Goldman Sachs: Optimistic Outlook on Solar Industries Q1 Earnings, Maintain Buy

Overview

Goldman Sachs released a performance preview report for Solar Industries (SLIN.BO) for Q1 FY2027. The institution expects the company to achieve strong financial performance, primarily driven by significant increases in ammonium nitrate (AN) prices and solid execution of defense and international businesses. Based on this, Goldman Sachs maintains a 'Buy' rating on the stock and sets a 12-month target price of 19,590 Rupees.

Core views

Strong Revenue and Profit Growth: Goldman Sachs expects Solar Industries to achieve revenue of 33.1 billion Rupees in Q1 FY27, up 54% YoY (management full-year guidance was 42%). This growth is primarily driven by the commercial explosives segment benefiting from rising ammonium nitrate prices in April and May, and solid execution of the defense segment. Quarterly EBITDA is expected to be 9.0 billion Rupees, up 68% YoY, with EBITDA margins flat quarter-on-quarter at 27.2%. Segment Highlights: 1. Commercial Explosives: The segment contributed strong revenue due to a 103% YoY increase in ammonium nitrate prices. 2. Defense Business: Revenue expected at 9.8 billion Rupees, up 133% YoY, slightly down 3% QoQ. Growth mainly driven by execution sequence of existing contracts (e.g., Pinaka rocket orders). As of June 2026, defense order backlog estimated at 181.1 billion Rupees, including 10.8 billion Rupees in new orders in Q1. 3. International Business: Expected to perform strongly, reaching revenue of 11.4 billion Rupees, up 38% YoY. Margin Outlook: Although ammonium nitrate prices began to decline since June 2026 (falling to $348/ton on July 3, down 35% from May peak), potentially causing slight contraction in subsequent EBITDA margins, Goldman Sachs believes that with the increased proportion of high-margin defense segment (expected to reach 32% in FY27, compared to only 6% in FY23), overall margins will be supported and stabilize.

Analysis framework

Goldman Sachs's analysis logic revolves primarily around 'Volume-Price Split' and 'Business Structure Changes'. First, by tracking the price trend of key raw material ammonium nitrate, quantify its direct pull on commercial explosives segment revenue and margins. Second, deeply analyze defense segment order execution progress and order backlog (Backlog), assess their revenue certainty and growth potential. Finally, combined with the company's long-term capacity expansion plans and the trend of increasing proportion of high-margin defense business, judge the company's long-term earnings resilience under raw material price fluctuations. Regarding valuation, use P/E method, discount FY31E EPS to FY28E, and apply 57x target P/E (corresponding to 18-month average) to derive target price.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-Price Split

  Volume-Price Split Analysis

  Decompose revenue growth into volume change and price change dimensions. In this report, analysts distinguish between 'price growth' brought by ammonium nitrate price increases and 'volume growth' brought by defense/international business order execution, thereby more clearly identifying profit drivers.

• Valuation MethodPE/PEG valuation

  Forward P/E Valuation

  Determine target price by discounting expected earnings per share (EPS) of a future year to current or recent period and multiplying by target P/E multiple. This report discounts FY31E EPS to FY28E and assigns 57x P/E, reflecting market's high valuation premium for high-growth defense business.

• Company Fundamentals and Financial Framework

  Business Portfolio Structural Analysis

  Analyze impact of changes in proportion of different business segments (e.g., low-margin civil explosives vs high-margin defense products) in total revenue on overall margin. Report points out defense proportion increase from 6% to 32% will offset negative impact of raw material price decline.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Solar Industries (SLIN.BO)

  Direct beneficiary subject, report coverage subject

  Strengths

  Best asset turnover among domestic defense companies and 90-day cash conversion cycle; Sufficient defense order backlog (over 155 billion Rupees); Favorable position amidst global high-energy material shortage.

  Weaknesses

  Commercial explosives segment profits significantly affected by raw material ammonium nitrate price fluctuations; Recent AN prices have fallen from peak.

  Comparison

  Better asset turnover efficiency compared to global and local peers.

  Risks

  Defense order delays; Expansion risk in unexplored defense fields; Hyperinflation risk in international markets.

Key data

• Q1 FY27 Expected Revenue33.1 billion RupeesUp 54% YoY
• Q1 FY27 Expected EPS63.3 RupeesUp 69% YoY
• Q1 FY27 Expected EBITDA9.0 billion RupeesUp 68% YoY, Margin 27.2%
• Ammonium Nitrate Price Increase103%Q1 FY27 vs Q1 FY26
• Defense Order Backlog181.1 billion RupeesAs of June 2026
• Target Price19,590 RupeesImplied FY27E 77x P/E

Impact & implications

The report believes Solar Industries is at a critical stage of transformation from a traditional civil explosives manufacturer to a high-value-added defense contractor. Short-term, ammonium nitrate price volatility will affect quarterly profit performance, but long-term, increased defense business proportion will optimize the company's profit structure and valuation level. Background of global high-energy material shortage provides favorable macro environment for the company; its layout in emerging fields such as drones and medium-large caliber ammunition is expected to further open up growth space.

Risks

• Defense order delivery delays
• Uncertainty in expanding into unexplored defense fields
• Hyperinflation risk in regions where international business operates

What to watch

• Subsequent trends of ammonium nitrate prices and their impact on margins
• Acquisition status of new defense segment orders (e.g., Bhargavastra, 155mm shells, Pinaka rockets)
• Progress of expansion of international non-defense business in new geographic regions