o This robust performance was driven by the company’s strategic manufacturing presence across 9 countries and a global distribution network spanning 90 countries.
o International business (38% of revenue) grew 43% YoY.
o The defence segment (19% of revenue) delivered a strong 115% YoY growth.
o CIL (Coal India) and housing & infra segments declined 3% and 12% YoY, contributing 11% and 15% to revenue, respectively.
o Non-CIL & institutional (16% of revenue) and others (1%) grew 14% and 43% YoY, respectively.
Management guidance for FY26:
o Revenue guidance: The company anticipates revenue to grow ~33% YoY to Rs100bn in FY26. The defence segment is expected to contribute 30% of total revenue (Rs30bn). Explosives revenue is projected to grow 15-20%.
o Over the next 4-5 years, revenue from the defence vertical is estimated to scale up to ~Rs80bn.
o Order book: The current order book stands at over Rs168bn, comprising of defence orders worth Rs150bn and explosives orders of Rs18bn. Execution of the Pinaka project will start in 2Q/3QFY26 and is expected to be a key driver toward achieving the defence revenue target of Rs30bn for FY26.
o Profitability: EBITDA margins are expected to remain healthy at over 27%, supported by the product mix and operational efficiency.
o Capex plans: Management has guided for a capital expenditure of ~Rs25bn in FY26, aimed at: (1) Enhancing manufacturing capabilities. (2) Upgrading technologies. (3) Expanding the product portfolio to include advanced munitions and aerospace solutions; lastly, the investment will be funded through a mix of internal accruals and debt.
View and valuation: Revenue, EBITDA, and PAT Growth CAGR during FY25EFY27E stands at 39%, 41%, and 51%, respectively. The stock is trading at a 1-year forward P/E of 48x, above the 5-year average P/E of 42x. The stock has rallied 48% since we initiated it on 18-Mar-25. We upgrade the stock to BUY and value it at 57x Jun-27E EPS, which is +2SD above its 5-year average, supported by a healthy order book significantly exceeding historical levels, implying an upside of 23% with a target price of Rs17,720/sh. We like the company for the following reasons:
o International business contributes ~35-40% of revenue, providing a natural hedge against domestic cyclicality and policy risks.
o Consistent revenue and profit growth (28% and 38% CAGR, respectively, over the last 5 years).
o Healthy balance sheet with a net debt to equity of 0.1x.
o Stable ROCE/ROE in the range of 25%/30%.
Risks & concerns: The management is confident that it can pass on the rising input costs to the customers under the mitigation clauses.
