Given the strong outlook and the rising share of defence in overall revenues, the stock has risen almost 70% so far in 2025. Yet, at 90x its FY26 estimated earnings, the stock may be running ahead of its financials.
The defence sector is expected to drive growth for the explosives manufacturing company.
“Solar’s defence vertical has remained the fastest growing segment in the last five years (62% revenue CAGR over FY20-25), led by strong order inflows, healthy execution and a focus on continuously expanding the portfolio,” pointed out Emkay Global Financial Services.
Defence boost
Defence revenues rose 160% in FY25, doubling their contribution to 18% from 9% in FY24. The management’s revenue guidance of ₹3,000 crore for FY26 implies year-on-year growth of 120%, with the share in total sales climbing to 30%.
Here, the defence ministry’s award of a high-value order of over ₹6,000 crore for the Pinaka multiple rocket launcher system in February helps revenue visibility. Plus, Solar expects to receive some more orders that are being fast-tracked after the recent military escalation on the western borders.
Also, the company’s international business, accounting for 38% of FY25 sales, is seeing strong traction amid a volatile geopolitical situation. Some of its overseas loss-making subsidiaries turned around in FY25, thus taking aggregate pre-tax profits of subsidiaries up sharply by 82% to ₹656 crore.
To leverage its international presence, Solar has recently operationalized its facilities in Thailand and Indonesia and is setting up new facilities in Saudi Arabia and Kazakhstan. On the other hand, the company’s exposure to Turkey, at nearly 10% of total FY25 revenue, could face uncertainty because of its role in the military confrontation.
Solar’s international order book is ₹8,500 crore, to be executed over the next 4-5 years. Overall, the order book at FY25 End is ₹17,000, more than triple the figure of ₹5,100 crore in FY24. Its other customers include Coal India Ltd, which forms 13% of sales, and industrial clients across mining, housing, and infrastructure.
Solar’s estimated domestic market share stands at about 25%. Overall, FY26 revenues are expected to rise 33% over FY25’s ₹7,500 crore seen in FY25. The company’s FY25Ebitda margin at 27% was far higher than the guidance of 23% and should sustain or even improve with the rising share of defenceorders. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.
Capex push
To leverage its presence in defence, Solar has been investing in new product development, in collaboration with the Defence Research and Development Organisation (DRDO). After the successful delivery of Nagastra-1, a loitering munition or a suicide drone, deployed during Operation Sindoor, it has developed Nagastra-2 and Nagastra-3 and expects to receive orders for those products. The other product, Bhargavastra, a counter-drone micro-missile, has passed trials at two levels for different applications.
The capital expenditure plan of about ₹2,500 crore in FY26 is more than double the figure of ₹1,200 crore for FY25, to be metprimarily through internal accrual.
While the defence business continues to do well, other domestic segments, such as coal mining, are seeing subdued demand and lower power consumption. Also, international business faces currency and country risk, although the potential impact would be lower with presence across a large number of geographies.
The stock doubled from its 52-week low of ₹8,500 on 18 February after the receipt of the Pinaka order, further bolstered after Operation Sindoor. Despite the run-up, order inflows from defence would keep investors’ interest alive in the stock.
