Target: ₹13,720
CMP: ₹8,865.40
We recently hosted the management of Solar Industries (SOIL) for an interaction with investors.
Key points: Defence and exports & overseas segments could shepherd growth over the next five years; EBITDA margin may sustain at around 27 per cent over the next few years; capex intensity could significantly rise in next five years; favourable macro environment in ammunitions may be a significant tailwind; and focus on indigenisation remains intact.
In our view, it is a wrong notion that Pinaka is the ultimate glory for SOIL. The company has recently executed MoU with the Government of Maharashtra for setting up an Anchor Mega Defence & Aerospace project in Nagpur at an investment of ₹12,700 crore. We believe the revenue potential of such a project could be ₹25,000 crore p.a.
Recently, the company has changed the name of its fully owned subsidiary engaged in defence business from ‘Economic Explosives Ltd’ to ‘Solar Defence and Aerospace Ltd’ showing its sharpened focus on defence and aerospace. In our view, the capex over the next five years is likely to be ₹13,000-15,000 crore in both defence and non-defence (exports & overseas) domains.
We believe the recent stock price correction provides a good entry point in SOIL.