Solar Industries' recent acquisition of South Africa's Omnia Holdings is expected to significantly alter its revenue composition by FY30, according to Jefferies. The deal, valued at Rs 12,951 crore, will see agriculture contribute around 24% to Solar's consolidated revenue, while mining explosives will account for approximately 52%.
The acquisition is strategically aligned with Solar Industries' existing operations, particularly in mining, and is anticipated to enhance its market presence in Canada, Australia, and the US. Although agriculture is not a core business for Solar, both companies utilize ammonium nitrate as a key raw material, which Omnia manufactures and Solar currently sources externally. This acquisition could bolster Solar's backward integration and control over this critical input.
Jefferies has highlighted potential earnings per share (EPS) dilution of 4-6% in FY28 and FY29 under normalised growth assumptions for Omnia, with the impact likely to moderate to around 1% by FY30. This contrasts with management's guidance, which suggests the acquisition could be EPS-accretive by 0-3% without significant synergy benefits.
The transaction is also expected to temporarily increase Solar Industries' leverage, with consolidated net debt-to-equity projected to rise to 1.2 times in FY28 before declining to 0.8 times in FY29 and 0.5 times in FY30. Jefferies noted that Omnia is currently a net-cash company, and the acquisition values it at around 16 times trailing FY26 earnings.
Despite the near-term EPS dilution and increased leverage, Jefferies remains optimistic about Solar Industries, maintaining a Buy rating with a target price of Rs 28,160. The brokerage cites potential EPS CAGR of over 30% and return on equity exceeding 25% as key factors.
Background
The acquisition comes at a time when Solar Industries' stock has experienced a significant decline, falling over 17% in two days following the announcement. Despite this, the stock has shown substantial growth over the past three to five years, indicating strong long-term performance.
Looking ahead, investors will be watching how Solar Industries integrates Omnia's operations and manages its leverage. The focus will be on whether the anticipated synergies and strategic benefits materialize, impacting Solar's financial performance and market position.
