Jefferies has maintained a 'buy' rating for Solar Industries India Ltd. with price target of Rs 28,160 implying an over 46% upside, despite flagging near-term weakness for the company.
The brokerage noted that Solar Industries recent 12,951 crore acquisition of South Africa's Omnia Holdings will likely hurt near-term growth, with earnings per share expected to dilute by 4-6% over fiscal year 2028 and 2029, and 1% FY 2030.
Additionally, the share of company's defence segment to overall revenue growth is estimated to shrink to 22-25% by fiscal 2030, as against 35-40% expected earlier.
Notably, Jefferies highlighted that management's commentary suggests that the acquisition will eventually add to earnings per share, even without too much synergy benefits. Synergies refer to benefits created by combining two businesses.
The brokerage pointed out that even without assuming aggressive synergy benefits, management's guidance points to a modest 0-3% improvement in EPS.
Further, the company may be able to expand their EPS at a compound annual growth rate of 30%, and return on equity to over 25%, Jefferies said, adding that the recent selloff in the stock has made valuation attractive.
Therefore, the correction in the stock offers a "heightened opportunity to own a business with a 30% EPS CAGR potential & 25%+ ROE even considering the acquisition."
Omnia Deal
Solar SA Investments Proprietary Limited, a wholly owned step-down subsidiary of Solar Industries, has signed definitive agreements to acquire all outstanding shares of Omnia Holdings in an all-cash transaction valued at approximately US$1.355 billion, or Rs 12,951 crore.
Solar Industries Q1FY27 Recap
Solar Industries entered FY27 with a sharp improvement in its financial performance. Consolidated net profit jumped 92.6% year-on-year to Rs 653 crore in the June quarter, compared with Rs 339 crore a year earlier.
Revenue rose 70.3% to Rs 3,668 crore, while EBITDA increased 90.1% to Rs 1,015 crore. EBITDA margin also expanded to 27.7% from 24.8%. The stock has gained 2.5% in the past five days, 11.7% over one month, 58.3% in six months and 83% over the past year.
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