Motilal Oswal initiates Buy on Solar Industries, sees 24% upside. 4 reasons why

Financial services firm Motilal Oswal has initiated coverage on Solar Industries with a 'Buy' recommendation, setting a price target of ₹11,300 per share. The forecast suggests a potential upside of 24% for the explosives and defence systems manufacturer, based on a multi-pronged growth strategy.

Defence Segment to Drive Expansion

A key pillar of the positive outlook is the company's rapidly growing defence business. Analysts project that revenue from this segment will grow at a compound annual growth rate (CAGR) of 30% between fiscal years 2024 and 2027. This optimistic forecast is supported by a robust defence order book currently valued at ₹4,150 crore, providing strong revenue visibility for the coming years.

Path to Higher Profitability

Solar Industries is expected to see significant margin expansion, with its EBITDA margin forecast to improve to 22% by FY27 from 19.5% in FY24. This improvement is attributed to a better product mix, driven by an increasing share of high-margin defence products. The company is also expected to benefit from operating leverage as it increases capacity utilization across its divisions.

Robust Financial Projections

The firm's overall financial performance is projected to be strong, with revenue anticipated to grow at a 16% CAGR through FY27. Profitability is expected to grow even faster, with forecasts for a 21% CAGR in EBITDA and a 24% CAGR in profit after tax (PAT) over the same period. These projections underscore the confidence in the company’s ability to translate top-line growth into enhanced profitability. Furthermore, key efficiency metrics like Return on Equity (ROE) and Return on Capital Employed (ROCE) are projected to improve to 26% and 29%, respectively, by FY27.

Market and Valuation Context

The 'Buy' rating from a prominent brokerage is likely to boost investor confidence in Solar Industries' strategic direction. The valuation, pegged at 46 times its estimated FY26 earnings, reflects the market's high expectations for the company's growth trajectory. The positive initiation signals that the firm’s expansion into the defence sector, coupled with steady performance in its core explosives business, provides a solid foundation for future value creation.