Alpha | Solar Industries India Ltd. – Equity Research Desk

Solar Industries India Ltd. – Power to Propel the Future

Solar Industries India Limited, incorporated in 1995 and headquartered in Nagpur, Maharashtra, is an explosives and defence ammunition manufacturer operating across industrial and defence explosives, serving end-markets in mining, infrastructure, construction, and national security. Its product portfolio spans packaged and bulk explosives, detonators, initiating systems, high energy materials, propellants, advanced ammunition, loitering munitions, and space-sector energetics. Solar has a commercial presence in 90+ countries with manufacturing operations across 40+ facilities in 9 countries. The company ranks among the top five global explosives manufacturers and employs 2,403 permanent employees on a standalone basis as of FY2025. As of Q3FY26, the order book stood at ~Rs.21,000 crore.

Products and Services

The company’s product portfolio includes packaged explosives, high-energy materials, detonators, cast boosters, detonating cords and cord relays, along with defence products such as loitering munitions, ammunition, rocket integration systems, next-generation mines, missiles, UAV pyrotechnics and fuzes, propellants and warheads, counter-drone systems, and space-related applications.

Subsidiaries – As of FY25, the company has 36 subsidiaries and 3 associate companies.

Investment Rationale

• Defence Business Emerging as the Key Growth Driver – The company is increasingly transitioning from a traditional industrial explosives manufacturer to a defence-focused manufacturing company, which is expected to drive the next leg of growth. The defence segment recorded a 72% YoY growth, supported by rising domestic procurement and export opportunities. The company currently has its highest-ever order book of ~Rs.21,000 crore, of which ~Rs.18,000 crore is from defence, providing strong medium-term revenue visibility. Management has guided for ~Rs.3,000 crore revenue from defence, supported by capacity additions and new product introductions. Key growth triggers include the commercial production of 155 mm calibre ammunition expected from Q4 and ramp-up in supplies for the Pinaka Multi Barrel Rocket Launcher programme (expected from Q4). The inauguration of the medium calibre shell manufacturing facility further strengthens its ammunition capabilities. With increasing participation in rockets, ammunition, and defence explosives, Solar is steadily moving up the defence value chain, which could support higher margins and stronger earnings visibility over the medium term.

• Rising Export Contribution and Global Capacity Expansion – Solar’s international business continues to scale up, with overseas revenue crossing Rs.1,000 crore, reflecting growing demand for explosives and defence products in global markets. The company is expanding its global footprint by ramping up operations in existing international facilities, which has helped convert certain previously loss-making units into profitable operations. Management is also evaluating opportunities to enter new markets such as Australia, Kazakhstan and Saudi Arabia, which could further strengthen export contribution. Domestically, the company is undertaking significant capacity expansion through new facilities in Dhule (Maharashtra) and Dholpur (Rajasthan), supported by ~Rs.2,500 crore capex planned for FY26, most of which has already been deployed. In addition, the Rs.12,700 crore MoU with the Government of Maharashtra reflects long-term plans to scale defence and aerospace manufacturing capacity. While this is a long-term investment rather than immediate revenue addition, it highlights the company’s strategy to build large-scale manufacturing capabilities to support defence exports and global demand, strengthening its long-term growth outlook.

• Q3FY26 – During the quarter, the company reported revenue of Rs.2,548 crore, up 29% YoY from Rs.1,973 crore in Q3FY25, driven by strong growth in defence (up 72% YoY) and international segments. EBITDA grew 37% YoY to Rs.733 crore, with EBITDA margin expanding 160bps YoY to 28.8%. Net profit stood at Rs.467 crore, up 38% YoY from Rs.338 crore in Q3FY25, with PAT margin improving 120bps to 18.3%.

• FY25 – During FY25, the company reported consolidated revenue of Rs.7,540 crore, representing a ~24% YoY increase from Rs.6,070 crore in FY24. EBITDA grew 44% YoY to Rs.2,031 crore. Profit after tax stood at Rs.1,288 crore, up 47% YoY from Rs.875 crore in FY24.

• Financial Performance – The 3-year revenue and net profit CAGR stand at 24% and 42% respectively between FY23-25. The company has a debt-to-equity ratio of 0.17x, and the 3-year average ROE and ROCE are around 33% and 36% for FY23-25 period.

Industry

The Indian explosives market is structurally underpinned by mining and infrastructure activity, with coal production reaching 1,047.69 MT in FY25, iron ore production hitting a record 289 MMT in FY25, and the construction market projected to expand from Rs. 63,41,060 crore (US$ 740 billion) in 2025 to Rs. 88,26,070 crore (US$ 1.03 trillion) by 2030, all of which are direct drivers of bulk and packaged explosive demand. On the defence side, India’s domestic production reached a record Rs. 1,50,590 crore (US$ 17.57 billion) in FY25, up 18% YoY, with the government targeting Rs.3,00,000 crore (US$ 34.7 billion) in production by FY29, while defence exports surged from Rs.686 crore in FY14 to Rs. 23,622 crore (US$ 2.76 billion) in FY25. The government’s sustained push under Aatmanirbhar Bharat, encompassing Positive Indigenisation Lists, import embargoes on 4,666 items, and a mandated 75% domestic sourcing from the capital acquisition budget has structurally redirected procurement toward domestic manufacturers.

Growth Drivers

• Indigenisation mandates – Five Positive Indigenisation Lists covering 509 items and import embargoes on 4,666 defence items through December 2029, with 75% of the capital acquisition budget mandated for domestic procurement, structurally redirecting multi-year order flow toward indigenous ammunition and propellant manufacturers.
• Surging defence budget and capex – MoD received Rs. 6,81,000 crore (US$ 78.7 billion) in FY26, up 9.5% YoY, with Rs. 1,80,000 crore earmarked for capital expenditure and the armed forces projected to spend US$ 130 billion on capital procurement over 2021–26.
• Liberalised FDI enabling technology partnerships – FDI up to 74% permitted under the automatic route in defence manufacturing (up from 49%) and 100% in mining and minerals processing.

Peer Analysis

Competitors – Premier Explosives Ltd, etc.

Compared to its peers, Solar demonstrates industry leading return ratios, with a ROCE of ~38% and ROE of ~33% against the peer median of ~21% and ~19% respectively. The company’s valuation metrics reflect a significant premium to peers, justified by its superior earnings quality, profitability and a diversified revenue mix across industrial explosives, defence, and international markets.

Outlook

The outlook for Solar Industries remains constructive, supported by improving demand conditions and its ongoing strategic transition toward higher value-added defence manufacturing. While performance in H1FY26 was impacted by an extended monsoon that temporarily affected mining activity and explosives demand, management expects a recovery in the second half as mining operations normalise, supporting double-digit growth in the domestic market and enabling the company to meet its annual guidance. Over the medium term, increasing contribution from defence products and exports could enhance the revenue mix and support margin expansion.

Valuations

We believe the high margin defence pipeline and focused capex plans will help sustain the growth momentum for Solar Industries. We recommend a BUY rating in the stock with the target price (TP) of Rs.17,780, 84x FY27E EPS. We also encourage maintaining a stop-loss at 20% from the entry price to manage potential downside risk effectively.

SWOT Analysis

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