The Nagpur-based explosives manufacturer delivered a mixed quarter, with revenue declining sequentially by 3.35% to ₹2,082.22 crores from Q2 FY26's ₹2,154.45 crores, yet maintaining impressive year-on-year growth of 21.35%. The sequential revenue dip reflects typical seasonality in the explosives business, often impacted by monsoon-related project delays and mining activity fluctuations. However, the company's ability to expand operating margins during a revenue decline quarter demonstrates robust operational discipline and cost management prowess.
Operating profit excluding other income stood at ₹552.79 crores, representing a healthy 26.55% margin—a sequential improvement of 172 basis points from Q2 FY26's 24.83%. This margin expansion occurred despite higher employee costs of ₹194.70 crores (up from ₹183.79 crores in Q2), suggesting effective pricing power and favourable product mix. The company's PAT margin of 17.36% in Q3 FY26 also improved from 16.37% in the previous quarter, reflecting better operational leverage.
Financial Performance: Margin Excellence Amidst Revenue Softness
Solar Industries' Q3 FY26 performance reveals a company navigating seasonal headwinds whilst maintaining profitability discipline. Net sales of ₹2,082.22 crores declined 3.35% sequentially but surged 21.35% year-on-year, demonstrating the underlying strength of demand for industrial explosives. The sequential decline was anticipated given the typical Q3 pattern in the explosives sector, where monsoon aftermath and year-end project completions often temper activity levels.
| Quarter | Revenue (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | OPM (Excl OI) |
|---|---|---|---|---|---|
| Sep'25 (Q3) | 2,082.22 | -3.35% | 344.97 | +1.85% | 26.55% |
| Jun'25 (Q2) | 2,154.45 | -0.56% | 338.70 | +5.11% | 24.83% |
| Mar'25 (Q1) | 2,166.55 | +9.81% | 322.23 | +2.34% | 24.91% |
| Dec'24 (Q4) | 1,973.08 | +14.99% | 314.87 | +10.14% | 26.69% |
| Sep'24 (Q3) | 1,715.83 | +1.84% | 285.88 | -0.20% | 25.92% |
| Jun'24 (Q2) | 1,684.80 | +4.60% | 286.46 | +21.87% | 26.67% |
| Mar'24 (Q1) | 1,610.71 | — | 235.05 | — | 21.96% |
The margin story remains compelling. Operating profit margin (excluding other income) of 26.55% represents the second-highest quarterly margin in the past seven quarters, trailing only Q2 FY25's 26.69%. This margin resilience stems from disciplined cost management and favourable raw material dynamics. Employee costs rose to ₹194.70 crores from ₹183.79 crores sequentially, reflecting normal wage inflation and potential headcount additions to support capacity expansion. However, the company successfully absorbed these costs through operational efficiencies.
Interest expenses increased to ₹30.89 crores in Q3 FY26 from ₹27.43 crores in Q2 FY26, attributable to higher working capital utilisation and ongoing capital expenditure programmes. Depreciation of ₹60.62 crores (up from ₹55.98 crores) reflects the company's aggressive capacity expansion strategy, with fixed assets growing from ₹1,990.55 crores in FY24 to ₹2,649.86 crores in FY25. The tax rate of 26.16% remained stable and within the company's historical range of 25-27%.
Quality of Earnings: Strong Cash Generation
Solar Industries' cash flow from operations surged to ₹2,467.56 crores in FY25 from ₹1,406 crores in FY24, representing a 75.5% year-on-year increase. This robust cash generation capability, significantly exceeding reported net profit of ₹1,282 crores, demonstrates high-quality earnings with strong conversion. The company's closing cash position improved to ₹590 crores in FY25 from ₹258 crores in FY24, providing ample liquidity for growth investments whilst maintaining a conservative debt-to-EBITDA ratio of 0.96 times.
Operational Excellence: Capital Efficiency Drives Returns
Solar Industries' operational prowess manifests most clearly in its return metrics, which position it amongst India's most efficient capital allocators. The company's return on equity (ROE) of 25.82% substantially exceeds the cost of equity for most Indian companies, indicating consistent value creation for shareholders. This high ROE stems from a combination of healthy net profit margins (17.36% in Q3 FY26), efficient asset utilisation, and moderate leverage.
Return on capital employed (ROCE) stands at an impressive 34.83% on a trailing basis, with a five-year average of 29.73%. Higher ROCE reflects the company's ability to generate superior returns from its invested capital base, a critical metric for capital-intensive manufacturing businesses. This capital efficiency advantage stems from Solar Industries' market leadership position, which provides pricing power, economies of scale in production, and superior capacity utilisation rates compared to smaller competitors.
The company's balance sheet remains robust with shareholder funds of ₹4,386.34 crores as of March 2025, up from ₹3,305.60 crores in March 2024. Long-term debt declined to ₹404.99 crores from ₹594.83 crores, reflecting deleveraging efforts. The debt-to-equity ratio of 0.09 times and net debt-to-equity of 0.09 times indicate minimal financial leverage, providing substantial headroom for future growth investments without compromising financial stability.
Key Operational Strengths:
✓ Operating profit to interest coverage of 20.60 times in recent quarters demonstrates ample debt servicing capability
✓ Sales to capital employed ratio of 1.43 times reflects efficient asset utilisation
✓ Working capital management improved significantly, with cash flow from operations of ₹2,467 crores in FY25 driven by favourable working capital changes of ₹814 crores
✓ Fixed asset turnover remains healthy despite aggressive capacity additions, indicating strong demand absorption
The Valuation Conundrum: Premium Multiples Test Investor Conviction
Whilst Solar Industries' operational performance merits praise, its valuation presents a more complex picture. Trading at 95 times trailing twelve-month earnings, the stock commands a 144% premium to the industry average P/E of 39 times. This valuation gap reflects the market's recognition of Solar Industries' quality franchise, growth potential in defence and international markets, and consistent execution track record. However, the premium raises questions about risk-reward asymmetry for fresh investors.
The price-to-book ratio of 24.53 times significantly exceeds peer averages, justified partly by the company's superior ROE of 25.82%. However, even accounting for quality, the valuation appears stretched. The PEG ratio of 3.10 suggests investors are paying ₹3.10 for every unit of expected earnings growth—well above the ideal threshold of 1.0-1.5 for fairly valued growth stocks. Enterprise value multiples paint a similar picture: EV/EBITDA of 58.48 times and EV/EBIT of 64.94 times both indicate premium pricing.
| Valuation Metric | Current Value | Assessment |
|---|---|---|
| P/E Ratio (TTM) | 95.02x | Very Expensive |
| Price to Book Value | 24.53x | Premium to peers |
| EV/EBITDA | 58.48x | Elevated |
| EV/Sales | 15.04x | Above historical average |
| PEG Ratio | 3.10x | Expensive vs growth |
| Dividend Yield | 0.07% | Minimal income |
The company's valuation grade has remained "Very Expensive" since August 2020, with brief interludes at "Expensive." This persistent premium valuation reflects the market's willingness to pay up for Solar Industries' quality and growth visibility. However, the stock's 22.11% decline from its 52-week high of ₹17,805.00 suggests some investors have begun questioning whether the premium is sustainable, particularly given the modest sequential profit growth in recent quarters.
Industry Leadership: Peer Comparison Reveals Quality Premium
Solar Industries' market dominance in the Indian explosives sector justifies some valuation premium, but peer comparison reveals the extent of the gap. With a market capitalisation of ₹121,114 crores, the company dwarfs competitors and stands as the largest player in the "Other Chemical Products" sector. Its ROE of 25.80% significantly exceeds peer averages, validating the quality thesis underpinning the premium valuation.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Solar Industries | 95.02 | 24.53 | 25.80 | 0.09 | 0.07 |
| Linde India | 99.55 | 12.78 | 12.47 | -0.01 | 0.20 |
| Premier Explosives | 52.85 | 9.63 | 8.53 | 0.07 | 0.10 |
| Ellenbarrie Indl Gas | 42.93 | 3.88 | 13.97 | -0.06 | 0.00 |
| PCBL Chemical | 33.75 | 3.04 | 14.58 | 1.28 | 1.92 |
| Refex Industries | 17.25 | 2.48 | 23.36 | -0.16 | 0.21 |
The peer comparison validates Solar Industries' quality credentials. Its ROE of 25.80% substantially exceeds most peers, with only Refex Industries approaching similar levels at 23.36%. However, Refex trades at a P/E of just 17.25 times and price-to-book of 2.48 times—dramatically lower than Solar's multiples. This disparity suggests the market assigns significant value to Solar's scale advantages, defence sector exposure, and international expansion potential beyond pure return metrics.
Premier Explosives, the closest direct competitor in the explosives manufacturing space, trades at a P/E of 52.85 times and price-to-book of 9.63 times—still elevated but substantially below Solar's multiples. Premier's lower ROE of 8.53% partly explains the discount, but the gap between the two companies' valuations appears wider than justified by fundamental differences alone. This suggests Solar Industries benefits from a scarcity premium as the dominant listed pure-play in India's explosives sector.
Shareholding Pattern: Institutional Confidence Remains Steady
The shareholding pattern reveals stable promoter holding at 73.15% across the past five quarters, demonstrating unwavering promoter commitment. This high promoter stake provides governance comfort and aligns management interests with minority shareholders. The promoter group, led by Manish Satyanarayan Nuwal (38.93%) and Kailash Chandra Nuwal (23.08%), maintains a minimal pledge of just 1.52% of shares, indicating financial stability.
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 73.15% | 73.15% | 73.15% | 73.15% | 0.00% |
| FII | 6.74% | 7.11% | 6.79% | 5.82% | -0.37% |
| Mutual Funds | 11.96% | 11.70% | 12.22% | 12.94% | +0.26% |
| Insurance | 0.47% | 0.82% | 0.93% | 0.79% | -0.35% |
| Other DII | 0.48% | 0.38% | 0.43% | 0.37% | +0.10% |
| Non-Institutional | 7.21% | 6.85% | 6.48% | 6.92% | +0.36% |
Institutional holding shows mixed signals. Foreign institutional investors (FIIs) reduced their stake by 37 basis points sequentially to 6.74% in December 2025, continuing a pattern of trimming positions from the March 2025 low of 5.82%. This FII selling could reflect profit-booking after the stock's strong multi-year run or concerns about stretched valuations. However, the absolute FII holding of 6.74% remains modest, suggesting limited foreign investor enthusiasm despite the company's quality credentials.
Domestic mutual funds increased their stake by 26 basis points to 11.96% in December 2025, reversing three consecutive quarters of decline. This uptick suggests renewed domestic institutional confidence, possibly driven by the company's consistent operational performance and long-term growth prospects in defence and international markets. The combined institutional holding of 19.64% indicates moderate institutional participation, leaving room for further accumulation if the growth story gains momentum.
Stock Performance: Stellar Long-Term Gains, Recent Consolidation
Solar Industries' stock performance presents a tale of two timeframes: exceptional long-term wealth creation tempered by recent consolidation. Over the past decade, the stock has delivered a staggering 2,105.08% return, massively outperforming the Sensex's 245.70% gain by 1,859.38 percentage points. This extraordinary performance reflects the company's transformation from a mid-cap explosives manufacturer to India's undisputed market leader with expanding defence and international operations.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | 5.09% | 2.54% | +2.55% |
| 1 Week | 8.21% | 2.30% | +5.91% |
| 1 Month | 12.44% | -2.36% | +14.80% |
| 3 Month | -2.04% | -0.29% | -1.75% |
| 6 Month | 0.44% | 3.89% | -3.45% |
| YTD | 13.13% | -1.74% | +14.87% |
| 1 Year | 45.45% | 8.49% | +36.96% |
| 3 Years | 254.35% | 37.63% | +216.72% |
| 5 Years | 1,035.70% | 66.63% | +969.07% |
| 10 Years | 2,105.08% | 245.70% | +1,859.38% |
However, recent performance reveals consolidation and volatility. The stock declined 2.04% over the past three months and gained just 0.44% over six months, underperforming the Sensex in both periods. This consolidation phase follows the stock's peak of ₹17,805.00, from which it has corrected 22.11% to the current level of ₹13,868.65. The correction suggests profit-booking by investors who accumulated during the multi-year rally, coupled with concerns about valuation sustainability.
Technical indicators paint a mixed picture. The stock currently trades in a "Mildly Bearish" trend since January 28, 2026, though it remains above the 52-week low of ₹8,479.30 by a comfortable 63.56%. The stock trades below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—indicating technical weakness. However, the recent 5.09% single-day gain and 12.44% one-month return suggest potential trend reversal if the stock can sustain above the ₹13,400 level.
Investment Thesis: Quality Company, Expensive Valuation
Solar Industries presents a classic investment dilemma: an excellent quality company trading at expensive valuations. The company's proprietary Mojo score of 61/100 and "HOLD" rating reflect this tension between operational strength and valuation concerns. The investment case rests on four key pillars, each presenting both opportunities and risks.
Mojo 4 Dots Analysis
Near-Term Drivers: MIXED – Quarterly financial trend remains positive with improving margins and profit growth, but technical indicators show mildly bearish sentiment with the stock trading below key moving averages.
Quality: EXCELLENT – Outstanding quality credentials with ROCE of 29.73%, ROE of 25.82%, strong cash generation of ₹2,467 crores in FY25, and market leadership in the explosives sector.
Valuation: VERY EXPENSIVE – Trading at 95x P/E, 24.53x P/BV, and 58.48x EV/EBITDA, representing significant premiums to peers and historical averages. PEG ratio of 3.10 suggests limited value for growth investors.
Overall Assessment: MIXED – Quality and growth prospects justify some premium, but current multiples embed optimistic assumptions with minimal margin of safety for fresh investors.
Key Strengths & Risk Factors
KEY STRENGTHS
- Market Leadership: Dominant position in Indian explosives market with world's largest packaged explosives facility at single location in Nagpur
- Superior Returns: ROCE of 34.83% and ROE of 25.82% demonstrate exceptional capital efficiency and profitability
- Strong Cash Generation: Operating cash flow of ₹2,467 crores in FY25 (up 75.5% YoY) significantly exceeds reported profits
- Robust Growth: Five-year sales CAGR of 30.78% and EBIT CAGR of 42.50% reflect consistent execution and market share gains
- Healthy Balance Sheet: Debt-to-equity of 0.09x and net debt-to-equity of 0.09x provide financial flexibility for growth investments
- Defence Diversification: Expanding ammunition manufacturing for military applications provides growth visibility beyond cyclical mining sector
- Margin Resilience: Operating margins of 26.55% in Q3 FY26 demonstrate pricing power and cost management despite inflationary pressures
KEY CONCERNS
- Extreme Valuation: P/E of 95x and PEG of 3.10x leave minimal margin of safety; any earnings disappointment could trigger sharp correction
- Sequential Revenue Decline: Q3 FY26 revenue fell 3.35% QoQ, raising questions about demand sustainability despite YoY growth
- Cyclical Exposure: Mining and infrastructure sectors remain core markets, exposing company to economic cycles and commodity price fluctuations
- Technical Weakness: Stock trading below all major moving averages with "Mildly Bearish" trend classification suggests near-term downside risk
- FII Selling: Foreign institutional investors reduced stake by 37 bps in Q3, indicating profit-booking or valuation concerns
- Limited Dividend Yield: Dividend yield of just 0.07% provides negligible income, making the stock purely a capital appreciation play
- Execution Risk: Aggressive capacity expansion (fixed assets up 33% in FY25) requires sustained demand growth to justify investments
Outlook: What to Watch
POSITIVE CATALYSTS
- Acceleration in defence order wins and ammunition production scale-up
- International expansion success, particularly in African and Southeast Asian markets
- Infrastructure spending revival driving higher explosives demand in H2 FY26
- Margin expansion beyond 27% through product mix improvement and operating leverage
- Valuation correction to more reasonable 60-70x P/E creating entry opportunity
RED FLAGS
- Sequential revenue decline persisting into Q4 FY26, indicating demand weakness
- Margin compression below 25% due to raw material inflation or competitive pressures
- Defence order pipeline delays or cancellations impacting growth assumptions
- Continued FII selling pressure driving stock below ₹12,000 levels
- Earnings growth deceleration making PEG ratio even more unfavourable
The Verdict: Quality Franchise, Patience Required
Score: 61/100
For Fresh Investors: Wait for better entry points. Whilst Solar Industries represents an excellent quality franchise with strong fundamentals and growth visibility, the current valuation of 95x P/E and PEG of 3.10x offers minimal margin of safety. Consider accumulating on corrections towards ₹11,000-12,000 levels or if valuations moderate to 60-70x P/E range. The stock remains a "watch and wait" opportunity rather than an immediate buy.
For Existing Holders: Continue holding with a long-term perspective. The company's operational excellence, market leadership, and defence diversification support the investment thesis despite stretched valuations. However, consider booking partial profits if the stock rallies back towards ₹16,000-17,000 to rebalance portfolio risk. Set a trailing stop-loss at ₹11,500 to protect against significant downside.
Fair Value Estimate: ₹11,800-12,500 based on 70-75x P/E on FY27 estimated earnings (15% downside from current levels)
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results. Stock market investments carry inherent risks, including the potential loss of principal.
