Solar Industries: Reason Behind Rapid Growth of Explosive Industry

The industrial explosives market is expected to grow annually and reach a value of more than US$ 16 billion by 2028. Mint reports that the explosives market in India is expanding quickly, with 500,000 tonnes of explosives used annually and projected to reach $159.2 million by 2028.

Solar Industries: Reason Behind Rapid Growth of Explosive Industry

Solar Industries: The industrial explosives market is expected to grow annually and reach a value of more than US$ 16 billion by 2028. Mint reports that the explosives market in India is expanding quickly, with 500,000 tonnes of explosives used annually and projected to reach $159.2 million by 2028.

The mining, construction, and infrastructure sectors have witnessed a notable increase in demand, which has resulted in a robust growth for the explosive industry. In these sectors, explosives are crucial and are required for a wide range of development initiatives.

The industry’s growth has also been accelerated by its entry into space and defence projects. The industry’s overall growth is significantly influenced by these critical sectors’ growing reliance on explosive technologies. Let’s focus on Solar Industries India Ltd., a specific company in the explosives manufacturing sector, given the industry’s expanding prospects.

Solar Industries is a prominent producer of packaged explosives, bulk explosives, and initiating systems. As of Q3 of FY24, the company’s total order book was valued at Rs. 4,802 crore. The last two years saw a fantastic 200% return on the company’s stock. Investors use stock research reports to analyse the company’s fundamentals and make informed decisions on whether to buy, sell, or hold the stocks. Let’s learn more about Solar Industries’ operations.

Solar Industries India Ltd.

Business Overview

Solar Industries India Limited was established in 1995 and has grown from a regional manufacturer to a major player in the industrial explosives market worldwide. They have built one of the most sophisticated ammunition facilities in the world. The company is the first in India to produce more than 300,000 metric tons of explosives annually.

Solar Industries India Limited extended its activities into the defence industry during the 2009–10 fiscal year. Within the defence sector, the company expanded its manufacturing capabilities to include high-energy explosives, delivery systems, ammunition filling, and pyros fuses.

In addition, Solar Industries India Limited has expanded its manufacturing footprint internationally, setting up shop in Turkey, Tanzania, Indonesia, South Africa, Ghana, Zambia, Nigeria, and Zambia. Furthermore, its performance is reflected in key financial ratios, providing investors with valuable insights into its financial health and growth prospects.

Product-Related Efficiency

The company produces a full line of industrial explosives, high-energy materials for defence applications, and explosive initiating devices. Let’s review their main offerings.

Commercial Detonators

With more than 40 years of experience, Solar Industries is one of India’s biggest producers of industrial explosives. Detonators, cast boosters, and bulk explosives used in infrastructure and mining projects are examples of industrial explosives.

With more than six production facilities outfitted with cutting-edge automated technology, Solar is a well-known brand among the nation’s public and private mining enterprises.

Devices for Initiating Explosions

Solar Industries specialises in delays that are widely used in a variety of industries as well as explosives-initiating devices, such as electronic and non-electric detonators, that set off detonation sequences.

With a strong emphasis on research and development, Solar has released a number of patents, such as the non-electric trunkline delay detonators called Smart Shot PlusTM, which offer weather-resistant and programmable delays for improved blasting efficiency. Its wide range meets needs in the areas of mining, building roads, hydroelectric projects, and seismic exploration.

Military Goods

With India’s defence capabilities growing, Solar Industries has ventured into producing specialised defence goods like explosive cartridges, warheads, aerial bombs, hand grenades, and torpedoes. Recently, the company and DRDO teamed up to produce Pinaka multi-barrel rocket launchers.

Explosives is Solar’s largest product line contributing 75-80% of total revenues. This segment has seen a slight expansion in share from 76% to 78% between FY22 and FY23. Initiating Systems which would comprise items enabling detonation sequence has declined from 15% revenue share in FY22 to 13% in FY23. Defence products revenue contribution has remained stable at 9% over this period.

Solar Industries has witnessed vigorous revenue growth in each of the past 3 years, with an increase from INR 2,237 crore in FY20 to over INR 6,900 crore in FY23 indicating substantial expansion across its explosives and defence products. Solar Industries has performed excellently over the last 4 years reflected by a 3x Revenue growth and 2x Profit growth

Net Profit has also witnessed consistent growth during this period, more than doubling from INR 279 crore in FY20 to over INR 811 crore in FY23 showing strong margin performance. Return of Capital Employed (ROCE) has also increased markedly from 19% in FY20 to 35% in FY23 highlighting efficient capital utilisation to drive profitability.

Key growth drivers of the company

1. Market Dominance

As one of the biggest producers and exporters of explosives and initiating systems in India, Solar Industries India Limited commands a substantial market share of roughly 24% in the explosives sector.

2. Strong order book

As of December 2023, the company had a healthy order book of Rs. 4,802 crore, which shows revenue visibility. This includes directives from the Defense Department and Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL).

3. Superior Quality Production

The largest single-location cartridge plant in the world is located at the company’s manufacturing facility in Nagpur. With its cutting-edge facilities, Solar Industries is positioned as a major player with the capacity to create a wide range of goods and create unique solutions.

4. Integration of Raw Materials

With the exception of ammonium nitrate, Solar Industries is able to sustain a competitive edge by producing most of its raw materials in-house. This strategy reduces expenses, guarantees quality control, and helps to maintain a steady operating margin that has hovered around 18–21% over the previous five fiscal years through 2023.

5. Closeness to Mining Areas

Within a 50–60 kilometre radius of important mining regions are the strategically placed bulk explosive manufacturing units. This close proximity improves operational efficiency and permits the business to use contract price escalation clauses to pass on to customers any changes in raw material prices.

Prospects for the future

By increasing its presence in new foreign markets, Solar Industries hopes to grow internationally and significantly increase its overall foreign revenue. To spur growth, the company intends to take on cutting-edge projects like counter-drone technologies and high-mobility rocket systems. Additionally, it has made strategic investments in UAV and space startups Skyroot and ZMotion.

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