Solara’s strategic reset is going to plan.
First clear trigger is lowering debt. At the start of FY25 they were at 3x Net Debt/EBITDA and so far they’ve reduced it to 2.5x. This is from the proceeds of the rights issue that management has also subscribed to. Arun Kumar (promoter) is leading the company now and so management is taking an active role in operations and financials. If Net Debt comes to 1-1.5x and pledges are released itself will lead to a big rerating.
Now coming to growth: FY25 guidance is 1400-1500 crores sales. 230-260 crores ebitda. Q4 ebitda guided at 80 crores. H2 expected to be better than H1. Even on a low base in FY24, FY25 will post decent growth. Vizag plant is being retrofitted to make it fungible. No revenues are coming from there right now. Vizag should come online in Q1FY26 and should have 3 quarters of operations next year. Vizag plant will be fungible so there will limited Ibuprofen production there. It will be used for higher margin polymers custom synthesis contracts. So next few FYs might bring both top line and bottom line growth due to changing product mix + operating leverage. Management said they would guide for next year in Q4.
It’s still trading at 2.6x book value and 2.7x sales so still quite affordable. Debt related rerating and growth due to product mix + op leverage are the triggers.
Disc: invested
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