IGI Logo

Unleashing the Growth Juggernaut

Solar Industries India (SOIL IN) , one of the world’s largest commercial explosives companie s, stands poised for its next growth phase across defense , explosives , and mining value chain. E volv ing from a dominant industrial explosives franchise into a vertically integrated defense manufacturer, SOIL is well positioned to cap ture on high entry -barrier segments , such as propellants, warheads and rocket integration , ammunition, military drones & unmanned aerial vehicles (UAV ), counter -drone systems (CDS) , and anti -tank guided missiles (ATGM ). Its international (non -defense ) explosives business is gain ing strong traction . We expect a revenue CAGR of 25% and an earnings CAGR of 28% during FY25 -28E. We i nitiate coverage with a Buy rating and a TP of INR 1 5,450 based on 55x March FY2 8E P/E.

Defense segment to fuel next-level growth: Defense revenue has surged at a CAGR of 82% during FY21 -25, rising from a mere 5% of total sales in FY2 1 to 18% in FY25 . We see th is segment driv ing the next phase of superior growth , fueled by India’s INR 2.2tn defence capex in FY27BE, escalating global conflicts , and rising worldwide defence spending. Four critical categories now dominate modern warfare: missiles & rockets, drones, counter drone s and ammunition; SOIL remains the only compan y in India active across all of them , positioning it a s a prime beneficiary with in -house developed defence explosives , including warhead s, would further accelerate growth. We expect a defence revenue CAGR of 66% during FY25 - 28E , with revenue share expanding to 42% in FY28E.

Global footprint expansion drives explosives growth: SOIL has aggressively expanded its commercial explosives presence, operating in > 90 countries , with 7 international manufacturing facilities in Zambia, Nigeria, Turkey, South Africa, Indonesia, Tanzania, and Ghana . International r evenue already accounts for 38% of total sales in FY25 , underscoring its global scale. We expect further acceleration with new operations in Kazakhstan , Saudi Arabia and Thailand in the next two years , driving an export s CAGR to 19% during FY25 -28E .

SOIL signaling mega defence capex: The company plan s INR 22bn in capex during FY26 -28E to scale existing capabilities and u nlock new avenues like advanced ammunition and aerospace solutions , funded through internal accruals and debt. This represents a major boom , anchored by a MoU with the Government of Maharashtra for a n INR 127bn mega defense project for the next 10 yea rs. The initiative will expan d production of drones and UAV, CDS , energetic materials, new generation exp losives , and robots .

Initiate with Buy and a TP of INR 15,450: We initiate coverage o f SOIL with a Buy rating and a TP of INR 1 5,450 based on 55x March FY28E P/E (in line with its three - and five -year one - year forward P /E) . This underpin s robust defense growth , international explosives expansion, and alignment with the g overnment’s defen se indigenization drive via the private sector . We expect an earnings CAGR of 28% during FY25 -28E with an average ROE and ROCE of 3 0% & 3 8%, respectively, during FY26 -28E . Key risks include execution delays in large defence platforms and slowdown in mining activity .

Investment Rationale

The company currently has an order backlog of >INR 210bn. We expect defense revenue to reach ~ INR 80bn by FY 29E; defense contribution is likely to rise from 18% in FY25 to ~ 50% by FY30E . International revenue already accounts for 38% of total sales in FY25, underscoring its global scale. SOIL would see further acceleration with new operations in Kazakhstan , Saudi Arabia and Thailand in the next two years, driving an export s CAGR to 19% during FY25 -28E The company plans INR 22bn in capex during FY26 -28E . It has signed an MoU with to develop a n INR 127bn mega defense proj ect for the next 10 years. The project will focus on expanding drones & UAV, counter - drone systems, robots, energetic materials and next - generation explosives.

Valuation triggers

* Defense contribution to overall sales rising to 42% by FY28E

* Capex of INR 22bn along with MoU with Maharashtra to develop INR 127bn mega project for next 10 years.

Our assumptions

* Revenue CAGR of 25% during FY25 -28E

* Margin to sustain at ~ 27% during FY26 -28E, led by execution of better margin defense and export orders

* ROCE and ROE to remain stable during FY25 - 28

Key risks

* Delay in execution of large defence orders , such as the Pinaka rocket systems, and loitering munitions

* Fall in ammonium nitrate prices leading to negavtie price cost spread.

Please refer disclaimer at Report
SEBI Registration number is INH000000933