Solar Industries India Ltd Management Discussions.

Economic Overview

Global Economy

One year ago economic activity was accelerating in almost all regions of the world and the global economy was projected to grow at 3.9% in 2018 and 2019.

One year later, much has changed: the escalation of US–China trade tensions, macroeconomic stress in Argentina and Turkey, disruptions to the auto sector in Germany, tighter credit policies in China, and financial tightening alongside the normalization of monetary policy in the larger advanced economies have all contributed to a significantly weakened global expansion, especially in the second half of 2018. With this weakness expected to persist into the first half of 2019, the World Economic Outlook (WEO) projects a decline in growth in 2019 for 70% of the global economies. Global growth, which peaked at close to 4% in 2017, softened to 3.6% in 2018, and is projected to decline further to 3.3% in 2019. Although a 3.3% global expansion is still reasonable, the outlook for many countries is very challenging, with considerable uncertainties in the short term, especially as advanced economy growth rates converge toward their modest long-term potential.

The global economy is facing a confluence of risks, which could severely disrupt economic activity and inflict significant damage on longer-term development prospects. These risks include an escalation of trade disputes, an abrupt tightening of global financial conditions, and intensifying climate risks.

In many developed countries, growth rates have risen close to their potential, while unemployment rates have dropped to historical lows. Among the developing economies, the East and South Asia regions remain on a relatively strong growth trajectory, amid robust domestic demand conditions. Beneath the strong global headline figures, however, economic progress has been highly uneven across regions. Despite an improvement in growth prospects at the global level, several large developing countries saw a decline in per capita income in 2018. Even among the economies that are experiencing strong per capita income growth, economic activity is often driven by core industrial and urban regions, leaving peripheral and rural areas behind. While economic activity in the commodity-exporting countries, notably fuel exporters, is gradually recovering, growth remains susceptible to volatile commodity prices.

Indian Economy

Indias GDP is expected to reacRs 7.5% in FY20 and 7.7% in FY21. The expected growth is reflective of strong demand for goods and services and increasing industrial activity among the eight core sectors: coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity.

India was ranked 77th out of 190 countries that are included on the World Banks Ease of Doing Business Index for 2019. India aims to be the third largest consumer economy as its consumption may triple to US$ 5 trillion by 2024, owing to shift in consumer behaviour and expenditure pattern.

(Source: : NITI Aayog)

Indias labour force is expected to toucRs 160-170 million by 2020, based on rate of population growth, increased labour force participation, and higher education enrolment, among other factors. India has retained its position as the third largest startup base in the world with over 4,750 technology start-ups.

In MarcRs 2019, the Indian government has come up with a new National Mineral Policy (NMP) that replaced the earlier 2008 Policy. The latest mineral policy, which pertains to non-coal and non-fuel minerals, says that a major outcome expected from the policy proposals is to "increase the production of major minerals by 200% in 7 years".

Despite significant achievements in infrastructure development, during last few years rapid infrastructure development in key sectors such as transport and power infrastructure remain important priorities. Continuing to drive the transformation of Indias industrial sector, ‘Make in India strategy will also be an important initiative, in order to improve manufacturing sector output growth and generate stronger employment growth.

Indias defence sector has been growing at a modest pace for the past few years. Modernisation of the armed forces and indigenization of manufacturing have emerged as focus areas. The segment has receiving the much-needed push under the Make in India programme. The concept of import substitution is being gradually accepted by stakeholders. This is an opportune time to embark upon a new phase of self-reliance in the sector by manufacturing technologically advanced equipment within India.

Industry Overview

Global Industrial Explosives Industry

Global Mining Explosives market size will increase to 16800 Million US$ by 2025, from 13900 Million US$ in 2018, at a CAGR of 2.4% during the forecast period. The amount of industrial explosives used in mining is expected to increase, owing to the rise in the demand for mineral extraction across the globe, thus fueling the overall growth of the industrial explosives market.

The mining segment dominated the global market in 2018, accounting for a market share of over 80%, and is expected to maintain this trend due to increasing mineral extraction and demand for rare earth metals such as gold and silver. Moreover, coal, being the most overrated fuel, is another commodity accounting for the rapid growth of mining industry across various regions. Moreover, construction segment is projected to exhibit significant growth rate during the forecast period. The adoption of industrial explosives for tunneling and highway construction is driven by ease of availability of industrial explosives and increasing awareness among construction professionals for using industrial explosives as an alternative for mechanical drills to save cost, money, and time.

Increase in mineral extraction activities along with increasing inclination of governments of various economies towards enhancing the overall mineral extraction and production capacities to boost their relative GDPs in the competitive global market has fueled the demand for industrial explosives. In addition, increasing demand for industrial explosives in open pit mining due to rising demand for various building materials and construction stones, especially from Europe, Latin America, and Asia-Pacific is another key factor propelling the growth of the global industrial explosives market.

The global mining explosives market is segmented into five regions: Asia Pacific, North America, Europe, Latin America, and the Middle East & Africa.

Asia Pacific accounts for the largest market share both in terms of value and volume owing to the increasing mining activities in countries such as China, India, and Japan. The demand for mining chemicals is increasing due to the necessity of water treatment in the region. The use of these chemicals in limestone grinding for cement production is likely to drive the global market over the forecast period 2019-2023.

North America is the second largest region in the global mining explosives market on account of the high demand for mining chemicals for limestone grinding in the U.S. The increasing demand for battery metals in electric cars is likely to fuel the demand for mining chemicals in the coming years.

The growing mining sector in Eastern European regions such as Russia, Ukraine, Bulgaria, and others is anticipated to propel the market growth in the European region. The African mining industry is expected to witness a significant growth being the largest producers and exporters of platinum, copper, iron ore, uranium, and others..

Indian Industrial Explosives Industry

The industrial explosives market is on a continuous rise due to rapid increase in mining and infrastructure development. Demand for industrial explosives is directly correlated to mining activity. Within mining, coal is the largest contributor, accounting for about 80% of the mining sectors explosives usage. Further, the growth in the market accelerated from FY 2019, due to the efforts to increase in domestic coal production. The rapid phase of infrastructure development particularly in road sector, ports & highways and housing have shown greater demand for steel, cement and stone aggregate.

Anticipated growth in coal-fired power generation is also predicted to drive growth in the consumption of industrial explosives. Driven by growth in coal and iron ore sectors, the Indian Explosives Industry is anticipated to reach around 1.5 million tons by FY 2020 growing at a CAGR of 7.9%. Coal mining sector is likely to play a vital role in providing boost to the explosives market with an expected 8.0% CAGR during FY 2019-22 in coal production on the back of factors such as growth in coal-based power generation and announcement of steel policy. Further, increase in iron ore mining in 3 states namely, Chhattisgarh, Orissa and Jharkhand will also provide impetus to the industry.

(Source: Motilal Oswal Research report, Magzter)

Market drivers

Increase in demand for minerals and metals: Rise in demand for earth minerals such as coal, iron ore, limestone, bauxite etc. remain drivers for increase in demand for industrial explosives. The mining sector in India continues to be the largest consumer of explosives and accounts for 80% of the total explosives consumed in India.

The Mineral Industry has shown healthy growth in 2018-19 with two major Coal Companies – Coal India Limited registering a growth of 7% and Singareni Collieries Company Limited registering a growth of 4% over previous year and both these coal companies are poised to achieve a growth of 8% in the coming year 2019-20.

The increased production in coal was facilitated by major decisions taken by the Government on opening of new railway lines in Chhattisgarh, Orissa and Jharkhand and increase in the availability of rakes to Coal Industry which on average increased to 425/day in 2018-19 compared to 387/day in 2017-18 for evacuation of coal. The auctioning of coal blocks which is yet to be streamlined and allow Captive mines to sell 25% of their produce in free market will provide added impetus to the coal mining industry and will reduce the importofcoalfromabout234MillionTons presently which is a drain of over RS 1,35,000 Crores in foreign exchange.

Coal India produced 607 Million Tons in 2018-19 compared to 567 Million Tons in 2017-18 and have taken a target of 655 Million Tons in 2019-20. Similarly, Singareni Collieries which has produced 64.4 Million Tons has taken a target of 70 Million Tons for 2019-20. The Captive Coal Mines are expected to produce over 50 Million Tons. Despite growth in the non-conventional power generation, coal will be the dominant fuel for the power sector considering the countrys rising demand for energy with increase in consumption.

(Source: Business Standard)

Construction Industry: One of the main drivers which leads to increase in demand for explosives, construction industry is growing at the backdrop of increased demand in housing, road construction, ports development and irrigation projects. In the last four years, according to NHAI, road construction has been increasing every year and in 2018-19 achieved 10,800 KMs of four-laning. In the Interim Budget of 2019-20, RS 1.97 LakRs Crores have been allocated for roads, highways, ports etc. The budget for highways is estimated at RS 83,000 Crores - 6% higher than previous year, generating adequate revenue for NHAI. The budget for building rural roads have also been increased by 22% which will boost the road construction activity substantially and increase the demand for stone aggregate quarry. At present, only 1.2 Lakh KMs of four-lane out of 57.6 Lakh KMs have been built. The Government has avowed to increase the four-laning to 2 Lakh KMs by 2022-23. This will generate a enhanced demand, particularly for packaged explosives.

Housing: Since 2014-18 1.54 Crores houses have been built under Prime Minister Awas yojana (Statement of Finance Ministry in Interim budget). As indicated in the Interim budget, a number of measures have been taken to boost the sector, like removal of tax on Notional Rent on second house, tax benefits, capital gains tax to be split in to two properties, tax relief on unsold property and lastly Income tax relief for those earning up to RS 5 Lakhs. All these will boost the construction of houses and aid to the Governments plans of providing housing to all. This will in turn create a greater demand for cement, steel and stone aggregate. The increased production in Coal, Steel & Cement sector backed by increase in road construction activity will further boost the sales of packaged explosives.


The Industrial Explosives market worldwide has been witnessing a growth driven by an increase in mining activities as seen in developing countries. However, the global coal demand in the next 5 years is expected to be stable.. The contribution of coal sector to total energy production is expected to fall from 27% to 25% mainly due to the growth of renewable and natural gas energy.

The Demand for Iron Ore, Bauxite Limestone and other is expected to grow.

The explosives industry which largely depends on the mining industry for about 80% of its production is expected to see a major shift in mining industry adopting innovative technologies and, environment-friendly measures. This means the explosives industry players would also need to adapt and embrace, technology and help produce products that compliment the mineral production in a eco-friendly manner.

Indian Defence sector overview

With a focus on modernization of the Defence sector, the budgetary allocation in the interim budget increased by 6.87% to H 3.18 lakhs crores, an all-time high, for FY 2019-20. The increase in the allocation was on account of strengthening the security on borders of the Country. Since the implementation of Make in India initiative, the ministry of defence (MoD) has undertaken initiatives to promote indigenous defence manufacturing. These initiatives includes defence procurement process, industrial licensing, foreign direct investment, exports and innovation. To further give a boost to the sector, the MoD is planning to set up two defence industrial corridors. It has even circulated a draft defence production policy that aims at increasing defence production to RS 1,70,000 crore by 2025. With all the initiatives on track, the sector is expected to grow profoundly in short and medium term.

Product Portfolio

We are one of the leading players in the sector of Commercial and Defence Explosives with a vast marketing network across the globe.

We have developed a high-end portfolio of products in the area of Industrial Explosives and manufacturing of ammunition for Defence application:

Industrial Explosives:

Industrial explosives comprises of

• Bulk Explosives

• Packaged Explosives

• Initiating Systems.

Defence Products:

• High Energy Materials (HMX, RDX,

TNT & Compounds)

• Composite Propellants for

(Pinaka, Akash, Brahmos etc)

• Filling of Ammunitions

• Fuses, pyros and Ignitiors

• Rocket Integration

Risk Mitigation

At Solar, the risk management framework sets guidelines for operations so that the Company can continue on the path of sustainable change. These risks are monitored for changes in their exposure and are reported during the course of year.

Financial highlights
( Rs in Crores)
Particulars 2018-19 2017-18
Turnover 2461.57 1916.12
EBIDTA 516.66 423.65
Profit before tax 407.9 339.64
Profit after tax 261.61 220.55
EBIDTA margin (%) 20.99 22.11
Earnings per share (H) 28.91 24.37
Interest cover 9.18 11.38
Gross block 1382.56 1134.8
Net worth 1238.33 1083.86
Book value per share (H) 136.84 119.76
Return on capital employed (%) 29.48 26.20
Return on Equity (%) 21.13 20.35
Enterprise Value 10294.49 10200.83
Debt to Equity Ratio 0.48 0.44

Human Resource

The Company recognises its people as a long-term critical asset. It encourage to build an entrepreneurial culture, enabling the employees to think beyond the set targets. Solar Industries has always lived by its people philosophy, which centres around talent acquisition, training and development, leadership development, maintaining healthy employee relations, emphasis on compliances and on productivity improvement. In order to achieve these goals, the Company regularly undertakes training and development programmes, engages employees in various activities and encourages talent through mentoring and entrusting them with responsible positions.

Internal Control Systems and their Adequacy

Solar Group has optimal internal control systems and procedures in place to handle all its business processes. Solar Group has clearly defined roles and responsibilities for all managerial positions. Its financial parameters are monitored and controlled effectively through its SAP ERP software system. During the year the Company has upgraded its SAP systems to S4 Hana.

The Companys internal control system is commensurate with its size, scale and complexities of its operations.

The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same. The Company has a robust Management Information System, which is an integral part of the control mechanism as a result of which Company is strengthening further.

The Audit Committee of the Board of Directors, Statutory Auditors and the Business Heads are periodically apprised Audit plays a key role in providing assurance to the Board actions taken by the management are presented to the Audit Committee of the Board. The Company has identified inherent reporting risks for each major element in the financial statements and put in place controls to mitigate the same. These risks and the mitigation controls are revisited periodically in the light of changes in business, IT systems, regulations and internal policies. Based on its evaluation (as defined in Section 177 of Companies Act 2013 and Regulation 18 of SEBI Regulations, 2015), the audit committee has concluded that, as of March 31, 2019, internal financial controls were adequate and operating effectively.


In the year gone by, the company delivered robust performance with the help of strong revenue growth across all its business verticals despite facing headwinds in global environment. Moving ahead in the right direction as per its vision, the company expects a growth of over 20% in its revenues and profits in FY2020. This growth is expected from industrial explosive and defence products from domestic and international markets.

Cautionary statement

This document contains statements about expectedfutureevents,financialandoperating results of Solar Industries India Limited, which are forward looking. By their nature, forward looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of Solar Industries India Limiteds Annual Report, 2018-19.