This defence stock rose 1,300% in five years. Its growth story isn’t over yet

Paras Defence and PSU shipbuilders GRSE, Cochin Shipyard and Mazagon Dock rose 9-12% on Tuesday. Hindustan Aeronautics, Bharat Electronics and Bharat Dynamics also gained 4%.

These are the usual suspects when it comes to India’s defence sector. However, one standout performer that has been flying high due to its growing role in India’s military ambitions is Solar Industries India Ltd.

Shares of the company have been on a steep upward trajectory, rising around 16% over the last month on defence-related tailwinds, and 46% over the last year on the back of record revenues and a robust order book. The stock is also up a whopping 1,300% over the last five years.

For the uninitiated, Solar Industries is one of India’s largest manufacturers and exporters of explosives and initiating systems, with around a 24% market share.

It is also India’s first private sector company to set up an integrated facility for defence products such as high energy materials and propellants for rockets, and warheads.

However, such a rally hasn’t come cheap. At a price-to-earnings ratio of 105x, valuations are rich, reflecting investor optimism and pricing in significant growth.

That said, the defence business, where the company is rapidly expanding its scale and scope, is what makes the story compelling.

Let’s find out why this lesser-known stock deserves a closer look.

Also Read: Can this battered defence stock forge a new path? Only if it cleans house first.

Defence business set for substantial earnings growth

Solar Industries began as an explosives business, but over the last decade, the company has diversified its business by foraying into the defence sector.

The share of defence in its overall revenue has steadily gone up, from a mere 6% in FY23 to 17% in the first nine months of FY25. The company’s order book has grown in tandem from ₹2,600 crores at the end of FY24 to nearly ₹13,000 crores by the end of FY25.

CEO Manish Satyanarayan Nuwal anticipates the number to hit 30-35% over the next four-five years. The rest (about two-thirds) will be equally split between the company’s international and domestic businesses.

Several tailwinds are expected to support this momentum, including rising government spending and escalating geopolitical tensions.

Given the current geopolitical situation, the government is expected to lean more heavily on domestic defence manufacturing, should the country enter a period of heightened military preparedness.

Notably, Solar Industries is the only private company to manufacture warheads, a critical capability in the country’s defence ecosystem.

The stock also stands to gain from government spending under the ‘Atmanirbhar Bharat’ initiative.

Last month, the Indian Defence Acquisition Council approved procurement proposals worth ₹54,000 crores, adding to a total of ₹2.2 trillion worth of approvals in FY25, underscoring the government’s strong push for a self-reliant defence sector

Apart from this, it is also expected to get a boost from global tailwinds such as ammunition shortages and from ReArm Europe, the European Union’s strategic initiative, aimed at bolstering the EU’s defence capabilities.

Rheinmetall AG, the German automotive and arms manufacturer, in its latest commentary, has indicated that the EU defence budget is expected to be €1,000 billion by CY30, of which 40% would be towards equipment procurement.

ICICI Securities expects significant benefits for Solar Industries, as its products dovetail into the key tenets of Europe’s enhanced spending plan.

Also Read: Indian defence stocks: Amid slump, an opportunity under Trump 2.0

Diversifying product portfolio beyond Pinaka

In January this year, Solar Industries secured a ₹6,084 crore defence contract for the production of the Pinaka Rocket System, a sophisticated long-range artillery weapon.

The deal was a milestone for the company, marking the first time a private company was awarded a contract for the latest artillery system.

Several countries, including Nigeria and Indonesia, have already expressed interest in the Pinaka, and for good reason. The Pinaka is said to be one of the best rocket systems in the world, that can launch a rapid series of 12 rockets in just 44 seconds.

However, according to ICICI Securities, Pinaka is only the beginning of Solar’s bigger plans. The company recently executed an MoU with the government of Maharashtra to establish an Anchor Mega Defence and Aerospace project in Nagpur at an investment of ₹12,700 crores.

The proposed project will focus on expanding production capabilities in critical defence products such as drones, unmanned aerial vehicles (UAVs), counter-drone systems, energetic materials, and next-generation explosives, each having the potential similar to or higher than Pinaka.

As part of this initiative, the company plans to expand its defence portfolio beyond Pinaka. Its wholly owned subsidiary, Solar Defence and Aerospace Ltd, has announced its entry into the development of advanced UAVs.

The company also recently unveiled the Bhargavastra Counter Unmanned Aerial System (CUAS), designed to address the increasing threat of drones in modern warfare.

Apart from this, the company is preparing to compete in the 155 mm shells market, supporting India’s aim to become the prime manufacturing hub for advanced 155 mm artillery ammunition.

Additionally, it has also ventured into the space sector, entering the propulsion system business through a partnership with Isro, and investing in Skyroot Aerospace to manufacture space launch vehicles.

Diversifying the product portfolio beyond Pinaka not only strengthens Solar’s strategic relevance but also helps it tap into multiple high-growth segments.

In the long term, this should help stabilise the company’s revenue streams and enhance its positioning in India’s evolving defence ecosystem.

Healthy balance sheet to support robust growth

Solar Industries’ revenue and net profit have shown robust growth over the last five years, growing at a compound annual growth rate (CAGR) of 20% and 28%, respectively, on the back of a growing order book.

Margins have also steadily increased from 19% in 2020 to 24% in FY24 due to improved operational efficiency. Analysts expect this momentum to continue. ICICI Securities expects this to expand further, as the share of the relatively lower margin India business recedes to 30% by FY30 from 60% in FY18.

However, with heavy capex plans on the horizon, the company’s balance sheet could be put to the test.

As the company invests heavily in building capabilities both in defence and non-defence domains over the next five years, it may need to rely on a mix of internal accruals and external funding to finance its expansion.

For now, it has plenty of cash on its books to support this growth. Crisil expects cash accruals of ₹900-1000 crores in FY25 to comfortably cover the company’s annual debt obligation of ₹330 crores.

Its debt metrics are also comfortable–debt to equity ratio of the company stands at 0.3x as of 31 December 2024 and interest coverage ratio at 15.5x signaling headroom for additional leverage if required.

Both operating and net profit margins are likely to improve from their historical levels, which will help in aiding the capex.

Conclusion

Solar Industries may not be a new name in India’s industrial landscape, but its evolution into a defence powerhouse is rewriting its growth narrative.

While the company has already delivered phenomenal returns in the past five years, its strategic expansion into high-impact defence verticals points to a multi-year growth runway.

That said, the stock is not risk-free. A slowdown in exports or global defence demand could weigh on performance. Volatility in raw material prices could also squeeze margins if not managed carefully.

Also, with the stock trading at a lofty valuation of 105x earnings, any misstep in execution, delay in order inflows, or macroeconomic setback could lead to steep market corrections.

Yet for long-term investors willing to accept near-term volatility, Solar Industries presents a compelling proposition. It may not be a secret anymore, but its trajectory is still far from fully realized.

For more such analyses, read Profit Pulse.

Ayesha Shetty is a research analyst registered with the Securities and Exchange Board of India. She is a certified Financial Risk Manager (FRM) and is working toward the Chartered Financial Analyst (CFA) designation.

Disclosure: The author does not hold shares in any of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers should conduct their own research and consult a financial professional before making investment decisions.