Solar Explosives

Solar Explosives

Market recovers amid choppy trade

Bargain-hunting after a steep fall, aided the bourses in what turned out to be a day of immense volatility. Buying was rampant in telecom, cement, banking shares and pharma pivotals.

Select side-counter surged, which kept the market-breadth to stay robust. Deccan Aviation (up 12% to Rs 133.85), Gateway Distriparks (up 11% to Rs 181.70), Moser Bear (up 10.8% to Rs 255), Unitech (up 10% to Rs 451.60), Forbes Gokak (up 9.8% to Rs 506), Divi’s Lab (up 9% to Rs 2744), Bombay Rayon (up 9% to Rs 224.95), Welspun Gujarat (up 8% to Rs 89.90), Nagarjuna Construction (up 8% to Rs 203), GTC Industries (up 10% to Rs 218.95), KEI Industries (up 10% to Rs 431.20), Gemini Communications (up 10% to Rs 285.85) Spanco Telesystems (up 9% to Rs 168.50), Vivimed Labs (up 9% to Rs 165), UTV Software (up 8.9% to Rs 256) and, Four Soft (up 8% to Rs 58.45) had surged.

The BSE Sensex rose 186.32 points (1.4%), to settle at 13,181.34. It also hit an intra-day high of 13,223 at the fag end of the trading session at 15:24 IST. The S&P CNX Nifty gained 48.30 points (1.3%), to end at 3,765.20.

Trading was characterised by extreme volatility today. The Sensex swung over 1,400 points between some vital intra-day tops and bottoms. It also swung 392.62 points between the day’s low of 12,830.38 and high of 13,223.

For 1,652 shares rising on BSE, 849 declined. As many as 68 shares were unchanged. Gainers outpaced losers by a ratio of nearly 2:1. The breadth improved substantially in the last half an hour of trade. It kept vacillating between positive and negative throughout.

The BSE clocked a turnover of Rs 4,404 crore, compared to Tuesday’s Rs 4,931 crore.

Unwinding of long positions in the derivatives accentuated the fall on the bourses, and the Sensex lost 977 points in three trading sessions, between 8 December and 12 December. The market wide-open interest in derivatives declined 6.4% in a single trading session on Tuesday (12 December). Aggressive offloading happened in frontline stocks, where the total open interest declined 9% that day, according to a domestic brokerage.

A lower-than-expected industrial output growth for October 2006 caused a 404-point fall in the Sensex on Tuesday (12 December), after the barometer index lost 400 points on Monday (11 December) following a surprise hike in the cash reserve ratio (CRR) by the RBI, which raised fears of a rise in interest rates.

After the latest economic data, market men will now be closely eyeing advance tax payment by corporates for the third installment, which is due on 15 December 2006. The corporate advance tax payment will provide a broad outline of Q3 corporate results. More so, given that strong earnings growth has been a key driver of the bull-run on the bourses.

Market men will also be watching FII allocations for India for calendar year 2007.

`In the last one hour of trade today, there was a good pull back. Traders were seen covering short positions and fresh new long positions were being taken as well. More appreciation is expected in mid-caps as compared to the large-caps. In the previous two or three sessions, mid-caps have taken a heavy battering and some select mid cap stocks now look quite attractive at their current valuations’, said Rajeev Nainani of Anagram Stock Broking.

Niranjan Shekhawat of HDFC Securities expects correction on the bourses tomorrow. `In the last two or three days, the banking sector has been instrumental in directing the markets and tomorrow, they might again play a influential role in pulling the markets down’, Shekhawat said.

In today’s trade, Reliance Communications surged 7% to Rs 432.90, following media reports that it is in talks with three US private equity groups, for buying the Indian operations of Hutchison Telecommunications International in a deal worth more than $14 billion. The stock rose on a heavy volume of 38.6 lakh shares on BSE.

Bharti Airtel surged 4% to Rs 601. As many as 3.2 lakh shares changed hands in the counter on BSE.

Reliance Industries rose 2.6% to Rs 1,240.50. As many as 15.5 lakh shares changed hands in the counter on BSE. Multiple block deals of 1,02,196 shares were executed in the scrip at Rs 1,231.75 a piece, on BSE. The government on Tuesday approved RIL's plan for a $5.2 billion deep-sea gas field, which will pump 80 million cubic metres per day.

Bank shares edged higher after the US Federal Reserve on Tuesday kept US interest rates unchanged. SBI surged 4% to Rs 1,230.90, ICICI Bank 2.7% to Rs 828 and HDFC Bank added 1.9% to Rs 1,050.

Cement shares rose on renewed buying at the lower level. Grasim gained 5.7% to Rs 2,650, ACC rose 3.9% to Rs 1,010 and Gujarat Ambuja Cements advanced 3.9% to Rs 135.

Pharma pivotals firmed up. Dr Reddy’s Lab surged 5% to Rs 792.50 and Ranbaxy rose 2.3% to Rs 368.

Software bellwether Infosys made a solid intra-day rebound in the last half an hour of trade. The stock rose 0.1% to Rs 2,166. Earlier, the scrip had dropped as much as 1.5% to a low of Rs 2,131.30 at 14:50 IST.

ONGC was down 2% to Rs 787.90. As per reports, ONGC is talking to France's Total SA and Royal Dutch Shell over offering a 10 - 15% stake in two Nigerian blocks.

Tata Steel lost 1.3% to Rs 434.55, on growing concerns of a bidding war with Brazil’s CSN, for acquiring Anglo-Dutch steelmaker Corus. Media speculates that Tata Steel may raise its bid to 550 pence per Corus share, raising the price to over $10 billion, to trump Companhia Siderurgica Nacional's offer of 515 pence per share.

L&T rose 2.2% to Rs 1,425, on news that L&T Infotech, the software and services arm of construction major Larsen & Toubro, on Wednesday had signed an agreement to acquire US-based GDA Technologies Inc, an electronics design services firm.

Glenmark Pharmaceuticals jumped 7.8% to Rs 552.35, after the company said on Wednesday it had applied for clinical trials for a new pain-relieving compound to be launched in 2011. Its Swiss subsidiary has applied for the first phase of clinical trials in Europe, Glenmark said in a statement. "The pain market is amongst the largest and presents an excellent opportunity," Managing Director Glenn Saldanha said.

Elecon Engineering jumped 10% to Rs 394.75, following reports that the company expects revenue of Rs 750 crore in 2006/07, up 70% from last year, riding the orders' tide, chiefly from power, cement and steel sectors.

McNally Bharat Engineering Company jumped 10% to Rs 137.20, after the company got an order for an ash handling system worth Rs 39.92 crore from Vedanta Aliminium.

Century Textiles jumped 8% to Rs 634, after the company said on Wednesday that 6,300 workers, of 6,600 working in the company's Mumbai mill, have opted for a voluntary retirement scheme floated earlier. The scrip rose on a high volume of 13.4 lakh shares on BSE.

Laxmi Precision Screws lost 4.4% to Rs 117.45, after the company said its board approved a preferential issue of equity shares at Rs 101 a share.

Flawless Diamond jumped 5% to Rs 51.45, after the firm said it had secured an order worth Rs 17.8 crore from a Swiss company

Raymond lost 1.2% to Rs 422. The company said on Wednesday, one of its units will form an equal joint venture with US-based AJ Rose Manufacturing Co for a sheet metal components facility in India. The facility is estimated to cost Rs 16.60 crore.

Britannia Industries dropped nearly 1% to Rs 1,091. The company said on Wednesday, it agreed to buy stakes in two bakeries belonging to a Middle East-based group.

Rolta India rose 1.6% to Rs 239, after the company disclosed on Wednesday that Citigroup, Mauritius, bought 0.27% stake. Citigroup Global acquired 2,18,396 shares on 5 December 2006, raising its stake to 5.19%, the company said.

i-flex was flat at Rs 2,016.50. A block deal of 1 lakh shares was executed in the scrip on BSE at Rs 2,020.50. Orcale had recently raised the open offer price as well as targetted stake in i-flex. It has raised the open offer price to Rs 2,100 from earlier Rs 1,475.

Andhra Bank jumped 8% to Rs 82, after the state-run bank said the cash reserve ratio (CRR) hike will impact annual earnings only marginally.

Simplex Infrastructure was down 1.4% to Rs 370. A block deal of 1,53,146 shares was struck in the counter on BSE, at Rs 365.75.

Jain Irrigation rose 6% to Rs 373. A block deal of 1,68,220 shares was struck in the counter on BSE, at Rs 358.

Greaves Cotton rose 2.8% to Rs 315. A block deal of 3,5,310 shares was struck in the counter on BSE, at Rs 290.

CESC lost 7% to Rs 312. A block deal of 1,87,962 shares was struck in the scrip on BSE, at Rs 290.

Solar Explosives rose 3.6% to Rs 125, after JF Asset Management purchased 2.89% stake. JF Asset Management acquired 5 million shares on November 29, Solar Explosive informed.

European shares were in the green in opening trade on Wednesday. Key benchmark indices in London, Germany and France were up by between 0.01% to 0.1%. Asian markets were mixed. Key benchmark indices in Hong Kong, Singapore and Taiwan were down by between 0.1% to 1%. Key benchmark indices in Japan and South Korea were up by 0.3 - 0.4%.

Nymex crude was little changed at about $61 a barrel.

Solar Explosives

The explosive Industry is set for a boom and there will be demand from Private sector too!

The Explosives industry is important to extract minerals, break rock and make roads. The infrastructure of the developed world couldn't have built without the help of Explosives. In the 1860s, Alfred Nobel invented dynamite and the blasting cap required to make dynamite explodes and this saw the beginning of Industrial Revolution began. With the use of dynamite mines could be dug deeper and more quickly. Explosives are a vital part of every construction project and in the mining of every mineral i.e. coal, iron ore, copper, bauxite, or any other. In India, manufacture of Explosives started in the year 1958 by M/s. ICI (India) Limited, Gomia, Bihar (now Jharkhand). The demand for explosives is directly linked to the growth in mining and infrastructure sector. Demand for explosives is more in Coal mining, Infrastructure development and Metal mining. Mining industry is expected to grow in the core segments like coal, iron ore, and limestone. Coal mining remains the largest application for Explosives worldwide accounting for almost 70% of total explosive consumption. Quarrying and metal mining accounts for almost 10% and the balance 20% is accounted for by infrastructure, construction and other miscellaneous uses. Over 70% of the coal output in India is being consumed for power generation and it is believed to be growing at 4.5%. Production of Coal was 405mn ton in 2005-06 compared to 382mn ton in 2004-05 an increase of 6%. The Government has plans to increase production from 405mn to 621mn ton by 2011-12.. Plans are afoot to deblock 20 bn ton coal reserves for power projects. This should lead to an increase in demand for explosives. India offers good infrastructure opportunities and there are many upcoming ambitious plans for expansion and modernization. India has 3.3 million kilometers of road network, which is one of the largest in the world. Explosives are indirectly used for Roads which occupy an important position in transportation as they carry nearly 65% of freight and 87% of passenger traffic. In India traffic on roads is growing at a rate of 7-10% per annum while the vehicle population growth for the past few years has been 12% p.a.

Solar explosive is the market leader with CIL deciding fortunes for now !

The present market for industrial explosives including Accessories is estimated at Rs.1300cr comprising of Bulk Slurry emulsion of Rs.740 cr, Cartridge of Rs.260 cr and Accessories of Rs.300 cr. Indian Explosives Limited, Solar Group and Gulf Oil Corporation Limited are the major players. Currently, there are 63 Explosive manufacturers in the country. Of these 31 manufacturers are presently active in Cartridge Explosives, 24 companies manufacture Bulk Explosives, 10 companies manufacture Detonators and 18 companies manufacture Detonating Fuse. The industry?s combined capacity for Bulk Explosives and Cartridge Explosives is 14 lac ton, almost 878mn Detonators are manufactured p.a. and the total capacity for Detonating Fuse is 439mn meters. Solar Explosives Limited a part of Solar Group started manufacturing Slurry Explosives in the year 1996-97. It also manufactures Detonators and Detonator components through Economic Explosives Limited and Solar Components Private Limited. The Group started manufacturing Bulk Explosives through wholly owned subsidiary Solar Capitals Limited in the year 2000. With a Licensed Capacity of 1.75 lac tonne Explosives, 140 Million numbers of Detonators and 20 Million Meters of Detonating Cord, it is one of the largest suppliers of Packaged Explosives in India. Solar Explosives is also one of the largest suppliers to Coal India Limited (CIL) which alone accounts for major consumption of the domestic Explosive industry?s output i.e. 70% of total country's demand. It consumes around 4 lakh tons of explosives produced annually. Sales to CIL constitute almost 45-48% of total revenue of Solar explosives. The company also supplies to companies like Steel Authority of India Limited, Singareni Collieries Co. Limited, Hindustan Zinc Limited, Cement Industry, Border Roads Organization, various National Hydro- Electric Projects and various other companies in the infrastructure and construction sector. Solar explosives also export their products to South East Asia, Gulf and African countries. Solar explosive is now the market leader with a market share of 25% compared to 15% of Indian Explosive Ltd and 9% of Gulf Oil Corp. The company had a turnover of Rs 169cr (consolidated) for the year 2005-06 with NPM of 11%. The company's exports were of Rs 8cr in 2005-06 against Rs4.6cr in 2004-05 with a significant increase of 74%. Solar has received an order of 61300 MT of Bulk explosives and 10265 MT of Permitted explosives for 2006-07 from CIL. The total order is approximately valued at Rs 148 cr. There has been a change in the process of ordering by CIL and that has lead to much higher business from CIL. Earlier orders were shared amongst all vendors but its now L1 and given the economic size and spread out presense Solar has managed to bag larger orders.

Best placed to capture the potential..however near term performance likely to be a dampener

The explosive industry is a licensed industry where you have to procure license for producing, transportation and can sell to sell only to those company having a license. The industry has major entry barriers as new players have to wait to get getting the license for the manufacture of explosives. Interesting thing to note is that liquid explosives cannot be transported over long distances and hence manufacturing has to be nearer to place of use. Also the specialised vehicles needed for transport restricts the capacity. Most of the production is in the December and the March quarter as construction and mining activity is restricted during the monsoon season. Shelf life is low at about 6 months so manufacturing also picks up post September only. Specialised knowledge on the kind of explosive and the right combination needed for kind of rocks gives Solar the exta edge. Demand for Explosives is also expected to come from the hydro electric projects which would require excavations and huge capacity addition in thermal power is expected to push the demand for coal even further. The government's plan to deblock 20bn ton coal reserves for the private sector is the big trigger. With the increasing mining activity and infrastructure plans for roads the Explosives industry is set for better times. Solar recently raised Rs 76 cr in its IPO in March this year at a price of Rs 190 per share. The IPO was was to raise money for setting up 13 support and transfer plants, mostly in eastern parts of the country, as part of its expansion plan. These include 4 new manufacturing units at Himachal Pradesh and Jharkhand.The proposed new plants near the coal mining sites would fill this gap in the growing demand for the explosives. The company is in the process of setting up a factory in Nigeria to carter its clients based in Africa and Gulf countries. Solar explosives is working to supply to the Defence sector with the DRDO but thats likely to take some more time. It has developed a dust suppressor which makes working conditions easier after the blast thus leading to higher worker efficiencies. The macro business scenario remains extremely exciting. However for now the worry is from the falling margins from the new supplies to Coal India Ltd. The higher volumes from Coal India will somewhat compensate but operating margins will be hit. The next big trigger is the awarding of the coal blocks to the private sector. The initial mining uses up most of the explosive. To add to this margins from the private sector are expected to be higher. The business is good with strong barriers to entry and Solar has the edge with its high marketshare and explosive experts. The stock trades at Rs 140 which is a valuation of 14 times trailing earnings for FY 06. A P/E of 14 for FY 07 makes is attractive.. though near term poor performance on margins will weigh on stock performance. For those willing to invest, accumulating this for long term is not a bad idea. We will however keep watch.