Hold Solar Industries India, target Rs 1080: ICICI Direct

ICICI Direct has a hold call on Solar Industries India Ltd. with a target price of Rs 1080. The current market price of Solar Industries India Ltd. is Rs 1130. Time period given by the analyst is a year when Solar Industries India Ltd. price can reach the defined target.

Solar Industries India Ltd., incorporated in 1995, is a mid-cap chemicals company with a market cap of Rs 9873.82 crore.

Investment rational by ICICI DirectGoing forward, we expect all key segments – bulk, cartridge and overseas & exports to post a healthy performance in FY18-20E. We expect these segments to report CAGR (value growth) of 13.6%, 15.7% and 22%, respectively, in FY18-20E. We also expect the defence segment to pick up on the back of a strong order book of Rs 255 crore (for high energy materials like HMX, RDX & TNT, ammunitions, fuses, pyros and ignitors). Healthy visibility in the defence business is likely to help SIL cushion
margin headwinds from its domestic business. To cater to its growing segments, SIL has executed healthy capex of Rs 215 crore in FY18.

To continue its growth momentum, SIL has also planned a capex of ~Rs 300 crore in FY19E. Accordingly, we expect SIL to post healthy revenue, EBITDA and PAT CAGR of 17.1%, 17.7% and 17.6%, respectively, in FY18-20E. SIL is currently quoting at rich valuation of ~31x of FY20E. We believe this has already been priced in the upcoming superior performance of the company. Accordingly, we value the company at 32x FY20E EPS of Rs 33.7 to arrive at a target price of Rs 1080. We maintain HOLD recommendation on the company.