Defence stocks: Nirmal Bang upgrades Paras Defence, downgrades Solar Industries; price targets

Nirmal Bang Institutional Equities has revised its views on Paras Defence and Space Technologies Ltd, upgrading the company to "BUY" with a valuation of 62x FY27E EPS, resulting in a target price of Rs 1,877. This re-evaluation follows significant advancements in their product offerings.

At a recent investor conference, Paras Defence outlined a promising outlook with developments in optical systems in collaboration with Controp Precision, and contracts for advanced avionics. A contract for the Saras-MKII cockpit suite and an anticipated growth in high-power laser systems further underline the potential for an addressable market of Rs 250bn. "The company is expecting promising growth from thehigh-power laser systems in the ground-to-air and ground-to-space applications with a total addressable market of Rs250bn," said Nirmal Bang.

In addition, Paras Defence has entered a joint venture with Heven Drones Ltd to establish a subsidiary in India focusing on logistics and cargo drones, aligning with the Make in India initiative. "This initiative aims to develop and produce logistics and cargo drones for both the defence and civil markets, aligning with the Government of India's Make in India initiative," said Nirmal Bang Institutional Equities.

Management expects a 40% revenue growth in FY26 with stable EBITDA margins at around 27%. The current order book stands at Rs 9.3bn, set to be executed within 18-24 months, with additional expected orders totalling Rs 10bn in FY26.

Meanwhile, Solar Industries India Ltd has been downgraded to "HOLD" as it has reached its target price of Rs 16,651. According to Nirmal Bang, "We downgrade the stock to HOLD as it has achieved our target price of Rs16,651, and value it at 57x Mar-27E EPS, which is +2SD above its 5-year average, implying a downside of 1% with a target price of Rs16,651."

Solar Industries is projecting a 33% revenue growth in FY26, reaching Rs 100bn. The defence segment is expected to contribute significantly, with revenues projected at Rs 30bn, while explosives revenue is set to grow by 15%-20%. Over the next 4-5 years, defence revenue is anticipated to rise to about Rs 80bn.

The company plans a capital expenditure of approximately Rs 25bn in FY26 to bolster its capabilities and broaden its product offerings, funded through internal accruals and debt. "EBITDA margin is expected to be around 27% or higher. Management has indicated that the capital expenditure for FY26 is projected to be approximately Rs25bn. This investment is expected to enable the company to unlock new opportunities by enhancing existing capabilities, upgrading technologies, and broadening the product portfolio to include advanced munitions and aerospace solutions," Nirmal Bang Institutional Equities noted.

Despite the downgrade, Solar Industries' stock has shown a strong performance, rallying 67% since March 2025 initiation. However, management remains confident in transferring rising input costs to customers through mitigation clauses. "Risks & concerns: The management is confident that it can pass on the rising input costs to the customers under the mitigation clauses," explained Nirmal Bang Institutional Equities.

These strategic developments and financial forecasts position Paras Defence and Solar Industries distinctly in their respective markets, with the former poised for accelerated growth and the latter maintaining its current market stance.

Nirmal Bang's assessment reflects the dynamic shifts within these industries, as Paras Defence expands its technological footprint and Solar Industries adjusts its approach amid market changes.

Investors and stakeholders will be closely monitoring the execution of these strategic plans and their impact on the companies' performance in the coming years.