ICICI Securities has reaffirmed its BUY recommendation for Solar Industries Ltd. (SOIL) with a target price of Rs 13,250, reflecting a 25% upside from its current market price of Rs 10,558. The company’s strong export order inflows and its growing domestic presence in the defense sector position it as a high-potential player in the market. With a robust order book and an expanding portfolio, Solar Industries is poised to deliver significant growth in the coming years.

Strategic Focus on Defense and Exports

1. Record Defense Export Orders
SOIL has secured its largest-ever defense export order worth Rs 20.4 billion, contributing to a total defense order inflow of Rs 44.7 billion in CY24. These export contracts, spanning 3–5 years, are expected to generate annual revenues of Rs 11–13 billion over the next four years, highlighting the company’s rising prominence in global markets.

2. Strengthening Domestic Order Book
The domestic defense order book for Solar Industries, which stood at Rs 33.6 billion in September 2024, has risen to Rs 50–52 billion following recent order wins. This growth reflects the increasing demand for defense products, with defense revenues contributing 19% of the total revenue in Q2FY25 and projected to rise to 25% in the near term.

3. New Product Opportunities
The company continues to invest in the development of advanced defense products, including Pinaka multi-barrel rocket systems and new lines such as SEBEX-2, SITBEX-1, and SIMEX-4. These innovations are expected to fuel both domestic and export opportunities, particularly as demand for specialized ammunition increases globally.

Financial Performance and Outlook

1. Accelerated Revenue Growth
SOIL’s net revenue is projected to grow by 33.6% in FY25 and 29.9% in FY26, reaching an estimated Rs 105.3 billion. This growth is supported by the strong execution of its defense contracts and expanding market opportunities.

2. Margin Expansion
The company is expected to see a steady improvement in margins, with EBITDA projected to increase to Rs 27.9 billion by FY26. The higher-margin defense business is a significant driver, expected to boost EBITDA margins from 24.0% in FY25 to 26.5% in FY26.

3. EPS Growth
ICICI Securities forecasts earnings per share (EPS) of Rs 203.8 by FY26, representing a YoY increase of 48.5%, reinforcing the company’s profitability trajectory.

Recent Strategic Divestments

1. Streamlining Operations
As part of its broader strategy to optimize its focus on core businesses, Solar Industries recently divested its non-core assets. This move allows the company to channel resources more effectively into high-growth segments, particularly defense and mining explosives.

2. Reinvestment into Core Segments
Proceeds from divestments are being reinvested into expanding its manufacturing capacity and R&D capabilities, ensuring sustained leadership in innovation and production efficiency.

Risks and Challenges

1. Dependency on Government Orders
Any delays in government contracts, such as the anticipated Pinaka order, could impact revenue projections and investor sentiment.

2. Commodity Price Fluctuations
Volatility in ammonium nitrate prices, a key raw material, poses risks to margins. A decline in prices could result in negative price-cost spreads, affecting profitability.

3. Infrastructure Sector Weakness
SOIL’s explosives business, which caters to the construction and infrastructure sectors, may face headwinds if demand in these segments remains subdued.

Conclusion: A Strong Growth Story

Solar Industries is well-positioned to capitalize on India’s growing defense manufacturing ecosystem and global ammunition demand. Its strong financial outlook, robust order book, and commitment to innovation make it an attractive proposition for long-term investors. With ICICI Securities’ target price of Rs 13,250, the company offers significant upside potential, provided it continues to execute its strategy effectively.