ICICI Securities Upgrades This Multibagger Midcap Stock To Buy From Hold, Sees Robust Upside

ICICI Securities upgrades the rating given to Solar Industries India Limited (Solar) from Hold to BUY with a revised target price of Rs 4,760. The brokerage claims a potential upside of 18% from its current level considering the given target price. Factoring in the impressive growth in the defence order book, healthy margins and EPS potential for 47% CAGR (FY22-FY24E), the brokerage value Solar at 45x EPS - corresponding to 2 deviations above 10yr mean.

Stock Outlook

Solar is a mid cap stock with a market capitalization of Rs 36,539.88 crore. The Current Market Price (CMP) of Solar on NSE is Rs 4,038 apiece. The CMP of the stock 5.73% down the 52 week high, which was recorded last month on 11 November 2022 at Rs 4,268.95. Whereas, its 52 week low was recorded on 12 January 2022 at Rs 2,163.55. 
  
 The stock in the past 1 week fell by 0.99% and in 1 month by 1.22%, respectively. In 3 months, it moved up by 16;22%.  In the past 1 year, it moved up 49.79%. In the past 3 and 5 years, it has given multibagger returns of 290.65% and 246.49%, respectively.

Getting future-ready for defence and space

Company, in our view, is well-placed to reap the benefits of likely orders in the defence sector. Key points: 1) Facility to integrate propulsion, detonating units and warheads for Pinaka rockets; 2) state-ofthe-art CoE for lifecycle assessment of explosives and propellants; 3) company is working towards commercialising drones and loitering ammunitions; 4) latest successful testing of Vikram-S affirms Solar's successful foray in the space sector. On the export front, Solar is comfortably placed with ammunition orders worth Rs3bn and potential orders for rockets and missiles from overseas. We believe the company's product expertise fits well into the India government's indigenisation initiative and thrust on exports.

Impressive earnings growth potential

Solar's earnings trajectory remains robust led by: 1) volume growth in explosives segment at ~15% p.a.; 2) gradual traction in defence business; and 3) export orders for ammunitions, missiles and rockets. As a result, we expect EPS CAGR of 47% through to FY24E with EBITDA margin progressively improving to 22% by the same year. Slower than expected execution of defence orders is a key risk to our estimates.

Outlook: Sanguine times ahead

ICICI Securities said, "We see Solar maintaining a healthy EBITDA margin of 18-20% in FY23E. Furthermore, owing to focus on exports/defence, we expect EPS CAGR of 47% through to FY24E. We value the stock at 45x FY24E EPS resulting in a target price of Rs4,760/share. Upgrade to BUY (from Hold)."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.