Abhishek Shanker Mumbai
SHARES of India’s biggest maker of explosives have rallied 169 percent this year, more than double the gains of the best performer on the benchmark stock index. The reason: Prime Minister Narendra Modi’s infrastructure push.
Solar Industries India’s profit might double in three years on Modi’s plan to upgrade India’s defence capability, build power plants and 100 new cities, chief financial officer Nilesh Panpaliya said.
The company would be the first domestic supplier to India’s Defence Ministry of the explosive HMX, a key component in missile warheads and rocket systems, he said.
“There’s a massive opportunity with the new government, which has a lot of focus on defence, infrastructure, river-linking, housing, roads and coal mining for power,” Panpaliya said. “The first thing you need is explosives, making us the obvious beneficiary.”
Solar Industries and smaller rivals such as Premier Explosives are counting on the Modi administration for a pick-up in demand after a crackdown on mining and the slowest pace of growth in a decade hurt sales. Modi, who became prime minister in late May, has pledged $25 billion (R282bn) to unclog choked transport links and spur power output and is also reviving a 30-year-old plan to connect India’s waterways at a cost likely to exceed $92bn.
Growth in the $1.9 trillion economy cooled to 4.5 percent in the year to March 2013, the slowest since 2003, and reached 4.7 percent in the year to this past March as graft allegations paralysed policymakers in the previous administration, while courts ordered curbs on mining across the country to fight environmental degradation.
“The last two years were tough for us as no major construction or mining activities were taken up, but things are definitely looking up now,” Panpaliya said.
Profits at Solar Industries grew an average 8 percent in the two years to March 31 to 1.2 billion rupees (R219.4 million), compared with an increase of more than 31 percent annually in the preceding two years. Profit would probably rise about 30 percent a year through March 2017, should government orders, exports and infrastructure spending rise, Panpaliya said.
Modi has expedited environmental clearances for as many as 298 projects in mining to construction since he came to office. In an address to overseas Indians at Madison Square Garden in New York on Sunday, Modi said he was streamlining regulations to make it easier to do business in India.
India was set to progress “very fast”, he said.
Greater focus on reviving industrial growth was bound to raise demand for explosives, Dhaval Dama at Equirus Securities said in Mumbai. Explosives companies, which have expanded capacity in expectations of rising demand, would be the first to benefit, he said.
India’s Supreme Court on Wednesday cancelled 98 percent of coal mine permits given to companies in the past two decades, while allowing the government to auction the permits. – Bloomberg