Solar Industries' Defence Share Drops After Omnia Acquisition

Solar Industries’ revenue mix will shift significantly after the Rs 12,951-crore acquisition of South Africa’s Omnia Holdings. The deal reduces the company’s defence segment contribution, with Jefferies projecting a drop to 22-25% of consolidated revenue by FY30. This structural change stems from Omnia’s profile, where agriculture generates 54% of its revenue and mining explosives make up the remainder.

Following the integration, agriculture is expected to contribute around 24% of Solar Industries’ total revenue by FY30, while explosives will account for approximately 52%. Although agriculture falls outside Solar’s core operations, the two entities share ammonium nitrate as a key raw material. This overlap allows Solar Industries to secure a critical input source, currently purchased from external suppliers, thereby enhancing backward integration and controlling input costs.

EPS dilution offsets synergy benefits

The transaction impacts earnings per share differently depending on the source. Jefferies estimates a 4-6% EPS dilution in FY28 and FY29 based on normalised growth assumptions for Omnia. This dilution is expected to moderate to roughly 1% by FY30. In contrast, company management suggests the deal could be EPS-accretive by 0-3%, even before accounting for substantial synergy benefits.

The acquisition also affects the balance sheet, temporarily increasing leverage. Consolidated net debt-to-equity is projected to rise to 1.2 times in FY28. However, strong cash generation should drive this ratio down to 0.8 times in FY29 and 0.5 times in FY30. Jefferies notes that Omnia is currently a net-cash company, valuing the deal at approximately 16 times trailing FY26 earnings.

Strategic expansion in mining markets

The mining division complements Solar Industries’ existing operations by expanding its geographic footprint. The acquisition provides access to key markets in Canada, Australia, and the United States. This diversification reduces reliance on a single geographic region and strengthens the company’s position in the global explosives sector.

Market reaction and valuation outlook

Solar Industries shares fell 4% to Rs 18,480 on Wednesday, extending a two-day decline of over 17%. The stock had dropped nearly 14% on Tuesday following the announcement. Despite the recent selloff, the stock has gained over 300% in three years and around 850% in five years, maintaining a market capitalisation of approximately Rs 1.68 lakh crore.

Jefferies maintains a Buy rating with a target price of Rs 28,160. The brokerage cites a potential EPS CAGR of over 30% and return on equity exceeding 25%. This bullish stance persists despite the lower defence contribution and temporary leverage increase, as reported by GN auto stocks/energy-stocks: solar stocks sources.