Solar Industries India Limited is entering a decisive growth phase as defence manufacturing transitions from development to commercial execution. ICICI Direct Research has reaffirmed a BUY call on the stock, citing robust order visibility, accelerating defence exports, and margin resilience driven by scale and product mix. Q3FY26 earnings underline the company’s transformation into a diversified defence-industrial manufacturer, with defence revenues compounding sharply and international operations crossing critical scale thresholds. With a confirmed order backlog of over Rs 21,200 crore and a Rs 2,000+ crore capex pipeline underway, Solar Industries is positioning itself as a long-term compounder in India’s strategic manufacturing ecosystem.

Research House View: ICICI Direct Maintains BUY with 23% Upside

ICICI Direct Research has reiterated a BUY recommendation on Solar Industries India Ltd. with a target price of Rs 16,700, implying an upside of approximately 23% from the current market price of around Rs 13,580. The valuation is anchored to 70x FY28E earnings, reflecting confidence in multi-year earnings visibility driven by defence commercialisation and export momentum.

Business Profile: From Industrial Explosives to Strategic Defence Manufacturing

Solar Industries has evolved well beyond its legacy identity as an explosives manufacturer. While it continues to command a dominant ~25% share in India’s industrial explosives market, the company has rapidly scaled into defence, aerospace, and advanced ammunition systems.

Its product portfolio now spans:

Bulk and cartridge explosives

Initiating systems and detonators

Military explosives and ammunition

Pinaka and guided rocket systems

Rocket motors, warheads, and UAV-linked platforms

This diversification has structurally altered revenue quality, margin stability, and long-term growth visibility.

Q3FY26 Performance: Defence and Exports Drive Earnings Acceleration

Q3FY26 marked a strong operational quarter, with revenues rising 29.2% YoY to Rs 2,548 crore, supported by defence execution and export deliveries.

Key quarterly highlights:

Defence revenue surged 72% YoY to Rs 702 crore

Export revenue rose 35% YoY to Rs 1,020 crore

EBITDA expanded 34.5% YoY to Rs 708 crore

EBITDA margin improved to 27.8%

PAT increased 38.2% YoY to Rs 467 crore

The earnings mix continues to tilt toward higher-margin defence and international contracts, reinforcing structural margin expansion.

Order Book Strength: Visibility Extends Well Beyond FY28

Order backlog stands at over Rs 21,200 crore, equivalent to nearly 2.6x trailing twelve-month revenue. Of this:

Defence accounts for ~Rs 18,000 crore

Industrial explosives contribute ~Rs 3,200 crore

International defence orders exceed Rs 11,000 crore

Management expects defence revenues alone to scale toward Rs 8,000 crore over the next 4–5 years, implying a CAGR exceeding 40%.

Defence Segment: Commercialisation Inflection Begins in Q4FY26

The defence vertical is entering a monetisation phase. Key platforms such as Pinaka and Guided Pinaka have completed qualification and are set for commercial roll-out from Q4FY26 onward.

Additional growth drivers include:

155mm artillery shells nearing final certification

Capacity optimisation at Dhule and Dholpur facilities

Rising export demand amid global defence realignment

Management expects defence to remain the fastest-growing segment, fundamentally reshaping Solar Industries’ revenue and profit profile.

Explosives Business: Cyclical Headwinds Likely to Reverse

Industrial explosives volumes remained muted during FY26 due to heavy monsoons and subdued coal offtake. However, ICICI Direct expects a recovery driven by:

Improving mining and infrastructure activity

Higher electricity and power-sector demand

Stable raw-material pricing environment

Volume growth of 10–12% and revenue growth of 15%+ are expected as conditions normalise, providing steady cash flows to fund defence expansion.

International Business: Crossing the Rs 1,000 Crore Threshold

Exports have emerged as a structural growth pillar, with international revenues exceeding Rs 1,000 crore, driven by demand from:

Africa

South-East Asia

Turkey

With capacity utilisation improving across global facilities, management is targeting 15%+ annualised export growth over the medium term, enhancing geographic diversification and foreign currency earnings stability.

Financial Trajectory: Strong Earnings Compounding Ahead

ICICI Direct projects robust earnings growth over FY25–FY28E:

Return ratios remain healthy, with RoCE expected to sustain near 30%, despite elevated capex investments.

Valuation and Investment Levels

Valuation continues to factor in long-duration growth visibility:

CMP: Rs 13,580

Target Price: Rs 16,700

Upside Potential: 23%

Valuation Basis: 70x FY28E EPS

Investment Horizon: 12 months and beyond

ICICI Direct believes premium valuation multiples are justified given Solar Industries’ positioning within India’s strategic defence manufacturing supply chain.

Key Risks to Monitor

Investors should remain mindful of the following risks:

Delay in defence order execution or government clearances

Volatility in ammonium nitrate and raw-material prices

Slower-than-expected recovery in industrial explosives demand

While these risks exist, ICICI Direct views them as manageable within the company’s diversified revenue structure.

Final Word: A Structural Compounder in the Making

Solar Industries stands at the intersection of defence indigenisation, export expansion, and industrial recovery. With a fortified balance sheet, deep order visibility, and a growing portfolio of high-value defence systems, the company is transitioning into a structurally superior earnings compounder. ICICI Direct’s BUY call underscores confidence that Solar Industries’ next growth phase will be defined not by volume alone, but by strategic relevance and execution scale.