Defence stock to buy: Analysts see upto 30% potential upside despite Q3 miss; here's why

Defence stocks: Brokerage firms continue to remain positive on Solar Industries India Ltd as the explosives company reported a mixed set of numbers in the December 2025 quarter. On the face of it, Solar Industries reported a strong set of numbers but earnings were below analysts estimates. Brokerage firms, however, continue to remain positive on the stock.

Solar Industries reported a 41.7 per cent growth in the net profit on a year-on-year (YoY) basis to Rs 446.3 crore, while revenue may grow 29.2 per cent YoY to Rs 2,548.3 crore for the quarter ended on December 31, 2025. At the operational level Ebitda increased 34.5 per cent YoY to Rs 708 crore, while ebitda margins came in stable at 27.8 per cent for the quarter.

Solar Industries India's Ebitda was aided by strong contributions from defence (impressive considering Pinaka deliveries were delayed to Q4) and international business (subsidiaries ramping up). It also reported its order book (OB) at an all-time-high of Rs 21,000 crore with defence order book of Rs 18,000 crore, including exports orders of Rs 11,000 crore, said ICICI Securities.

Order inflow in three months till end-Jan 2026, cumulated to Rs 6,000 crore. Business from CIL improved with a pick-up in mining activities post monsoon. Management is confident of achieving its FY26 goals, and guides for overall growth of 20 per cent with Ebitda margins of 27 per cent in next 3–5 years," it added with a 'buy' rating and a target price of Rs 17,200.

Shares of Solar Industries India dropped nearly 2.5 per cent to Rs 13,230 on Thursday, with a total market capitalization of Rs 1.2 lakh crore. The stock has tumbled nearly 26 per cent from its 52-week high at Rs 17,805, hit in June 2025. Despite the fall, the stock is up 10 per cent in 2026 so far.

Solar Industries is trading at a 1-year forward P/E of 47 times, above the 5-year average P/E of 45 times. We maintain 'buy' and value it at 55 times December 2027E EPS, which is 1.5 SD above its 5-year average, supported by a healthy order book significantly exceeding historical levels, with a target price of Rs 17,476, Nirmal Bang Institutional Equities.

"We like the company for its strong international presence, with 41 per cent revenue contribution, providing a natural hedge against domestic cyclicality and policy risks; healthy balance sheet, with net debt-to-equity of 0.1 times," it added and cited rising input costs as the key concern.

Solar Industries is one of the largest domestic manufacturers of bulk and cartridge explosives, detonators, detonating cords and components which find applications in the mining, infrastructure and construction industries. It manufactures high-energy explosives, delivery systems, ammunition filling and pyros fuses for the defence sector.

Despite delayed Pinaka deliveries, Solar Industries reported an in-line Q3FY26 versus Street led by international and defence revenue growth with operating margins at 27.8 per cent, said Nuvama Institutional Equities. Management reiterated FY26 revenue guidance of Rs 10,000 crore and 27 per cent margins, it said.

"Commercialisation of the 155mm shell and Pinaka delivery pickup remain key catalysts. Pinaka-ER orders and continued margin expansion," Nuvama added with a 'buy' rating on Rs 18,000-plus defence backlog, anticipated. However, it has trimmed its target price by FY27E/28E EPS and trimmed target price to Rs 15,800 (from Rs 18,000 earlier).