Target: ₹19,970
CMP: ₹18,890
Solar Industries has announced a 100 per cent acquisition of South Africa-listed company Omnia Holdings, a leading fertilizer and mining explosives maker, in an all-cash deal worth ₹13,000 crore. The acquisition would enable Solar Industries to double revenue by FY28E post consolidation.
However, it will be margin and ROE dilutive, as Omnia EBITDA margin stood at 11 per cent in FY26 with a ROE at around 13 per cent. Management expects a combined revenue of ₹32,000 crore (Omnia revenue of ₹14,000-15,000 crore) with an EBITDA of ₹6,500 crore, implying margin of 20 per cent, lower than Solar Industries margin of 27 per cent, and combined PAT of ₹3,200-3,500 crore. The acquisition would be funded through internal accruals and debt, which implies an additional debt of ₹11,000 crore, and annual interest cost of ₹800-900 crore.
We expect a gradual scale-up in margin for Omnia in the long term, driven by backward and forward integration synergies as witnessed its other AU subsidiaries. We revise our rating to Accumulate and lower our TP to ₹19,970, as we shift to an SOTP method, valuing Solar Industries at 50x (from 65x) September FY28E P/E to ₹18,591 based on lower contribution of the defence space to overall sales and return ratios compressing, due to inclusion of Omnia.
The pace of margin scale-up and reduction of debt would be the key monitorables for rerating.