Edited Transcript of SLIN.NS earnings conference call or presentation 4-Aug-20 5:30am GMT

Initial challenges in establishing ourselves in new markets like South Africa and Australia were there. Defense product deliveries extended by the customers and there was delay in getting expected orders. Overseas translation loss of INR 45 crores was there in this year.

Lastly, the COVID-19 pandemic declaration in March, and after which, we took immediate actions to create an environment to safeguard ourselves while delivering on the needs of our customers. However, external factors such as lockdowns and restrictions imposed by the government and local authorities has affected in the Q4 of ’19/’20. The impact of the same will continue to be visible in our Q1 of financial year ’20/’21.

Given the significant impact to the economies around the world, many aspects of Solar’s business have proven to be resilient. The recent epidemic has changed the business narratives globally but strengthened Solar’s old mantra, which is safety, quality and reliability, and it’s time that our priority remains valuing life and securing businesses to support our community.

Our revenues during April ’20 were impacted due to COVID. And we did see some improvements during the month of May 2020. But I’m extremely happy and satisfied to share that our performances during the June 2020 was even better compared to the June 2019. The way our operations and business recovered during this uncertain time has boosted our confidence.

As far as our overseas operations are concerned, the green shoots are quite visible in the countries where we have our presence. We are also finding situations has been improving. And soon, it will be in a right place to deliver the better revenues and better bottom line numbers.

Manufacturing operations in Ghana has commenced in the first quarter of ’20/’21. Australia and Tanzania manufacturing facilities will also commence from Q3 of ’20/’21. And as regards our defense business, the RFP for Multi Mode Hand Grenade is in the final stage of approval. We will keep our stakeholders informed on the progress.

On a negative note, many RFPs under Make in India program got canceled. However, the other defense RFPs will soon be initiated by the government under Make in India Atmanirbhar scheme. Also as per the current reports, India is all set to ban imports of ammunition that can be produced indigenously. This move by the government will surely make us India’s key ammunition player.

We also expects our margins to improve, mainly on account of defense and overseas turnaround. That being said, it will still be challenging to predict the growth numbers for the subsequent year, that is ’20/’21. We do target and anticipate the top line to cross the last year’s number.

But on a conservative side, COVID-related uncertainties can impact demand from mining and infrastructure sectors in India. As a result, we may see slippages by about 5% to 10%. The experience from the past downturns indicate that once the downturn is over, the gap widens.

So we do intend to capitalize during this testing time to be able to emerge much, much stronger. We continue to advance our projects, products and technology road maps to serve our customers better. I firmly believe that we remain well positioned with a superior team that will continue to execute and produce strong results in India as well as in our global operations.

As such, we have not altered our CapEx plans. The current CapEx will incorporate capacity enhancements of initiating systems, new products for defense and expanding our global footprint. However, we will keep a watch on how COVID-19 situation pans out.

In conclusion, I will remind you however that the situation remains very dynamic, and we don’t have a crystal ball to exactly predict what lies ahead in the future. Like everybody else, we did sure like to see a vaccine become widely available for all of us. Till then, after considering all the factors, we decided to preserve our reserves to utilize those for our future growth and hence, reduce dividend to INR 6 per share for this year compared to INR 7 per share last year.

Recently, Sri Kailashchandra-ji Nuwal, our Executive Director and Vice Chairman of Solar Industries India Limited, has vacated Office of Director with effect from 7th November 2019. The Compliance Officer has submitted the required information to the Registrar of Companies and the stock exchanges.

With that, I will now ask our CFO, Mr. Nilesh, to take you through the review of financial year ’19/’20 results.

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Nilesh Panpaliya, Solar Industries India Limited – CFO [5]

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Thank you. Well, this quarter was an unprecedented period due to the spread of the COVID-19 pandemic across the globe. During this period, the spread of the virus and eventual lockdown resulted in virtually no sales in the later part of March 2020, significantly impacting our sales performance in the quarter by INR 100 crores approximately.

Now we talk about the year. In the year ’19/’20, our consolidated revenue was down by 9%. That is INR 2,237 crores from INR 2,460 crores and that is 10% lower than guidance of INR 2,500 crores given for the year. The reason for same has already been highlighted by the MD in his opening remarks.

So let us quickly review our sales for the year ’19/’20. Domestic explosives volume was down by 6%, that is from 359,116 metric tonne to 337,456 metric tonne. Realization of explosives in domestic markets was down by almost 5.4%, that is from INR 35,442 per tonne to INR 33,521 per tonne on account of fall in commodity prices. As such, our domestic explosives revenue were lower by 11%, that is from INR 1,273 crores to INR 1,131 crores. However, during this year, the initiating system revenue grew by 15.4%, that is from INR 257 crores to INR 296 crores, and this was on account of capacity enhancement.

Our export and overseas revenue was INR 793 crores compared to INR 866 crores and that is a fall of 8.49%. The overall commodity prices, which were down globally, resulted in lower realizations, which led to lower overseas revenue.

Now the revenue from defense stands at INR 122 crores in the current year compared to INR 170 crores as the delivery schedules were shifted by the customers.

Now when we talk about customers, in domestic market, revenue from Coal India has decreased by INR 47 crores and the main reason was that Coal India had targeted a production of 660 million tonnes and OB removal of 1,407 million cubic meters, against which they could reach 602 million tonnes and 1,156 million cubic meter of OB removal, and these figures were even lower than ’18/’19.

Revenue from housing and infra were again lower, and I would like everyone present to note that our revenue from private sector mines has increased as we have now started supplying to private coal mines with more focus.

As far as raw material is concerned, the raw material consumption has decreased by 4.6% as a percentage of sales, when we compare year-on-year. The same is due to change in product mix, that is change — lower explosives sales and higher sales of initiating systems, coupled with improved productivity and efficiency.

The employee cost as a percentage of sales has been increased by 1.76%, and this is due to lower revenue. In absolute terms, it has increased by INR 22.4 crores, that is 12.17%. However, if the revenue would have been same, then the — there would have been marginal increase of 1.5%. And that is on account of annual wage and contract labor increase.

Our other expenses as a percentage of sales has increased from 15.21% to 17.05% and this is, again, on account of lower sales. On a similar revenue of previous year, it would have shown a marginal increase of 0.28%, and that also because of some increased sales promotion expenses.

EBITDA. In spite of lower revenues for the year, we reported an EBITDA of INR 475.37 crores, which is 21.25% as compared to 20.99% in last year and which is in line with our earlier guidance of 21% plus. When we talk about our interest and finance costs, as a percentage of sales, it has increased by 0.43%, that is from 2.03% to 2.46%, when we compare year-on-year.

In absolute terms, it has increased by INR 5.17 crores. And this is due to higher ForEx especially in overseas subsidiary. Secondly, due to COVID, sales and collections were affected and stock got piled up, affecting the working capital cycle.

Depreciation increased from INR 58 crores to INR 84 crores because of the INR 271 crores of CapEx done in FY ’18/’19. The CapEx for the year ’19/’20 is INR 235 crores against the guidance of INR 215 crores.

As such, the profit before tax margin stands at 15% compared to 16.57%, and the current tax rate for the year is 25% compared to 33% as the tax rate was reduced because of budgetary provisions of 2019. This results in a net profit margins which has improved by 1.22%, that is from 11.24% to 12.46%, that is INR 278.67 crores compared to INR 276.80 crores. These were all the update for the year.

Now let’s quickly review the quarter and see what happened other than corona. Sales. The revenue for the quarter was down by almost 18.64% year-on-year, that is from INR 672.95 crores to INR 547.48 crores. The domestic volume in the quarter was reduced by 10%, and our realization of explosives is down by almost 15%. As such, explosives revenue was down by 23% from INR 382.48 crores to INR 294.53 crores.

The revenue from initiating system was also down by 3.97%, that is from INR 76.37 crores to INR 73.34 crores. Revenue from Coal India was lower by 17%, revenue from non-Coal India and institutional grew by 6.31%, with our improved focus on private sector booked mining.

Revenue from housing and infra was down by almost 30%, and exports and overseas revenue grew by a marginal 2.05%. Our defense revenue was again down by 54%, that is from INR 57.27 crores to INR 26.48 crores.

The raw material consumption in Q4 has decreased by 4.84% as a percentage of sales. This is on account of change of product mix. And given the ammonium nitrate prices were quite lower, that is INR 25,362 per tonne compared to INR 27,185 per tonne, this resulted in lower realizations.

The employee cost increased by 3.36%, again because of lower revenues. Other expenses have been increased by 6.24% on account of lower revenue and on account of sales promotion expenses when compared to similar quarter last year.

The EBITDA for the quarter is 20% compared to 21.53%. And the interest costs, as a percentage of sales, has increased from 1.58% to 2.63%. And if you talk on absolute terms, it is INR 14.42 crores compared to INR 10.63 crores year-on-year basis. However, it is in line with INR 14.11 crores of previous quarter, that is the third quarter.

Now the depreciation has increased from INR 15 crores to INR 22 crores on account of CapEx in previous year. The profit before tax stands at 13.33% compared to 17.75% and with the current tax rate of 25%, the net profit in absolute terms is down by 29.31% to INR 53.18 crores from INR 75.23 crores, that is net profit margin of 9.71% compared to 11.18% in similar quarter previous year.

So this was all the update on the quarter and a few other things which we would like to highlight is working capital. So the working capital days have increased from 90 to 113 days, mainly on account of increased inventory days due to COVID pandemic. However, the debtor days remains the same. It was only the inventory levels in the last 15 days. Now the debt-to-equity ratio is 0.5 compared to 0.49 which is slightly increased.

The net worth is INR 1,380 crores compared to INR 1,238 crores and the capital employed is INR 1,658 crores (sic) [INR 1,685 crores] compared to INR 1,430 crores, which resulted in return on equity of 19.38% compared to 21.13%, and return on capital employed is 23% against 32% and lower sales is the main reason, which has — and why we could have lower sales, the reasons have already been explained to you.

For the year, we had a planned CapEx of INR 215 crores. The total order book as on hand is INR 1,304 crores, which comprises of orders from Coal India, Singareni and defense. So now this was all the update on our financial performance for the year and for the quarter. Now we would happy to take any questions, comments or suggestions that you may have.

Back to you, operator. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Santosh Yellapu] from [Ashika Stock Broking].

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Unidentified Analyst, [2]

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Sir, congratulations on the Multi Mode Hand Grenade order. And I think this should be a very — a key step on the defense business side for us going forward. Sir, I had 3 questions. What’s the outlook on the international markets across key geographies? Second, what’s the CapEx outlook for — is there any still CapEx pending for Tanzania, Australia and in the domestic market that we are planning for FY ’21? And lastly, which all — we heard that there are 3 ammunition tenders that got canceled. Are there any — are these 3 where we were participating? Or they are other ammunition tenders?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [3]

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So first, Mr. Menon will take your question on our international.

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Suresh Menon, Solar Industries India Limited – Executive Director [4]

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We have seen major effect of COVID in South Africa and a moderate effect in rest of the countries. However, the demand in Nigeria, Turkey, Zambia, and Tanzania is picking up. South Africa is affected because there are restrictions in underground coal mining and in surface mining because of COVID restrictions from the government side. Australia had travel restrictions between the country. This delayed our plant construction activity to some extent. But they have reopened the restrictions and reinforced restrictions in certain states. CapEx will remain the same. We are continuing with the same CapEx that we had planned for in the overseas market. We are going to continue with the same CapEx.

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Unidentified Analyst, [5]

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Sir, I meant to ask, have we done the entire CapEx in Ghana now? And Tanzania and Australia, are they done? Or is it just that we are having some — we are trying to do some sample testing for — with the clients and getting their comfort? Or that the actual CapEx is yet pending?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [6]

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No, as far as Ghana is concerned, the first phase of CapEx is already over. And as we get more opportunities, more investments will be planned. And as far as Tanzania is concerned, the construction has already started. And the election, commissioning will start, and that is what we have said that we are likely to start operation in the Q3 from this kind of — this investments, which we have been making. As far as Australia is concerned in another 4 to 5 months, we should be able to finish the construction front. And the CapEx program for Ghana is almost over. For Tanzania and Australia, it is in the pipeline.

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Nilesh Panpaliya, Solar Industries India Limited – CFO [7]

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And about your question on defense RFP. So the 2 RFPs which got canceled was 30 mm and 122 mm grade. And one which is still under consideration is BMCS. So I hope we answered your 3 queries.

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Operator [8]

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The next question is from the line of Bharat Shah from ASK Investment.

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Bharat Shah, ASK Investment Managers Limited – Executive Director [9]

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Yes, Manish, I just wanted to highlight the background and the events leading to Mr. Kailashchandra Nuwal sir stepping down as a Director?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [10]

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Yes, sir. As far as the vacation of office — of Director’s Office of Sri Kailashchandra-ji Nuwal is concerned, the — it is basically that vacation of office is automatic as a Director of Solar Industries India limited by operation of law. The facts and circumstances related to this issue has been brought out in the disclosures by the company before the stock exchanges on 31st July 2020. I think those disclosures, the required disclosures has been made, and this is what are the information as of now.

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Bharat Shah, ASK Investment Managers Limited – Executive Director [11]

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Would you like to elaborate that a bit?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [12]

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I think the required disclosure is already being there, sir. And the effect of this disclosure, one was the vacation of office which is already known. As far as the other impact because of this transaction, the legal team will take care and take the necessary or appropriate actions as per the legal opinion sought by the company.

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Bharat Shah, ASK Investment Managers Limited – Executive Director [13]

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Any comments on what may happen to the shareholding of Mr. Kailash Nuwal going forward?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [14]

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Sir, this issue is related to secession of office and not related to the shareholding aspect. As far as shareholding aspect is concerned, shareholding will still remain with him only.

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Bharat Shah, ASK Investment Managers Limited – Executive Director [15]

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Which means the rest of the Nuwal family will hold about close to 45%?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [16]

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Sir, the promoter family, which includes all the family members, are still holding the same equity. And as per our family settlement, the equity will remain within the family or as per the terms spelt out in that.

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Operator [17]

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The next question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.

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Bhagyesh Kagalkar, HDFC Asset Management Company Limited – Senior Equity Analyst [18]

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Bhagyesh here. Can you be more specific on the defense part, last year’s revenues? And secondly, going forward, the Pinaka products, we have been doing a lot of development activity, and they have cleared the Pinaka systems. And so over 3 years, what is the scope in the defense now? How much revenue now actually we can generate because it has been a very long activity for us?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [19]

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Yes, those are — Mr. Nilesh has already shared about the defense revenue, which we have achieved in ’19/’20, it is INR 122 crores. Whereas in the previous year, it was INR 170 crores. Our target in this year ’19/’20 was basically — earlier target was INR 250 crores, then we said that we are likely to reach INR 200 crores. But due to delays in deferment, delays of shipments and delay in getting the fresh orders resulted into the less numbers in ’19/’20.

As far as the future expectations are concerned, looking at the current RFP of Multi Mode Hand Grenade, which is in the final stage of award, and that will definitely put us into a reality mode what we have been sharing over last couple of years. So once that RFP in place, our defense revenue from (technical difficulty) segments really get a big boost.

And as far as Pinaka is concerned, like we have shared that we have set up a complete manufacturing facility for rockets and missiles. So that will definitely help Solar to be one of the key players in this sector. As far as technology absorptions are concerned, we’re already in the line for Pinaka Mark-I, Pinaka Mark-II and now we have also working on this Pinaka guided missile. So based on the developments and efforts over last 4 years, we are a production agency for these items. And once the decision, which has been taken by the recent Defence Acquisition Council regarding expanding the regiments for Pinaka, we will see a boost for these products. And we will share all the development as and when it really happens.

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Bhagyesh Kagalkar, HDFC Asset Management Company Limited – Senior Equity Analyst [20]

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Roughly, [one cannot] quantify right now because how much portion will come to Solar and how much will go to DRDO or other bodies?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [21]

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It is too early to really spell out what will be the share of private and government sector. But definitely, it’s a matter of few months, we will all come to know about the final policy decisions of the government. But if you look at the recent policy announcement, it has been there in last couple of years, it was in Make in India, then recent decisions by the government really give a big push for making ammunitions in India and make our country self-reliant. This policy and push will definitely give a positive support to the private players in India. And Solar will be one of the key ammunition player in this segment.

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Operator [22]

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The next question is from the line of Lokesh Manik from Vallum Capital.

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Lokesh Manik, [23]

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My question was regarding the initiating systems. I wanted to know whether these systems are compatible with competitors’ products? And can they be sold separately or they have to be sold as a package with packaged explosives?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [24]

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Yes. As far as the initiating systems are concerned, many companies in the world have the complete range of products. However, many companies — except top 10 players, nobody have the complete range of products. And as a matter of sales practice, we don’t see that initiating system is necessarily to be coupled with the packaged and bulk explosives. But as a matter of practice — as a matter of prudent practice, many people prefer the initiating systems and the bulk explosives or packaged explosives to be supplied from the one source, so that in case of any kind of miss failure or failure or nonperformance, they can held one party accountable. This is a practice which depends and vary from player to player, customer to customer.

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Lokesh Manik, [25]

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Okay. But they are compatible with competitors’ products, other products in the market?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [26]

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By and large, yes, these are compatible. But in some of the products, in some of the cases, those products doesn’t fit to each others.

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Lokesh Manik, [27]

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Understood. Sir — and my second question was on the defense segment. So we have been investing for quite some time in this segment. And I just wanted to know, is there a benchmark that we are looking at for sales generation or for fructifying the existing CapEx before we commit more towards it?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [28]

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Like I have shared that we were waiting for a few RFPs to release in the last 1 year, which got delayed. And I think the Multi Mode Hand Grenade RFP is in a final stage. It doesn’t mean that this is the only RFP which is about to come. There are various smaller RFPs also in which we have participated. And based on the ground reality and the position, we are quite confident that this will fructify very soon. And we will not amend our CapEx programs. However, COVID can definitely make some kind of deferment in those CapEx programs, which we will keep sharing with you all the people. But as of now, the technical and the price negotiations for RFP of Multi Mode Hand Grenade is over, and the contract awards should be awarded soon.

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Operator [29]

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The next question is from the line of Sagar Naik from Equentis Wealth Advisory Services Private Limited.

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Sagar Naik, [30]

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So I had 4 questions. First one is, so Western Coalfields has inaugurated 3 new mines, one in Nagpur and 2 in MP. So have we got any contracts for these? (technical difficulty) would be one of the competitors has received…

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Nilesh Panpaliya, Solar Industries India Limited – CFO [31]

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I’ll just tell you for these coal mines, especially of Coal India Limited, it is a centralized tender and not a mine-specific or subsidiary-wise tender.

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Sagar Naik, [32]

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Okay, okay. So will we see any addition from these 3 mines in the next year?

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Nilesh Panpaliya, Solar Industries India Limited – CFO [33]

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Yes. So they have their own mining plan. And whenever they will come up with the next tender, these quantities will get included based on what is the requirement.

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [34]

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But yes, with the starting of the new mines, definitely, it is in line with the Ministry of Coal’s projection which they have already shared and it is available in the public domain. Based on that, they are keep opening the new mines. And in WCL, these 3 mines opening will give a boost to the coal production from Western Coalfield Limited. And we have a very strong presence in this belt. And the opening up of these mines, definitely, they will be an advantage to us.

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Sagar Naik, [35]

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Okay, okay. The second one would be — so one of the listed competitors has got a license for RDX and HMX. And in the last quarter, they have even won orders in Turkey. So how do you see this playing out for Solar?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [36]

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We will share what we are doing. It is difficult for me to comment on my competitors’ product launch or the orders which they are getting.

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Sagar Naik, [37]

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Okay, okay. So the third one would be you know the employee costs have increased from INR 49 crores to INR 57 crores quarter-on-quarter. And generally, we see that increase in Q1. So what would be the reason for this?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [38]

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Basic reasons were there. First was the annual increase of wages, which starts from the 1st of January. Second reason was the lower sales in the Q4 due to pandemic. Third reason was the growth which we were expecting from our defense and overseas during these quarters was not up to the expected numbers although the people are on the ground, and we are doing good things, and we are quite hopeful to reverse this trend of percentage of staff cost increase in the total metrics. So we will see the improved numbers from Q2.

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Nilesh Panpaliya, Solar Industries India Limited – CFO [39]

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So if you had the revenue (technical difficulty) the increase would have been marginal, 1.5% only. And had it been more, as per our earlier guidance, then this would have been flat or lower than the percentage which is getting reflected.

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Sagar Naik, [40]

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Okay, okay. And the last one is, you mentioned in the opening remarks that there has been a delay in the defense delivery schedule by clients. So if you could give any quantum and when would this be realized in this year? If you can share that? So that would be the last one.

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Nilesh Panpaliya, Solar Industries India Limited – CFO [41]

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Yes. So these delivery schedules had got shifted. So typically, from last year, now this has come into the current year. So accordingly, we are expecting it in this year.

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [42]

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And from quarter 2, we will see the improved numbers from — for defense products sales.

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Operator [43]

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The next question is from the line of Shreyas Bhukhanwala from Canara Robeco Mutual Fund.

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [44]

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Sir, couple of questions. So in the earlier remarks, you said, our June performance has been better than compared to last June. So is it on the domestic operations you were referring or at the company level?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [45]

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We were saying about June ’20 was based on a company level, not on a domestic front only, it’s combined and it’s a combined number, which I had shared.

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [46]

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Sure. So is it — so more or less, both are doing equally well? Or actually, overseas has done better than domestic and hence your overall average number looks more or less similar to or better than last June?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [47]

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Looking at the COVID pandemic spread in India and other parts, definitely, the improvement is there in domestic market also. But overseas has started doing better.

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [48]

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Sure. Sir, secondly, on the overseas front, so you don’t have the numbers for FY ’20. But can you share some light on how has been the performance, especially in Nigeria and Turkey? Did you had a flattish growth over FY ’19? Or had we — did we had some growth on a year-on-year basis?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [49]

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’19/’20 or expected growth in ’20/’21?

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [50]

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No, no, ’19/’20.

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [51]

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As far as the individual geography wise is concerned, it is difficult to share each geography at this moment. But overall, the revenues from the countries, especially Nigeria and Zambia, Zambia was pretty down, Nigeria was pretty comfortable. The significant drop was there in the sales from the Turkish market, which we have been sharing with you all the investors that due to the political situation and the geopolitical equation changing in the ground, there was a drop in demand. The currency hit was also there. So these were the key reasons.

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [52]

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Okay, okay. And sir, so of the INR 793 crores of FY ’20 revenues coming from exports plus overseas, how much would be from overseas?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [53]

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From overseas, it was INR 646 crores.

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [54]

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And how much was it, sir, for FY ’19?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [55]

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INR 700 crores.

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [56]

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Okay. So sir, how do we see these overseas revenue, broad, if you can throw some light, panning out in FY ’21? Based on the current scenario, how things are moving?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [57]

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I have already shared in my initial remarks that based on the current situation and the green shoots, which are quite visible, we see a good turnaround in the revenues and bottom line from the overseas operations. And with the results coming out after the Q1, say, specifically for Q2, we will see significant improvements.

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Shreyas Bhukhanwala, Canara Robeco Asset Management Company Ltd – Equity Research Analyst [58]

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Okay. Sir, earlier, our target was around INR 900 crores, if I’m not wrong, for FY ’21 for overseas. Is it good enough to assume that possibly that target for FY ’22 is achievable since we would have some disruptions due to COVID?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [59]

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Yes. If we summarize that why the revenue from overseas was lower than our target, then the key reasons are like this. First was, there was a reduction in our commodity prices, as a result of which, the overall realization has gone down in line with the commodity prices.

Second was that, in Turkey, our sales has went down. Although our market share has not reduced, it has gone up slightly, but the overall demand was down. And our sales from Turkey although it will be shared in our annual results, annual reports also, but the sales from Turkey was dropped by almost 18%, and Zambia was also dropped by more than 10%.

So if you look at overall reason, then first was commodity prices, second was drop in sales from Turkey side, although we were expecting sale increase. And third was our initial challenges in establishing ourselves in South Africa. So these 3 were the reasons of reduction in the sales. But looking at the current situation, I repeat again, in 2021, we will be near to the initial target, which we gave for ’19/’20.

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Operator [60]

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

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [61]

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Sir, a few questions from my side. So first, you gave a cautious statement for the current year that though you will try to achieve the current year revenue, but it may be 5% to 10% down. So is the stand-alone you were talking about? Or on a consol level, you were talking about that the revenue will be lower by 5% to 10%?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [62]

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The statement was for the whole year and not for the period for, say, for June onwards. The reference was given or the reference was in relation to the COVID pandemic and its impact for the whole financial year ’20/’21.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [63]

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On a consolidated basis, I think, sir?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [64]

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Yes, on a consolidated basis.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [65]

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Okay. So while we are very optimistic about our international revenues still being achieved by close to INR 900 crores, so it means that we are looking definitely all the impact of almost 20% coming from the domestic market and also some impact of defense?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [66]

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So like I said that there will be a turnaround in overseas, we are expecting improved numbers from defense segment. However, looking at a COVID pandemic related impact in the local market, definitely, demand from the housing and infrastructure will be low although the — I don’t see or I don’t — based on the ground reality, it doesn’t reflect that the demand from coal mining will go down. But definitely, there can be impact on those things. Based on an overall estimation and overall analysis, we have said that we are expecting that the revenue in ’20/’21 should cross the revenue of ’19/’20 despite of all these challenges.

But on a conservative note, we said that this pandemic spread or, say, if second wave of pandemic starts, if lot of lockdowns are in place like we have seen in India and we have seen in South Africa also, then, on a conservative note, we feel that the revenues can go down also, which we are not sure of at this stage. The situation is quite complex, and nobody can predict with a firmness at this moment. I hope you will understand why we have shared these things.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [67]

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Definitely, sir. Sir, definitely, the current scenario remain very volatile. And many companies have taken multiple cost initiatives to reduce the cost and maintain the margins. Do you see that we are still in the process? And in Q1 — I mean we have taken many cost initiatives and that will reduce our overall cost because our operational utilization probably in Q1 will be significantly impacted. So I just wanted to understand that in terms of cost initiatives, what kind of initiatives taken by the company?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [68]

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The company has taken various initiatives to address the current challenges. And we are sharing the key — we will be sharing the key initiatives in our results, which we’ll be announcing after we complete the limited review of quarter 1 numbers. So I think it will be fair for us to share in those quarter 1 review.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [69]

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Okay. Sir, third one is, sir, these 3 RFPs which got canceled. So in our defense order book, were we building any revenue from those RFPs?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [70]

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No. We are not capturing those RFP into our revenue potential or revenue target from defense-related products.

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Operator [71]

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(Operator Instructions) The next question is from the line of [Vikas Rajpal] from Reliance PMS.

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Unidentified Analyst, [72]

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Sir, I’m fairly new to the company. So pardon me if any of the questions seem repetitive. Sir, first question is on the line — is basically on the order book that you get. So is your order book capped on the margin or on the ROE front from Coal India or from the defense sector?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [73]

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Yes. So the margin is not capped. However, we have this — a price escalation clause, which is there with them. So typically, in bigger tenders like Coal India, so where it is a 1 — a 2-year tender, and there are various factors which are built into it. So accordingly, it is there. And even with our other major customers, we have similar price escalation clause. As far as one set of customer is concerned, that is housing and infra, there we are doing it on a regular basis, but it is again, as per the market parameters.

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Unidentified Analyst, [74]

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Okay. And sir, the other question is regarding the Turkey operations. So we have a — we do a fair level of business from Turkey. And as you said previously that the demand has gone down. So the demand has gone down, is it because there has been some import duties on imports from India? Or is it a general demand decrease which you have been seeing?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [75]

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As far as revenue from Turkey is concerned, this question has no connection to that. Because Turkey as a country imports from various countries. Even if the — there is an import duty from the countries like Asian region, it is uniform for all the people, except European countries, they have some concessions on import duties. Otherwise, it has no relevance or no connection to our sales from Turkey operations are concerned. But like I have been sharing that last year was quite bad as far as Turkey is concerned. But now based on the current estimation and current reality, the business is doing good now.

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Unidentified Analyst, [76]

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Great. And sir, lastly, just a follow up question. Like in the next 5 years, what kind of a revenue target that you have internally?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [77]

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Sir, at this moment, we all are passing through certain challenges, especially arise out of the COVID pandemic. Once I think it gets settled, we will be able to answer this question. It is difficult for us to give any kind of guidance for next 5 years.

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Operator [78]

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(Operator Instructions) The next question is from the line of Nitin Gandhi from KIFS Trade Capital.

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Nitin Gandhi, [79]

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I have 5 questions, so better to start with. Just to give some color on what’s the size or opportunity of this Multi Modal Hand Grenade which is being discussed at this point of time? And over a 2-years’ time frame, how big of an opportunity it can be from the order side, I’m not saying our Solar shares, I’m just saying from the India’s requirement point of view?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [80]

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Yes. Like we have shared in the last year that the RFP was for 1 million pieces to be supplied in 2 years from the date of award of contract. So this is the first answer. Second, we are a production agency or the nominated agency for this product apart from Ordnance Factory Board. And this RFP was basically for getting the products from private sector and not from the Ordnance Factory. They have other orders on nomination basis to them.

As far as the opportunity in future is concerned, so we will definitely share more on this once the first stage of awarding the contracts to the private player, especially in ammunition gets over. So that will be the one first big milestone for private ammunition manufacturers in India is concerned.

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Nitin Gandhi, [81]

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But if the size is (technical difficulty) I would say, 20 million, 30 million, 50 million, what is it, approximately overall?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [82]

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I don’t have those figures at this moment. As far as the value of the product is concerned, we will share the total value of the order once RFP is awarded to us.

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Nitin Gandhi, [83]

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No, that’s okay. I’m not speaking of value. I’m just speaking in quantum requirement of the country. Anyway, secondly, ROC, can we share how much is overseas deployment and how much is on defense out of capital?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [84]

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Which one? Please repeat again the question.

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Nitin Gandhi, [85]

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Our total capital employed is approximately INR 1,700 crores, INR 17 billion. So can you share how much is in overseas and how much is for defense?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [86]

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Our defense business, as such, we have been sharing that, the investment till last year was almost INR 500 crores. And to be precise, it is around INR 540 crores to INR 550 crores for defense segment. Rest all is for the products for non-defense.

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Nitin Gandhi, [87]

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Okay. And overseas, how much is capital employed?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [88]

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There, out of the total capital employed, INR 540 crores to INR 550 crores is for defense. Rest all is for India and overseas countries.

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Nitin Gandhi, [89]

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No, I’m speaking only overseas figures. I am not worried about India figure.

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [90]

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We will share the exact number in…

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Nitin Gandhi, [91]

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I’ll sure drop a mail or talk to somebody. And the next question was this — there was a postponement of business from Q4 to Q1. So can you quantify that?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [92]

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Postponement of?

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Nitin Gandhi, [93]

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Certain business, which got — could not be completed in Q4 because of the delivery issues, so that revenue is postponed to Q1, right?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [94]

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Q2, Q2 defense revenue, you’re talking about?

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Nitin Gandhi, [95]

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Yes, correct. So what is the number…

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [96]

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Yes, that is the Q2.

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Nitin Gandhi, [97]

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Okay. So how much is that figure?

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Suresh Menon, Solar Industries India Limited – Executive Director [98]

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That figure is roughly around…

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [99]

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Yes, we’ll share it. You put the mail, we’ll share it there how much is the figure.

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Operator [100]

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(Operator Instructions) The next question is from the line of Bharat Shah from ASK Investment.

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Bharat Shah, ASK Investment Managers Limited – Executive Director [101]

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Manish, if we look at our business in 3 parts, relatively more short term, like consumables, whether in mining, roads, housing, et cetera over the more medium-term, tender-driven kind of business of Coal India and others or a long-term business like defense, which has a longer sales cycle and a greater amount of Audio Gap] over a period of time, how would you view overall, on a long-term basis, likely shape of business into these 3 parts, so that there is a short-term one, which is kicking in all the time, and it is reasonably replicable and quicker, more medium-term part as well, which is work-in-progress and long-term which is even a longer work-in-progress, how would you like to visualize?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [102]

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You have rightly analyzed it. Basically, if you divide our business into these 3 kind of business portfolios, first is the mining. So we see that mining growth will be there in India because of the recent policy changes announced by the Government of India, where private players will be allowed to participate in the mining. So that will definitely create a situation where efficient suppliers in each area will get more reward compared to a normal situation, which we have seen in last 20, 25 years, where everybody gets the order despite of the — despite of various issues. So in future, the competitive players who will offer a best techno-commercial offer will get more volume. So that will give us an advantage.

Second, sir, you said about the road and infrastructure-related products or products towards that segment. So we believe that this side, we expect that once the current phase is over, from October, November onwards, we will see a spurt in demand. And we are well positioned. We are also working on taking some strategic initiative to enhance our footprint in Indian market also. So it’s strategically very important for us.

Third is the overseas market. Our overseas — our foray into South Africa and Australia was to enhance our market presence and market perception about Solar in a global market. And although the results from these territories were quite lower than our expectation, we struggled a lot, but I would like to share that the situation which is emerging for us in those markets is quite positive, and it is in line with our strategic intent.

And defense is, yes, it’s a long-term business like — those products that takes long term. But if you look at the delays in starting the releasing of RFPs and then finalizing, so, sir, over the years, there was no policy in place to buy ammunition from private sector, first. Second, the real push was not there. But with the recent policy in place, and push is there, where any import of ammunition, if it is INR 200 crore plus, the government has straightforwardly announced that they will not import any ammunition, if it is beyond this limit. It will open a gate of opportunities for players like us. There are various items required by the services, which are smaller in nature, even INR 40 crores, INR 50 crores, INR 70 crores, and the ammunition stocks are also low if we see the reports which are available in public domain.

So if we combine all these scenarios, we believe that housing, infra, mining and overseas will do very well. Defense will start now, and it will give us a good boost to our bottom line because the CapEx, the major CapEx and the time which we have spent on absorption of technologies, qualifying the product is already over. But going forward, we will add more product portfolios. And that will take time.

So going forward, we believe that 20% of revenues should come from defense in future. However, since defense is more CapEx-oriented, long gestation, so definitely, EBITDA margins will be better than the explosives. And the overseas in India market will be well spread, so we can expect that 50% will be from India, 50% from the overseas. And rest all will come from defense.

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Operator [103]

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

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [104]

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Sir, the question is on the families’ arrangement which you mentioned that — between Mr. Kailashchandra and the other family members. So those shareholdings will still remain with them. Is there any arrangement between the family members that you guys have a First Right of Refusal in case of any other family members want to sell their shares?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [105]

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As far as this matter is concerned, I would like to share that there is a family settlement deed is there. And every transaction arise out of this will be within that only.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [106]

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Sorry, sir. Can you please repeat again, sir?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [107]

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I’m saying that any transactions related to shareholders are concerned, promoter shareholders, it will be dealt within the family settlement — as per the family settlement deed only.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division – Research Analyst [108]

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Okay. So family members only has the First Right of Refusal (technical difficulty) any exchange of shares.

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [109]

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Yes.

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Operator [110]

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I would now like to hand the conference over to Mr. Manish Mahawar for closing comments.

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Manish Mahawar, Antique Stockbroking Ltd., Research Division – VP [111]

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Yes. Thank you, Aisha. On behalf of Antique Stockbroking, 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 any closing comments, sir?

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Manish Satyanarayan Nuwal, Solar Industries India Limited – CEO, MD & Executive Director [112]

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So on behalf of Solar Industries India Limited, we would like to thank all the valued stakeholders for listing to us patiently and giving us their suggestions, feedback and thought process. We will definitely work in the direction to ensure that the value of stakeholders is enhanced. Thank you so much.

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Operator [113]

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Thank you. On behalf of Antique Stockbroking Limited, that concludes today’s conference call. Thank you for joining us, and you may now disconnect your lines.