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Edited Transcript of SOLARINDS.NSE earnings conference call or presentation 8-Nov-19 5:30am GMT

Q2 2020 Solar Industries India Ltd Earnings Call

Nagpur Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Solar Industries India Ltd earnings conference call or presentation Friday, November 8, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Manish Satyanarayan Nuwal

Solar Industries India Limited - CEO, MD & Executive Director

* Nilesh Panpaliya

Solar Industries India Limited - CFO

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Conference Call Participants

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* Abhishek Ghosh

DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation

* Girish Pai

Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research

* Harleen Manglani

BOB Capital Markets Limited, Research Division - Analyst

* Jaspreet Arora;Equentis Wealth Advisory Services;CIO

* Manish Mahawar

* Manish Mahawar

Antique Stockbroking Ltd., Research Division - Research Analyst

* Santosh Yellapu

IndiaNivesh Securities Limited, Research Division - Senior Research Analyst

* Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst

* Shridatta Bhandwaldar

Canara Robeco Asset Management Company Ltd - Fund Manager of Equities

* Sneha Talreja

Edelweiss Securities Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the Solar Industries India Limited Q2 FY 2020 Earnings Conference Call, hosted by Nirmal Bang Equities Private Limited. (Operator Instructions) Please note that the duration of this call will be for 1 hour.

I now hand the conference over to Sir Girish Pai, Head of Research, Institutional Equities at Nirmal Bang. Thank you, and over to you, sir.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [2]

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Thanks, Ali. On behalf of Nirmal Bang Institutional Equities, I welcome everyone to the 2Q FY '20 Results Analyst Call of Solar Industries.

We have with us the management of Solar Industries, represented by Mr. Manish Nuwal, the CEO and MD; and Mr. Nilesh Panpaliya, the CFO.

Without further ado, I hand over the call to the management for their opening remarks, after which we will have the Q&A session. Over to you, sir.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [3]

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Yes. So very good afternoon to all the valued investors, well-wishers and potential investors of Solar Industries India Limited. On behalf of Solar Industries, I am Nilesh Panpaliya, CFO, welcome you all to the [mid] call for quarter 2 of financial year 2019-'20.

As always, I would like to remind you that during the call, we might make projections or other forward-looking statements regarding future events and about future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. And our website will be updated with all the relevant information from time to time.

So to begin with, I would request our Managing Director and CEO, Mr. Manish Nuwal, for his comments on the company's performance for this quarter.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [4]

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A very good afternoon, everyone. During the quarter, revenue is lower than our expectations due to excess and prolonged rainfalls and subdued economic activities in the country. The continued uncertainty over trade conflicts resulting in weakening economic activities in international markets have also affected our international business.

The Indian government has announced various measures to stimulate economic activities, like infusion of INR 25,000 crores for completion of stalled housing projects to boost the economy. NHAI allowed to raise INR 85,000 crores, through asset monetizations for road projects, will help or speed up the road construction activities in coming period. Further, whenever there has been a good monsoon in the country, there is always an improved sentiment to trigger a pickup in the consumption and, thus, explosive demand.

Under the government program of indigenization for defense procurement, our defense revenue will certainly go up once the RFPs get finalized during the coming period. We have participated in various RFPs, which we have already shared, and now we have also participated in RFP of multi-mode hand grenade. Few orders for various other products from different section are also in the pipeline.

The company has entered into the business of propulsion systems for space applications, which is quite synergistic with current business of ammunition. The company has received supply order from ISRO as well. In line with our strategic decision, the company has decided to make an investment of INR 17.5 crores in Sky-Root, a start-up company which is entering into the business of launching small satellites, over a period of 2 years.

Now I will request Mr. Nilesh to share the financial details for Q2, and then we will respond to your queries. Thank you.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [5]

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So the key highlights for the second quarter are: for this quarter, the revenue is INR 506.56 crores from INR 520.86 crores, basically down by 2.75% when compared to year-on-year basis. The domestic revenue is INR 259.55 crores against INR 257.17 crores, marginal increase of 0.93%. And overseas and export revenue was down by 7.88%, that is INR 234 crores from INR 219.66 crores. The defense revenue is at INR 44.67 crores compared to INR 44.03 crores, increase of 1.4%.

Now when you talk in this quarter, the explosive revenue overall is down by 3.19%, that is from INR 223.51 crores to INR 216.37 crores. Our domestic volume has gone down by almost 6%, that is from 67,529 metric tonnes to 63,611 metric tonnes. But the realization of explosives has grown by almost 2.77%, that is from 33,098 to 34,015. The accessories grew by almost 20%, that is from 53 -- INR 55.53 crores to INR 66.82 crores, and this was on account of capacity enhancement by the company.

Now coming to the raw materials. The raw material consumption has decreased by 2.19%, that is from 53.9% to 51.7%, when we compare year-on-year basis due to lower explosive sales and higher buildup in initiating system. The employee cost has increased by 0.61% from 8.32% to 8.93% and, of course, this is due to lower revenues. Other expenses has increased from 17.19% to 18.29%, that is by 1.1%, and this is mainly on account of, again, lower [revenue]

(technical difficulty)

quarter.

We reported an EBITDA of INR 112.79 crores and have maintained our EBITDA margins at 21%-plus. And for this quarter 22.27% compared to 21.32% when we compare year-on-year basis. The interest and finance cost is at 2.85% compared to 2.43%. This is because of [some for]

(technical difficulty)

increase in the gross borrowings, which is up almost INR 57 crores compared to March.

The depreciation has increased from 2.91% to 4.12% on account of increased CapEx in [the current] year. The profit before tax margin stands at 15.30% compared

(technical difficulty)

15.98%. [If we look at] profit after tax in absolute term and absolute basis, the net profit has shown a growth of 57.53%, and it stands at INR 86.61 crores compared to INR 54.98 crores because of lower tax rate as provided in the Taxation Law Amendment Ordinance, 2019. Here, the estimated tax savings to the company for the year would be approximately INR 30 crores.

Again, I'll tell you, all our stakeholders, that the company has adopted the option of lower tax rate as provided in the Taxation Law Amendment Ordinance, 2019. And the consequent impact of tax expenses have been considered for the quarter and half year ended 30th September 2019. The total CapEx, which we have planned in Q2 FY '20 is 100 -- H2 FY '20 is INR 109.8 crores, and we have a planned CapEx of INR 250 crores for the year '19-'20.

Coming to the order book. We have a total order book of almost INR 1,645 crores, comprising of: Coal India, which stands at INR 1,067 crores; Singareni Collieries stood at INR 214 crores; and our defense order book of INR 364 crores. And we expect that -- no, these were all the updates for the quarter.

Now we would like any questions on the results.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Santosh Yellapu from IndiaNivesh.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [2]

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Firstly, congratulations. Despite a bad environment, you reported good set of numbers. So my -- I had just 1 question. We did an acquisition of a Tanzania-based explosives company as well as we are planning to invest in the Hyderabad-based aerospace company, right? So I'd just like to get some sense of the -- what's the potential market size? And what would be the investment that will be going into these 2 entities over a period of time? And how will it contribute to our financials on the whole?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [3]

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On Tanzania, we have seen a good opportunity towards our explosives and initiating system because we have already been operating in Zambia. So now that we have acquired this company and started our trading activity, you will see the contribution soon in our results. It will be a part of our overall sales revenue for overseas.

As far as the second investment income is concerned, so right now we have decided to make an investment of INR 17.5 crores, approximately. And as you said, it is a start-up, and we have agreed to invest from time to time over a period of 2 years, depending on the development as and when it takes place. This is an emerging market of small satellites.

So as time goes by, we will actually come to know how big is the market potential. But definitely, it has a very good potential. And our only interest is here to develop the propulsion system which is required for this. And because we have all the expertise and the infrastructure to work in this segment, we are really looking ahead to it.

I hope that answers your question, Santosh, and thanks for your [impact] on our results.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [4]

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Sir, one small follow-up on it. Is it fair to assume that the Tanzania investment, from a capacity operations point of views, are the same size, more or less, or close to the Zambia operations?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [5]

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Yes. We will update you soon on that.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [6]

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Okay. And sir, once -- one more question, if I may. What is the -- you just mentioned the remarks that we have got some supply order from ISRO. If you could just give some qualitative commentary also, that would be very much helpful, please?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [7]

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Yes. So it is basically for the propulsion system for rockets. And that the total -- that order we have received, it is a [basket] of that overall defense order book of INR 364 crores.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [8]

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And lastly, sir, it was a nomination order or it was a completed bid order, sir, this order that we won from ISRO?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [9]

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It was only for propulsion.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [10]

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No, no, sir, was it a tender? Or is it a competitive bid order? Or a nomination order? That's what I'm trying to understand.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [11]

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It's a tender.

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Operator [12]

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The next question is from the line of Shreyas Bhukhanwala from Canara Robeco.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [13]

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Sir, a couple of questions. One is on the overseas operations. So over the last 3 quarters, we have been facing some challenges on the growth front in overseas, majorly, I guess, it was Turkey and Zambia. So we were expecting things to improve. So what's your take on this? And how things would improve going forward?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [14]

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We are, like we have said in last previous conference calls, that business is affected in Turkish [market] Turkey side due to a lot of economic challenges. And in Zambia, also, there was some slowdown in the copper mining side. And we also got affected because of the [government] getting out of KCM in Zambia. And it was part of the business, which we developed in a couple of quarters recently but

(technical difficulty)

our recent efforts, which we have taken. So business outlook for Turkish and Zambian market looks quite positive, and we can see the improvements if we look at the sales which we are getting from the October '19. And we will see that better numbers from overseas will be reflected in from Q -- from the quarter 3 onwards.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [15]

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Okay. And so how much would be -- of the current quarter, how much would be exports and overseas breakup?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [16]

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For the current quarter, the export and overseas is roughly around INR 202 crores.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [17]

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The breakup of that INR 202 crores with -- between overseas and exports?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [18]

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Normally, we -- as a policy matter, we can't give the breakout of export and overseas business.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [19]

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Okay. So was there any translation loss also in this quarter, which has resulted in the de-growth in basically export and overseas?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [20]

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Yes, there is a translation loss of INR 7.5 crores in this quarter.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [21]

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Okay. Okay. So with this kind of subdued H1, how do we -- so earlier, our guidance used to be around 20% growth. Now does that guidance stands revised to lower number?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [22]

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Well, like as we said, for this year, going forward, our revenue growth can get affected because of this excess rain and prolonged rainfalls and subdued economic activities, which we mentioned. But now, once -- probably until October, we have seen that the rains are still there. November, also, there are some predictions and more cyclones, which they are predicting can come about. But we feel that once from December onwards, that things will be stable. And because of these good monsoon everywhere, economic activity in the country should pick up our road, housing infrastructure. There are various [subsidies] which are announced by the government for that.

And even we're seeing that -- if you see Coal India, also their production has been lower. But now they're trying to award the [OB removal] contract. And there has been large import of coal also happening in the country, which is really a matter of concern for them. And they're also trying to resolve a few labor issues, which are pending in view of the policies. So with all these factors, if we take into care, there, definitely, we'll see good results probably this year. But the outlook for the next year is really looking good. But for this year, there we may see some marginal increase in the revenue, maybe around 5% to 10%.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [23]

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Okay. And on the defense side, we were targeting around INR 300 crores of revenue for this year, if I'm not wrong, INR 250 crores, INR 300 crores. First half has been around almost INR 70-odd crores, more or less flattish. So do we see that achieving? Or will we...

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [24]

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Yes. So we have order demand and a good order book. We are awaiting -- at Singareni

(technical difficulty)

[Collieries], we are all geared up to supply to them. So we are -- as further supply schedules will meet that, so we're hopeful that we will cross around [INR 253 crores].

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [25]

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Okay. And on the execution of the CIL contract, so is it for 2 years, the recent contract what we have got?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [26]

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Yes. In the recent contract, it's for 2 years.

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Operator [27]

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(Operator Instructions) The next question is from the line of [Chirag Patel] from [Bhavesh Investments].

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Unidentified Analyst, [28]

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Hello? Am I audible?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [29]

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Yes, yes, very much.

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Unidentified Analyst, [30]

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Sir, I have 2 questions. Recently, we issued 483 observations. What are the loss of facility from the U.S. FDA front?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [31]

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Come again? I did not hear.

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Unidentified Analyst, [32]

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Hello. For Solar [so facility], you reported 483 by U.S. FDA, under the [40 observation].

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [33]

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What are the 3 observations you have?

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Unidentified Analyst, [34]

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Yes. So when we expect to resolve this observation? And similarly, outlook on U.S. business?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [35]

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But which observations you're talking about? I did not get the first part clearly. Hello?

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Unidentified Analyst, [36]

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Hello?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [37]

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Can you be a bit slower and repeat your first part of the question?

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Unidentified Analyst, [38]

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On August exchange filing, we -- you filed that we received U.S. FDA observation 483 for the loss of facility.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [39]

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We don't have [a pharma] facility. Are you confused? Are you talking about pharma?

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Unidentified Analyst, [40]

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Yes.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [41]

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We are not into pharma. We are into manufacturing of explosives. Solar Industries India Limited.

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Operator [42]

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The next question is from the line of Shridatta from Canara Robeco Mutual Fund.

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Shridatta Bhandwaldar, Canara Robeco Asset Management Company Ltd - Fund Manager of Equities [43]

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I just wanted to understand you -- you indicated that for the year, revenue growth could be about 5% to 10%. Does that mean second half would be far better, because first half has been flattish for us?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [44]

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Yes. That is what we are expecting, that the business will be much better in quarter 2 and quarter 3. And in quarter 2, also, mainly from middle of November. Yes, quarter 3 and quarter 4 will be better than the first half.

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Shridatta Bhandwaldar, Canara Robeco Asset Management Company Ltd - Fund Manager of Equities [45]

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Okay. And second question on exports businesses. I just wanted to understand, I mean when we were looking at the annual numbers for exports business, the profitability has been quite volatile. So just wanted to get a sense on -- is there any further declaration or improvement in the profitability of these exports businesses, particularly [ATI]...

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [46]

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Yes. When you are asking for exports, basically, you mean to say that profitability from our overseas business?

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Shridatta Bhandwaldar, Canara Robeco Asset Management Company Ltd - Fund Manager of Equities [47]

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Yes, yes.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [48]

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For the last couple of quarters. Yes, you are very right, and that is what we have been explaining, that because of start-ups of South African operations and little bit of Australia, there are preliminary overheads, which are quite high, which were based on [a bigger] picture. And there was delays in rollover of the products, delays in getting the customers, so that has affected the profitability of our overseas operations.

And on top of that, we saw affected a lot because of slowdown in Turkish market. Now, like we said, that the business sentiments in the local markets of Turkey and South Africa has also improved. And in Zambia, also, we have seen quite a bit of improvement. So we are hoping that from quarter 3 onwards, we believe -- see much better picture compared to the previous 2 and 3 quarters.

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Shridatta Bhandwaldar, Canara Robeco Asset Management Company Ltd - Fund Manager of Equities [49]

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Okay. And just have a question on Turkey and South Africa, one more question. Basically, are these businesses different from each other? Because when we look at the profitability and annual report, the profitability for these businesses is fairly different. So is this different or it is similar business?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [50]

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No, it's a similar business. But like in South Africa market, it is mainly the bulk explosives and initiating systems, mainly. And in Turkish market, it is more of package explosives

[Audio Gap]

[industrial] and bulk operations are not there. But otherwise, as far as the business is concerned, it is all part of industrial explosives and business nature is similar.

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Operator [51]

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The next question is from the line of Sneha Talreja from Edelweiss.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [52]

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Sir, would actually like to understand more in detail. If we look at your stand-alone performances and your consolidated, if we just [do the minus thing] and if I look at your subsidiaries' performance, there, we have seen at least 8% kind of a revenue growth. But if I look at your exports and overseas revenues as a whole, we've seen a difference of revenues by around 8%. So where is the thing that we are seeing, if at all, you could provide us with some breakup, that individual breakup between exports and overseas? Or maybe just the growth rates of individual exports and overseas operations?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [53]

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Like we have explained that exports and overseas, we are doing it in 1 basket. So -- but your question was basically to understand the growth pattern in overseas business and exports, right?

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [54]

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That's right.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [55]

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Yes. So in overseas business, like, if we see in last year, the first 2 half -- the first half was pretty good. And our performance got affected from quarter 3 onwards.

So in this quarter, also, the performance compared to the Q2, [in] Q1 of this year, we have seen there is some improvement. And now, onwards, we will see a big improvement in our overseas business. And that will be reflected in the numbers of exports and overseas from quarter 3 onwards.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [56]

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And how is your exports business doing individually?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [57]

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Basically, exports, stand-alone, is doing quite good. And -- but then, most of the exports, apart from our direct exports, is happening to our own subsidiaries, where they are selling to the end users. So it will be better if we look at this whole segment as 1, exports and overseas. So that's why we combine it and then change.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [58]

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Sure, sir. Sir, got that. Sir, if I look at this particular year has been impacted by a lot of slowdowns, even in the overseas. And although you expect that there'll be a pickup in everything, what could -- you were guiding for somewhere about 9 billion to 10-odd billions for this particular year in the overseas [and in] operations. So what could be a revised number? Or do we still stand at that particular number?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [59]

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No. Yes, because looking at this current economic situation and the international business sentiment, definitely, what guidance we gave for year '19-'20, that our revenue from overseas will cross INR 1,000 crores. That definitely will not be possible in this year. But defense business, overseas business and even domestic, everything will get shift to the next year. So in next year, we are quite confident of overseas business reaching to our earlier target, which -- where we gave for '19-'20 and, similarly, will happen for defense as well.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [60]

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So the revised -- the guidance that you gave earlier of about INR 1,000 crores shifts to FY '21?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [61]

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Yes.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [62]

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okay. Sir, any highlight that you give on -- can give on Australia and Ghana operations, so that we know whether we are progressing on those fronts?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [63]

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Yes. So the best part, the positive side is that in this month, we have started the construction of both the projects and likely to be over in the month of February. So we are likely to start the trial production in the month of March '20. So from next year, we will see an improvement from these 2 geographies also.

Apart from these 2, like we have already shared, that in Tanzania also, we have acquired a trading company, which was having a distribution license, and we are also going to start our manufacturing operation in Tanzania. We got all the permissions and likely to start the project. So we will update when we start on this project.

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Operator [64]

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The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [65]

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Just one thing in terms of the INR 7.5 crores of translation loss that you mentioned about, that is being as part of the other expenses?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [66]

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Translation loss was -- it's part of other expenses.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [67]

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And loss for the procurement figure, would you have it handy for the first half, FY '20?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [68]

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FY '20, the procurement translational loss is INR 5 crores.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [69]

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INR 5 crores? Okay. And sir, whatever we have seen in the order addition in Coal India 1Q FY '20 and you were something like 300 it's up to 2,500 you're now. So all the retendering that has to be done for Coal India is done or there's some left, actually, for the next couple of years?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [70]

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So we already have -- this was completed for the 2 years. We have received 2 orders. So our order book stands at almost -- for Coal India, it stands at almost INR 1,067 crores, and there are 3 orders which we are still expecting from Coal India. And we are waiting for that to make the necessary declaration in the stock exchange.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [71]

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Okay. So whatever INR 1,067 crores, whatever is the incremental order, that will be the Coal India portion of the revenues for the next couple of years, that is how we should look at it?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [72]

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Yes, yes.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [73]

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Okay. And in your assessment, when you went in for this retendering in Coal India, how is the competitive intensity vis-à-vis the earlier orders in terms of the kind of realizations and margins? How is your overall assessment of the order intake?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [74]

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So competitors are the same, they are still very competitive. And definitely, because of the fall in commodity prices, prices have gone down, and because that is a regular price escalation on all that moves on. But it's good, like it is -- the competition was fierce, as always, but at least we [bagged] a fairly large chunk of order as part of -- that has been a part of it.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [75]

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Okay, okay. And sir, when does Singareni come up for its retendering?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [76]

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Somewhere around June 2020.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [77]

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Sure. And sir, in terms of the working capital, we've seen some amount of deterioration largely because of payables coming down. So about INR 30 crores, INR 40 crores has gone into working capital. So how are you looking at this overall working capital situation?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [78]

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So if you look at our working capital, let me see...

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Nilesh Panpaliya, Solar Industries India Limited - CFO [79]

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So the overall working capital cycle we had almost at flat, but there is some improvement. And we do see that the payable side, which has reduced from 43 days to 35 is only because of some changes in our procurement practices. Otherwise, it is -- otherwise, there is nothing significant happening in that side. Although our debtor days has reduced from -- almost flat at 59 compared to the previous year. And if you look at the inventory level, it has reduced to 71 from 74 days. Actually, the working capital days is 95 compared to 90 only because of deduction in creditor days.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [80]

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Yes. Where I was coming from is, is the reduction in creditor days helping you better in terms of the procurement that you're doing? Is it helping you there? Or is it -- that's not the case?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [81]

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No, definitely, whenever we improve the payment definitely, there will be some advantage to us.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [82]

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Sure. Okay. And sir, just last question from my side. How are the ammonia prices and any outlook there?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [83]

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Yes, if you look at the international charts, ammonia price has reduced drastically, and it has impacted the ammonium nitrate also. But the impact of these commodities fall especially in [the winter] and in ammonia for our markets will reflect in [summer] period only [the connect impact] on a quarterly basis, all the supply chain, and we will see the reduction in prices in ammonium nitrate also.

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Operator [84]

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The next question is from the line of Shreyas Bhukhanwala from Canara Robeco.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [85]

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One more question for overseas operations. So I was just referring the annual report. So in the South African -- South Africa, basically, our revenues has increased by almost 100% to almost INR 90 crores. And against that, our PBT, basically, PBT loss has increased from INR 5 crores to INR 53 crores. So is there any one-off? Or is it the full impact of interest depreciation coming in, in FY '19?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [86]

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This is of last year, you're talking?

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [87]

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FY '19, yes?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [88]

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Yes, FY '19. So in terms of [PBT] -- see, what has happened there, I believe that the revenue are in the starting phase of South African plant. And then -- we're just in time. So basically depreciation, since now the plant has been put into use, has started coming into it. And earlier, there has been an increase in finance cost also because of the increased loan in that country. So those -- the effects are there.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [89]

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Because these operations started in FY '17, if I'm not wrong.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [90]

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Well, we started with the construction of the plant. So initially, it was the construction phase. And then we have got 3, 4 products. And then whenever a part was getting ready, that was not getting capitalized. Otherwise, all were getting capitalized and now with the full plant in operation, both depreciation and this thing -- interest is coming in.

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Shreyas Bhukhanwala;Canara Robeco Asset Management Company Limited;Equity Research Analyst, [91]

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So FY '19, you've had the entire impact of interest and depreciation, right?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [92]

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Not entire. Almost, you can say. Not entire.

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Operator [93]

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The next question is from the line of Harleen Manglani from BOB Capital Markets.

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Harleen Manglani, BOB Capital Markets Limited, Research Division - Analyst [94]

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May I know your revenue breakup for the quarter, I mean, between explosives and initiating systems?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [95]

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Yes, sure. So the revenue for explosives is almost INR 216 crores for third quarter and for the accessories for third quarter, it is almost INR 67 crores.

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Harleen Manglani, BOB Capital Markets Limited, Research Division - Analyst [96]

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And may I know the INR 216 cr breakup between bulk and packaged?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [97]

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As a policy matter now, we are giving it clubbed together under explosives.

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Operator [98]

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(Operator Instructions) The next question is from the line of Jaspreet Singh Arora from Equentis Wealth Advisory.

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Jaspreet Arora;Equentis Wealth Advisory Services;CIO, [99]

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Just wanted a little more clarity on this degrowth in the second quarter. Possible to break it up in terms of the issues, I mean, the monsoon factor and the economy slowdown and the international slowdown, just to understand how much was it really one-off? And because I'm seeing a negative figure like after -- I mean, for the first time, frankly, on the volume side.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [100]

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What has happened there during the quarter, the revenues are lower than our expectations because the demand was impacted. This was on account of excessive and prolonged rainfalls and subdued economic activities. So mining got affected because of excess and prolonged rainfalls. And even the housing construction and the road construction because of this economic -- subdued economic activities [overall]. If you talk about September, the rainfall in India was highest in 102 years. It was 48% above normal. And third highest in India since 1-9-0-1, 1901.

So -- and what happened is, globally, also, the business confidence remained subdued. On account of this, prolonged uncertainty of our trade conflicts, which has resulted in weakening economic activities. But now with U.S. and China coming closer to some trade agreement, I think it would definitely help the world economy, and our overseas operations are fairly stable now in Zambia and Nigeria. And there is a large potential for growth in South Africa. Even if you look at the second quarter, the mining industry, particularly in South Africa, has shown some positive growth of 2%.

And now for Turkey, also, there are various measures, which have taken by the government like reducing the interest rate, and we are coming into peace with the other countries like Russia and U.S. So this will be, peace will be restoring that and in the end, I think business opportunities will further increase. And the interest rate also, like I was mentioning, that we have come from 34% to now almost 14% to 15%, and how it will definitely boost the economy there. And I already mentioned that we are increasing our footprint in Ghana, Australia, Tanzania. So they will further add to our revenues.

And domestic, also a lot of measures have been taken by the government. Other than Coal India, where I have mentioned that we are -- contracts will be awarded, labor problems will be sorted out. They have to think about so much like coal imports, which has happened. Other than that, now the private sector coal block also, which got allocated and has started their mining activities. And we thank them because we have good order procurement from there also. And other than that, Inter-link road and Highway budget has been increased. Over a year after, we have made -- there have been Bharatmala, that we talked about and the ministry aims to achieve between 12,000 to 15,000 kilometers per year from 10,000-kilometer building. Even Maharashtra government, which is the Mumbai Expressway -- some of the expressways that we are talking about will also boost the sales. And apart from these various state road projects, which aims to connect every village. Now airports also government plans to upgrade and construct 100 airports and double the port handling facilities in 3 years. So -- and then the road sector, also, the figure which will end at 75% of the stalled projects have been cleared. And 2 days back, the government announced a huge reform for the housing sector with the [maintuma] amounting to almost INR 25,000 crores to ensure that the stalled housing projects take place. And even the steel production is expected to grow as per the steel ministry, from 106 million tonnes to 300 million tonnes. So all these factors look very positive for our company. And as we mentioned that from probably this half, whatever has happened, that once the monsoon stabilizes because this has been a general trend that whenever there has been good or heavy monsoons, after that, the economic activity really picks up. So we are positive and bullish about everything.

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Jaspreet Arora;Equentis Wealth Advisory Services;CIO, [101]

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Sure. Sir, given our mix of the sectors that we exposed to [given] the domestic market. And based on what's happening on the ground. Do you get a sense when you talk to your clients, based on the execution, I mean, the revenues you've done earlier in first half. And now what's happening on the ground or the order inflow and discussions for the new orders that you're doing, Q2 probably was the bottom in terms of the economic activity in the country? Do you get that feeling and things could improve in the second half and in the third quarter and fourth quarter?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [102]

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I would like to respond to your question that what is the feedback on the ground. So basically, whenever we are talking or discussing the real demand at the ground level, we have never faced any kind of problem in the last 3 to 6 months' time. However because of these factors which no one can control has affected the demand and the business sentiments. But as far as infrastructure or explosives for our purpose, we have not seen any kind of slowdown at the ground level. Only because of extreme monsoons, the mines were full of water, quarries were not operating. That has affected the demand. Otherwise, like in the last 7 days, if you see that monsoon has returned back and the demand has picked up. But again, there is a cyclonic effect of Bulbul in Odisha and Bengal. So that will definitely affect the mining again.

So on a day of Diwali also, there were rains in many parts of the country. So these things are affecting the business demand. Otherwise, for us, we have not seen any kind of slowdown as far as explosive is concerned. This is the reality as of now.

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Jaspreet Arora;Equentis Wealth Advisory Services;CIO, [103]

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Sure. And just lastly, related to that. So in the past, whenever you've seen any quarter -- in monsoon quarter, I'm sure you would have seen in the last 10, 15 years, where it was this severe, has it resulted in the second half being very good because this drop in demand kind of got postponed to the second half? Or does it really get kind of destroyed, and therefore, you have to now, again, wait for the next financial year only. So what I'm trying to understand is, in second half, can you do double-digit volume growth [can heavy] industry?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [104]

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We are also looking forward for the big push in demand side, definitely. But if you look at the history, in the last 10 years, we have not seen such kind of monsoon. So it is really difficult to say that from which quarter we will see the results. But if you look at the current status as of now. Say today is 8th of November. If you look at last 7 years, the demand momentum, it's looked good. There is no slowdown as such. But if there is some cyclonic effect comes up again, that will again impact the demand for at least 5, 6 days. So those sectors are affecting our company badly. Apart from that, we have not seen any kind of issue.

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Operator [105]

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The next question is from the line of Santosh Yellapu from IndiaNivesh.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [106]

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Sir, just one follow-up question. When do you expect to consolidate the Tanzania numbers into our overall consolidation? Is it for the Q3 onwards it will be effective? Or how do we combine it up?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [107]

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You will see the consolidation number from Q3 because in Q2, there was practically no sales in that country. From Q3, we will see the numbers.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [108]

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Okay. And do we have the team in place, the plant in place? Or how would it go, sir for this?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [109]

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What do you mean, Santosh?

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [110]

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I'm referring to Tanzania, sir, do we have the marketing team in place to push ahead our products? Is there a plant -- operational part we have taken? If you could just give some qualitative comment there it would be very insightful, sir, please.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [111]

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Actually, we have -- we were working on this project last -- from last [4, 5] years. But in last quarter, we got all the approvals, because of a lot of delays. And now since we have all the approvals, the team is also in place. The distribution will start from Q3. And once -- another small approval is pending -- once it comes back, we will start construction of the project also. So we will update everyone when we start the project construction.

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Santosh Yellapu, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [112]

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Okay. And sir, one small industry development wanted to check up on. So BEL has signed an MoU -- Bharat Electronics has assigned an MoU with Tamil Nadu Explosives Limited. So do you see a company with a more financial strength coming up and affecting our business anyways? Or is it going to see more competition going forward, which could affect the margin profile of the company? Some qualitative comment on that, please?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [113]

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Like if you look at the opportunities which are coming for different sectors it's quite immense. But the reality is that it has not converted into the numbers as of now. But we all know and we have a confidence that it will be a big opportunity for all the Indian companies. But if you look at all the Indian companies, meaning either private companies or government companies.

So already, BEL is there, Bharat Electronics is already doing the same job. Ordnance factory is already supporting them. So we practically or principally doesn't see much change in the equation. Our focus is always on a different sides of products and Bharat Electronics, as of now what we are aware, is looking for different sets of products. So even if they come up, so like, we were competing with the other PSUs, we will compete with them also. So it doesn't impact us directly. We are already supplying a lot of small, small things to Bharat Electronics. So competitively, we don't see much change in the overall equation.

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Operator [114]

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The next question is from the line of Manish Mahawar from Antique Stockbroking.

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Manish Mahawar, - [115]

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Nilesh, can it possible to share your translation loss, loss you said in the past is around INR 7.5 [in FY] growth rate in H1, I believe, right number? And what is the impact in the revenue and what is your export revenue?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [116]

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So the total, as we mentioned, the translational loss, the revenue we lost was INR 7.40 [crores].

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Manish Mahawar, - [117]

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Okay. This is impacting on revenue, right? This impact.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [118]

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On revenue, yes.

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Manish Mahawar, - [119]

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Okay. I believe in the [H] Q1, this number, what you said is around INR 30 crores, INR 35-odd crores was the translation loss in Q1 number, I believe.

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Nilesh Panpaliya, Solar Industries India Limited - CFO [120]

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Yes, Q1, right.

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Manish Mahawar, - [121]

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Okay, understood. Okay. And the second thing, Manish, can it possible to share basically our market share or maybe our position again in the 3 key overseas geography like Turkey, Zambia and Nigeria?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [122]

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As far as those countries like Nigeria is concerned, we are one of the major player, or you can say that we are the leading player in that market. And in Turkish market also, we are one of the top in product space in Turkey. And what we have achieved over the last years is. But as far as exact market share is concerned, there is no data available for each country in the public domain. So it is very difficult to give the exact number.

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Manish Mahawar, - [123]

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Okay. But in the 3 geographies, definitely, we are in a leading position, right, in this...

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [124]

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We are in Turkey, yes. For Zambia, we are not the leading producer. We are one of the top 4 producers in that market. But we are working on expanding the business out of Zambia.

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Manish Mahawar, - [125]

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Okay. Because why I'm asking because if you look at these 3 geographies, which we have started earlier and now I think so, growth has moderated in these 3 geographies and whatever growth is coming overseas which is coming from the new geographies, I believe. That's right?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [126]

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To some extent, yes, you are right. And another factor for this is that the local countries, especially like Turkey, is affected by a lot of economic slowdown, a lot of foreign exchange-related issues, a lot of geopolitical tension. So if you look at the slowdown, then it is because of these factors also. It is not because that we are lagging behind any other of our competitors. It's not like that. And if you look at Namibia, in the last 4, 5 years, initial 2 years were of struggle because of the change of political leadership. But in the last 2 years, it has performed well, and growth is pretty good in those [geographies].

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Manish Mahawar, - [127]

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Okay. And last point, basically, in the domestic business.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [128]

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Whenever you have a leadership position in particular markets, definitely, you can't grow as we were growing in the last 4, 5 years back. So definitely, when we are already market leader or almost [reached to] market leadership position, so growth will be based on the local factors rather than being the market share again and again.

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Manish Mahawar, - [129]

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That's all my point, actually, that's I wanted to understand.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [130]

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And another point I would like to add here that since we are presenting those territories from last couple of years, our focus in the last 6 to 12 months was to consolidate our position, reduce the risk of any kind of economic circumstances, which we have also faced. So we were targeting to come out of all these issues for the future. So we were working on consolidating our position in those markets rather than expanding further. But now since we are out of those issues, the situation is much better. We are also expanding in other sectors near to those places. So that will help grow further in the coming years.

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Manish Mahawar, - [131]

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Okay, understood, sir. And in the domestic explosive business, basically, if we take a view of 2 to 3 years, is there any chance to improve your margins, actually EBITDA margins from the domestic business per se?

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Nilesh Panpaliya, Solar Industries India Limited - CFO [132]

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Like we have been sharing with all of our stakeholders, that margins from domestic markets are pretty comfortable as of now. So our view is not to improve margin. We are not working, or we don't foresee that there will be drastic change in the margins. But yes, volume growth will be there, and that will definitely help us to reduce some of our overhead and a little bit of margin improvement can come up [positive as we execute] but as such, we are pretty confident.

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Manish Mahawar, - [133]

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Okay, understood. And just last point, what you said, basically in the Q2 there was definitely a decline in the revenue as well as the volumes. Is that predominantly on account of the rainfall issue, right, and which will be -- bounce back in the Q3 and Q4. That's what I understood properly, right?

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [134]

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Yes.

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Operator [135]

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Due to time constraints, that was the last question. I now hand the conference over to Mr. Girish Pai for closing comments.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [136]

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I would like to thank the management of Solar Industries to -- for giving us this opportunity to host the call. I also thank everyone who's come on the call and asked questions. Thank you very much, and good day.

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Manish Satyanarayan Nuwal, Solar Industries India Limited - CEO, MD & Executive Director [137]

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Thank you, very much. Thank you.

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Operator [138]

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Thank you. Ladies and gentlemen, on behalf of Nirmal Bang Equities, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.