the competitive intensity from the not so well established, given the sharp increase in the RM prices, the working capital requirement increase. Is that something also you see a big marketplace?

We have been observing the smaller players are definitely getting or finding it difficult to cope with this currently. We have rightly pointed out that like it is happening in practically all industries. The working capital cycle has increased either because of the [ rounding ] prices or some delayed payment for the customers. So during these challenging times, it was definitely difficult for all the smaller players. And we also believe that the right marketing strategies are in place as far as Solar is concerned. We are getting advantage of that. And we believe that our market share will clearly go up.

And just talk about increasing the domestic capacities also because you're seeing a lot of these marginal players going out of the system. Is that also the reason that gives you confidence in our increasing capacity in North and southern part of the country?

Business, our strategic plan is not based on the current on the main half year experience. We have made a growth plan for the next 5 to 10 years. Based on that, we believe that it is required for Solar to set up the first plant in different part of the country. We take advantage of logistics and to deliver the product to the customers on time. So based on that strategy, we are setting up the plants. That will help the company to bridge the -- any operational risk, which can happen at one site. So all these are -- these decisions are arrived out of those with this mitigation plan and the opportunities available to us.

Sure. Sir, just one more question. Given the growth trajectory that you're referring to over the next couple of years, the cash flow generation that will happen in the company will be very strong, even adjusting for the working capital, it will be fairly elevated from what you've actually done in the last 2, 3 years. So will all that cash flow be plowed back into capacity addition in domestic and going into newer geographies, or will you deleverage also? Any thoughts?

The current leverage position, which we believe that we refer it as a debt equity level. Last year, it was around 0.45. And this year, it has already improved, and it is lower than 0.4. So we believe any debt equity ratio lever is comfortable. And we don't want to make the company over the groups, and that has not been the policy of our company. We will continue the same policy. And whatever expansion programs we will be implementing, that will be part of our annual CapEx program. Like I said, this year, we have planned INR [ 315 ] crores. That increase is also due to another factor of rising commodity and all the related items, which will go into the CapEx program. So there is an increase because of this factor also. So consider delivering over everything itself. We will continue to believe in that conservative philosophy. We will try to improve the working capital cycle. We will try to increase our margin and flow back into the system.

The next question is from the line of Bhagyesh Kagalkar HCSC Mutual funds.

Sir, congratulations on great set of numbers and a good explanation on the defense business. The only explanation that is for needed is on the Pinaka prospects because the last order given to my knowledge by core last year of [ INR 2,300 ] crores. And where do we figure in that order? Or you expect further regimens, which will use our parts because orders is fully completed for now over the last 2 years or most for Pinaka?

Yes. Like we have said that the -- like you have been saying that you was a hundred of around INR 2,500 crores, INR 2,600 crores. So that was I believe for hardware-related items. And we believe that the government release orders for hardware, but the next item will be for ammunition. So that once the administering office start coming up, so we will get a one Totoro. Like I have explained in our previous calls, we are the qualified production [ ability ] for all [ the leadings ] of Pinaka. And one department will report directly to the RFPS, we will be the most advantageous year. And the RFPs are already in the pipeline and due to COVID-related restrictions and other problems, it did not flow directly. So we are expecting those to happen now.

Okay. And the only other agency is the existing OB, which has from the previous Pinaka orders on the ammunition part, am I right?

Yes, we are very accurate.

Okay. So if we get or will be the first private sector party to go ahead for the Pinaka?

Yes. We are the only company in the country which is qualified to do the production of the Pinaka rocket [ indirectly ].

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to Mr. Manish Mahawar for closing comments.

Yes. Thanks, [ Atulia ]. On behalf, thank you to stop working, I would like to thank the team of Solar Industries for providing us an opportunity to host the call. Manish, would you like to make a closing comment, sir?

We just want to thank everyone present at this call.

Thank you very much. Thanks to all.

Thank you. On behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.