Rs 1,616 to Rs 18,141 in five years: Now, this defence stock set to nearly halve, says Kotak

Multibagger stock: Shares of defence firm Solar Industries looks set for losses in the next one year, according to brokerage Kotak Institutional Equities. The brokerage's stance comes after the stock has risen 1,023% in five years. The multibagger stock, which closed at Rs 1616 on Ju1y 13, 2021 rose to a high of Rs 18,141 in the current session. The company, which posted its highest ever EBITDA margin of 26.65% in the last fiscal is set to post a revenue of Rs 13,633.7 crore in the current fiscal, according to Bloomberg estimates. Revenue is set to rise another 22.32% to Rs 16,676.35 crore in FY28. 
Total income is set to reach Rs 2,381.3 crore in the current fiscal, rising to Rs 2939.9 crore in FY28, show Bloomberg data. 

However, Kotak Institutional Equities has a negative view for the company's stock going ahead. Kotak has assigned a target price of Rs 10,300, a 43% downside from the stock's previous close.

The brokerage acknowledged that Solar Industries is India's largest private-sector maker of industrial explosives and one of the country's fastest-growing defence companies.

Kotak said Solar Industries' diversified business portfolio remains a key strength, spanning industrial explosives, high-energy materials, Pinaka rocket systems, loitering munitions and ammunition, which positions the company to benefit from rising defence and infrastructure spending.

The brokerage projects the company to deliver a 28% compound annual growth rate (CAGR) in profit after tax (PAT) over FY26-FY30. It expects earnings growth to be supported by a 35% CAGR in the defence segment, a 26% CAGR in its international business across 10 countries, and steady margin expansion driven by an improving product mix with a higher contribution from value-added businesses.

However, despite its constructive long-term view on the company's fundamentals, Kotak believes the current market valuation already captures much of the expected growth. The brokerage noted that Solar Industries is trading at nearly 55 times its estimated FY28 earnings, leaving limited scope for meaningful upside and resulting in an unfavourable risk-reward equation for investors.

Kotak also flagged several key risks that could affect the company's growth trajectory. These include cyclical demand fluctuations in the mining and infrastructure sectors, the uneven nature of government defence procurement, regulatory risks associated with the explosives business, execution challenges as the company scales up advanced defence platforms such as medium-altitude long-endurance (MALE) unmanned aerial vehicles (UAVs) and counter-drone systems, as well as geopolitical uncertainties. 

The brokerage noted that overseas markets contribute nearly 35% of Solar Industries' revenue, while a substantial share of its defence order book is export-driven, making the business vulnerable to changes in global geopolitical conditions.

Solar Industries is a dominant leader in the industrial explosives and  defence sector with a 24% market share in its  industry. The company offers industrial explosives and defence products.