Solar Industries' Shares Can Rally 55% Says ICICI Securities, Maintaining 'Buy' — Here's Why

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ICICI Securities Report

Rather than estimating the margin of Solar Industries India Ltd. based on explosives and ammonium nitrate spread, it is prudent to value the company based on future growth verticals- defence and aerospace. Based on its current orderbook, initiatives being taken by the company and potential in the ecosystem, we reckon, defence revenue could grow over four times from FY25 level over the next five years.

Also, Solar Industries has plans to make the value chain robust by backward integration, forward integration and developing new products in non-defence domain. As per our analysis, Ebitda compound annual growth rate (FY22-FY27E) is likely to be 33% and margins are expected to hover above 27% as the proportion of defence and exports and overseas increases.

Also, we see a long runway for 25% plus growth in Ebitda as the benefits of capex fructify in future. Maintain Buy on Solar Industries with an unchanged target price of Rs 13,720 on 60 times FY27E EPS.

Key risks

• Slower than expected ordering in defence.

• Further fall in ammonium nitrate price leading to negative price-cost spread.

• Slow traction in construction and infrastructure segments.

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