Some of the Queries raised based on the FY11 concall of Solar - Management was not feeling comfortable about sharing the capacity at Turkey. I don't know why?
Yes.. that pinched me too... but I think one of the reasons might be not disclosing much to competition (I have experienced this in case of PI Ind. wherein they are refraining to talk rgdg. Nominee's revenues publicly whereas all other cos. including Dhanuka and Rallis share the info in public domain)... ----------------------------------------------------- - I heard Nigeria they have done 17Cr. Is it right? ----------------------------------------------------------- Its 70 cr. that they told....rgdg. which I have explained you in my previous reply to you.... ---------------------------------------------------------------------- - Tanzania : when will they start manufacturing? ----------------------------------------------------------------------- Very uncertain as clearances are not received....It is safe to assume that they might drop the plan there ------------------------------------------------------------------- - They want to spend around 200cr for capex during next two years. He says all these would be from the internal accruals. Do they have so much of cashflow? ---------------------------------------------------------------------- Yes.... they can with a mix of debt and internal accruals... last fiscal they had already incurred CAPEX of around 95 cr. and managed it very well... They are just utilising 50 % of the bank limits they have and so they are getting very high rating from CRISIL...... This year expected net has to be 100 cr. + .... ---------------------------------------------------------- - They have already spent 97Cr on the two blocks. While they r not sure when they will start Madanpur, Bhatgaon is expected in another two years. Any idea with which company they have the tie up? --------------------------------------------------------------- CMDC and SMS Infrastructure ---------------------------------------------------- - Is their entire business is on tender basis like even to private miners and others? ----------------------------------------------------- Don't think so as CIL is a PSU so its a compulsion.... But, in any case private guys will go with whom will offer best quality at reasonable price... ----------------------------------------------------------- - Of the competitors names you had mentioned, anyone has better margins than Solar? If not what makes Solar to have such better margins? --------------------------------------------------------- Orica has better margins ------------------------------------------------------------- - Don't you think, HDFC Securities for a change has given very aggressive targets? ---------------------------------------------------------- No... Still I feel KR Choksey and HDFC both are underplaying topline growth of FY12.... Let Q2FY12 pass...... ------------------------------------------------ -Do they have expertise in the mining? OR since they have JV, they will supply explosives, rest will b done by the JV partners? AND - Isn't it something similar to diworsification? ------------------------------------------------------------ Ans.- No...They don't have core expertise in mining......... They will supply explosives as well as do financial investment (which is atpresent done via loans to JV) and will have specific % interest in the produce..... Now, ... you see this is not atall "diworsification" but a forward integration... The term "Diworsification" is apt for a foray into an unrelated area of core expertise but this Coal Mining is a related area of the company's core business and if it succeds in this it will be one of the few cos. in India with complete integrated operations in mining (although this is many years away as for it it will have to faray into other areas too related to mining).... You should remeber that Coal sector contributes alost 70 % to the operational market demand...... Also, this might be a foray to acquire expertise in this area as internationally, the companies in explosives segment normally offer end-to-end solutions for mining including mining consultation and core minining... If this is so then Solar could some years down the line pitch itself, nationally and internationally, as an end-to-end products and solutions provider in minining segment which will open up huge market with great margins for Solar.... Lastly, if this expansion would have been done by budening balance sheet or raising some form of significant equity, it could have been risky, but company has played very safe and invested the generated money into forward integration which is good for future growth and stability of the company... ---------------------------------------------------------------- - They hardly make money in trading. Then any particular reasons for doing it? -------------------------------------------------------------------- Ans. - They need to trade AN, the key raw material, to ensure stability of operations as well as enjoy economies of scale and its the compulsion..... Once Deepak Nitrite's AN plant is operational by next year the import dependency might be less...... ------------------------------------------------ - Where would you see the company three years from now? ---------------------------------------------- Ans.- This company is in a growing operational segment which is still nascent and has huge unpenetrated market as well as scope of huge market expansion on domestic front.... Even in the turbulent periods this company has shown reselience and maintained profitable operations while maintaing leadeship position.... This company has succesfully carried out overseas expansion and is the largest explosives exporter of India......Over these many years, company has grown swiftly without any sort of equity issuance or debt pile-up...... This is the reason why my tag-line of the research note says, Its the Rare Combination of Growth with a Conservative Approach towards leverage which, if maintained for few more years, will take the company to the next level on onternational front..... 3 Years down the line I see Solar maintaining domestic leadership position (on an expanded market) and see its name getting recognised internationaly as a player to reckon with in mining industry..... Key monitorable will be offcourse, for the near term, Q2Fy12, for the medium term, FY12 and events like developments with rgds. to its coal blocks and defense sector strategy which should be charted out by FY14......Financially, EBITDA Margins and topline growth are key monitorable.... Rgds. On Aug 16, 10:28 am, mahesh <[email protected]> wrote: > One Knowledgable member from another forum raised some interesting > queries onSolarand I am posting my replies to it below : > > Please find replies in bold... > > ---------------------------------------- > 1) Any where have they mentioned the potential in those foreign > countries (like Namibia, Turkey & Zambia where they have opening/ > opened factories)? > -------------------------------------------------- > > Ans.- In Nigeria they have indicated potential market-size of 200 cr. > + of which they do around 70 cr. (they had acquired distribution co. > there so the sales don't reflect only from nigeria)... In Zambia the > potential market is huge as its the main mining area and new mines > are > being set-up there... At present they are doing there only 14 cr..... > Rgdg. FY12 they have indicated 40 cr. from Zambia, and 100 cr. from > Nigeria. Rgdg. Tanzania they have not indicated anything.... > > ---------------------------------------- > 2) How many years they may need to reach 80 to 85% of capacity > utilisation at these places? > ----------------------------------- > > It depends on many factors, but it might take roughly 1.5-2 > years....Also, its safe to assume that such high utilisation might > not > be feasible as explosives is a different business and depends on > mining activities which itself depends on various factors like > monsoons, etc., > > ------------------------------------------- > 3) Will they have same type of margins in those foreign countries > also? > > ------------------------------------------ > No... Margins are better, stable in upwards of 18 % + (they indicated > till 20 % for zambia in FY12) as compared to domestic 17 % +. Also, > here you need to understand one thing that margins will be much > superior atleast for coming 2-3 years in Africa as there is least > formidable competition there andSolar'smanagement was proactive and > was right in judging the future potential and so will have first > mover > advantage.... Orica, the main competitor ofSolarin India has > followedSolar'sfootsteps and is now in the process of setting up > 10000 MT plant in Zambia... For this plant it will take few years to > come up but the plant ofSolarin Zambia which started in 2010 is now > fully stabilised and is ready to increase utilisation levels from > this > year , i.e. FY12. > > --------------------------------------------------- > 4) If local demand does not grow, then it may be difficult for the > exports to add to this local shortage? > -------------------------------------------------------- > Agreed..... But I can't understand what you are thinking.... Are we > going to come to ground-level zero on infra space..... Its > impossible.... Also, the thing which you are seeing in urban area, > the > picture is totally different in rural area.... You just see there the > construction projects going on... the infra initiatives of Gujarat & > Bihar which are slowly reaching rural area... Here , I am not talking > about just from the news items but with personal experience.... I > have > one servant from a far away village to patna, now he doesn't have to > go via weak roads, perfect concrete road is in place and is getting > constructed for reaching every villages, near his village a big power > plant is being set-up, there is a labour shortage there and wages > have > shot up and so have his land prices... and this I am talking about > just latest one month before experience when he came back from native > place.....Similarly, when I researched for PI and interacted with > ground-level knowlege-bearing people of villages in Gujarat, a > complete transformation is taking place and there are hoards of infra > initiatives lined up..... > > Apart from these experiences, lets talk about figures..... Coal > industry which consumes 70 % of explosives, lets talk about it...... > India has the fourth largest coal reserves after US, Russia and > China.... India's domestic demad for Coal is rising at the rate of 11 > % p.a., India's coal imports are likely to rise more than 50 % in > 2011-12 while domestic production of coal which was forecast to grow > by 7-8 %, is scaled down to grow at 3-4 % for 2011-12 becuase of > delay > in clearnces....Now, a country with 4th largest reserves has to > suffice its almost 20 % domestic demand by inports, its highly > unlikely....Govt. will step-up and issue clearances soon so that coal > output can be increased.....Even if it doesn't, a 3-4 % rise in coal > production (mining) could very well mean a 10 % growth for explosives > industry, specificallySolar... and that is what management has > indicated by garnering 8-10 % growth in coal india tender for 11-12. > > You see, to look at other way round.... India is the third largest > Asian economy which is growing at 7-8 % and Coal accounts for more > than half of the power generation of India.... Hence, coal production > has to go up which will hugely benefit explosives industry... > > Now, take the example of Steel, production of Steel has increased > from > 65 MTPA to 80 MTPA in 2010-11 and is forecast to touch 120 MTPA by > 2012-13... This forecast is made just last week....Steel requires > Iron > Ore which in turn again requires explosives..... To just clarify > here, > karnataka mining ban for iron ore should not hugely affectSolaras > it > doesn't have operations there. > > Now, to come to Cement, India is the second largest Cement producing > country whose production has increased to 315 MT from 300 MT this > year.... Out of the 137 large plants and 365 odd small cement plants > that India has, only large plants themselves employ 1,20,000 > people......Now, can a govt. afford slowdown here... a clear no..... > This is the reason why in a recently published report in which all > the > leading cement cos. were partcipants, they have forecast CAGR of 12 % > for cement production in the period 2011-12 till 2013-14... Now, > Cement requires limestone and limestone requires explosives... > > The exact qty. of explosives required each for coal, limestone and > iron ore are given in my research note...... > > Hence, what I want to say here is that domestic demand can't die down > completely andSolaris the only company from India which has shown > reselience and has grown despite all odds by proactive strategy.... > 2008 meltdown also didn't affect this co. which can be seen from the > numbers posted by the co. since last many years and on first signs of > slowdown in domestic demand co. ventured overseas to sustain the high > growth rate achieved by the co.... > > -------------------------------- > 5) Any idea what would be the difference between cartridges and bulk > explosives? > -------------------------------------------------- > > Bulk Explosives, as the name suggests, are high-grade explosives used > for explosion in large open cast mines whereas Cartrdge Explosives > are > Small and Large diameter packaged explosives which are used for small > open cast mines, underground mines and infra projects..... Margins > are better in later... > > --------------------------------------------------- > 6) SIL's growth in future purely depends on Coal, Cement, Steel & > Road > sectors performance? > ------------------------------------------------- > Yes... but not the performance but the core growth... > > ----------------------------------------------------- > 7) Who are the major competitors? What prevents their customers from > shifting to them? > ------------------------------------------------------- > As mentioned in my research note also..... its Orica, Gulf, IBP, > Keltech and Premier..... > > First and foremost the growing market-size, capacities ofSolar, > quality of products as also reliability and ability to deliver which > is crucial... > > Also, here I think you have not focussed on details of my research > note in which i have given positioning ofSolarin each of the sub- > segments of industry... will touch on it in your query no. 10. > > ----------------------- > 8) Other than licenses and regulatory approvals, is there any entry > barriers for others to enter? > ----------------------------------------- > --- Industrial License Required > --- Home Ministry Clearnce Rqd. > --- IB Clearance Rqd. Rgdg. Safety of Location > --- NoC rqd. From District Magistrate > --- Police, PWD and Grampanchayat Clearance Rqd. > --- License rqd. From Chief Controller of Explosives, GOI > --- DGMS permission rqd. For underground use > > 10) Any idea how much market share they have in India? > > Solar-- ~22 % > Orica -- ~ 19 % > Gulf -- ~ 13 % > IBP -- ~5 % > Keltech -- ~5% > Premier -- ~4% > > ------------------------------------------------- > 11) Are they in a position to pass on the increase in prices (even > may > be a after a lag) > > -------------------------------------------------- > Yes... they pass on price on a quarterly lag.... every contract they > enter into provide for that.... > > ----------------------------------------------- > 12) Coal India which is a PSU is their main customer giving almost > 25% > of their business. Is their contracts with them allow SIL to pass on > the increase in prices? > > Yes since last 2 years the contract provides for a quarterly revision > in prices..... > > ---------------------------- > 13) While it used to be quoting more than 20 PE, but after 2008 > crash, > it has been quoting between 18.5 to 5.65 forward PE. Assuming they > will do Rs.50/-, at CMP of Rs.745/-, it is already at 15forward PE > Any > PE expansion is possible? > ----------------------------------------------- > > Well... what happens is, in this markets you hardly find quality with > growth and with both of these if we find reasonable scale then its > the > opportunity we need to latch on..... Thats why I was maintaing since > last 8 months or so that PI is the safest pick in the market as it > offered excellent quality with tremendous growth coupled with > reasonable scale.... It had a unique business model and it operated > at > high margins and so even today I will say that if I had to invest I > will first prefer PI and ... > > read more » -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
