Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Premier Explosives Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Hina Agarwal from Stellar Investor Relations. Thank you, and over to you, ma'am.

Thank you. Good morning, everyone. I, on behalf of Stellar Investor Relations, welcome you all to the Premier Explosives Limited Q2 and H1 FY '21 Earnings Conference Call. We shall be sharing the key operating and financial highlights for the quarter and half year ended September 30, 2020. We have with us today the senior management team of Premier Explosives Limited, Mr. T.V. Chowdary, Deputy Managing Director; and Mr. C. Subba Rao, CFO. Before we begin, I would like to state some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company's financial performance have already been e-mailed to you. Now I invite Mr. Chowdary to share his initial remarks on the company's performance for the quarter. Over to you, sir.

Yes. Thank you, Hina. Thank you, everybody, for joining the call. We hope that everyone present on the call and their families are safe and healthy during these times. Also, I would like to take this opportunity to thank each and every employee at Premier for their continued support in navigating through the challenging times. To begin with, I would like to take you through the industry developments, particularly the Defense sector, which is experiencing a structural shift. Lately, the government is providing a significant trust to defense production capabilities of the country with the aim to reduce the dependence on imports and become self-reliant through Make in India initiative. Government undertaken various initiatives like import embargo on 101 defense products, increasing the FDI limit from 49% to 74% under automatic route, formulation of draft defense production and export promotion policy 2020. Among other things, to bolster the private sector participation in the Defense sector with the aim to double India's defense production in over 5 years. To provide the further impetus, the Ministry of Defense has revised the offset guidelines and abolished the policy that entailed foreign companies investing at least 30% of the contract value in the Indian manufacturing sector in case of government to government a single vendor deal. As per the new guidelines, preference will be given to manufacture of complete defense products or components and various multipliers that have been added to give incentivization in discharge of offsets. The new defense acquisition policy has been aligned with government's Atmanirbhar Bharat, and it will empower the Indian domestic industry through the Make in India initiative with the ultimate aim of turning India into a global manufacturing hub. In line with the government objective of indigenization in the Defense sector, in recent time, test firing of various missiles like Prithvi II, BrahMos, Shaurya, Rudram-1, Nag amongst others has been conducted. Now coming to the company's major developments, I'm happy to share that PEL has recently received an industrial license from Department of Promotion of Industry and Internal Trade under Arm's Act 1959 for the manufacture of all types of warheads and electronic and mechanical fuses. The proposed annual capacity for blast warhead is 2,500 units, fragmentation warhead is 5,000 units, shape-charged warhead is 2,500 units. Electronic fuses is 4 lakh units and mechanical fuses is 6 lakhs units. This is a significant development for the company. It will enable Premier Explosives to enter into new business areas in defense explosives. The production of these products would be done at our Katepally facility. In the Commercial Explosive segment, we have recently received an order worth around -- INR 83 crores for supply of SMS/SME explosives and accessories. With government impetus on reducing import dependency on coal in ensuing years and allowing private sector participation in commercial mining space provides a significant opportunity for growth in this segment. Commenting on the business performance, during the past few months, our earlier focus has been on the resumption and gradual improvement of production activities. The same has been reflected in financial results. Our continuous efforts have aided in delivering strong performance even in these uncertain times. We have registered the 5% year-on-year growth in the topline during quarter 2 of financial year '21. With the improvement in the supply chain and logistics, including for import of raw materials, our production activities are steadily getting back on track, which enable us to deliver better performance going forward. On predispatch inspection of supplies, things are also improving on that front. Recently, a team has been assigned by the MoD for the inspection of the orders. We expect this inspection to be completed in the near-term and then post which we will be able to dispatch the orders. Now I would like to quote -- update on the status of a few major orders. Further to our update on Chaff cartridges and Pyro cartridges orders -- Flare cartridges order during the last quarter, the resumption of supply chain, the import raw material now available, we have started the execution of the order during the quarter and expect to complete the delivery over the period of 2 years. Now coming on missiles and propellant. Akash missile propellant order, the execution is on track and expected to complete delivery in the third quarter. In addition to this, MRSAM, Astra, for which the orders have been received, the production process have started. And about the Katepally, the new plant has started functioning and the propellant plant has started functioning. And it's -- the trial production is going on for PSOM-XL defense -- sorry, space requirement as a strap-on motor, and also other defense propellents that is PJ-10, Pralay and other activities have already started. And RDX & HMX Plant is commissioned and trial production has been completed. And assembly of rockets has started, and we have already assembled, and the products for export are ready. And we have also received SCOMET license for these products. And in addition to this, as I mentioned earlier, the new license for fuses and warheads, now will open new avenues and new business. The defense and coal mining sector at the cusp of transformation at Premier. They are all set to reap opportunities going forward. Now -- and then I'm talking about PJ-10, PJ-10 is more popularly known as BrahMos. So once this trial production is completed, we will be in the production of BrahMos propellants. Now I request our CFO to share the financial performance. Thank you.

Thank you. Good morning, everyone. The result presentation for the quarter has been uploaded on the stock exchange and on the company's website. I believe you all may have gone through the same. Now I would present the financial results for the quarter ended September 30, 2020. With the unlocking of the geographies, which have witnessed improvement in our performance and the same is reflected in the quarter ended September 30. The total income for Q2 stands at INR 453 million as compared to INR 432 million corresponding period last year. EBITDA stands at INR 40 million with EBITDA margin of 8.9%. Our profit before exceptional item stands at INR 11 million. As an exceptional item, we have a reported voluntary retirement expense of INR 91 million in Q2, which has resulted in after-tax loss of INR 80 million. VRS is a onetime expense and would result in manpower cost savings. Now coming to the order book, the company's total order book now stands at INR 5,109 million, out of which explosive business comprises around INR 1,161 million; Defense segment, INR 2,196 million; and Services, that is O&M, was INR 1,752 million. With this, we now open the floor for questions and answers. Thank you very much.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Kishore Agarwal from CRISIL.

Yes. So I have 2 questions. First one is on the order book. Like if I look at the revenue plus the execution and I deduct the order book, there is a negative number of INR 10 crores. Have some orders gone out from the order book? And my second question is on the order pipeline. How is the order pipeline looking like?

Yes, you are right. Because when the INR 83 crores order, which we have reflected at Singareni Collieries, the previous contract ended, there some amount order book was there, but before that was executed, new contract has come. So yes, there is a -- some amount out of the previous order.

Okay. And how is the pipeline?

Yes. Pipeline, like Mr. Chowdary has already said, Astra missile, whatever the small numbers, which we already received, that is under execution. Further orders are expected on that. And chaff and flares, we have participated in a tender, which is a global tender at that time, we are yet to receive the order for that. But price negotiation and that steps are over, we hope to get it -- I mean, we were hoping that to -- we have received 2 weeks back, but somehow it is in Delhi, but at any moment it can come.

And about this rockets, a lot of FIM components have to be issued by the customer. And those FIMs they source from other industries. So all industries are affected with COVID. So those -- if they get their deliveries delayed, so we get our FIM issues delayed. So -- but we are hoping that now things are coming in line, and then we'll be able to catch up.

Okay. And I have one last question that the VRS expenses that you took, what will be the net benefit going forward for the company?

Yes. Sorry, I was a little...

My question was like, what will be the annual savings that we will generate from the VRS that we took?

Yes, that is, on the VRS front, say we reported something like INR 9 crores of expenditure as one-time that would result into annual saving of about INR 3 crores, that is approximately INR 25 lakhs per month. But only thing is, if at all, if we require we may -- to increase the production, we may have to use some contract labor so that may vary between the time to time. But on a theoretical basis, it is INR 25 lakhs per month is the saving for 78 number of employees.

The next question is from the line of Milan Shah from Urmil Research.

Hello?

Yes.

Congratulations for good number and your best effort to trunk under the company. My question is the order, which is declared on 9th October, which is INR 82.83 crores, it is included in INR 510 crores?

No, no. See, that is a order which is a new one. Of course, previous order which was there that was not completely done, but because new order came, so we cannot execute the old order.

Okay. But -- means the INR 510 crores plus INR 82 crores, right?

No, no. That includes, already it is there.

I think I would like to add here, it is not that we could not supply. It is -- they always order a little excess quantity, and as per the allocation we have to supply. Now this was the left over at the end, and the new order has come and then new order is issued by shop closing that.

[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Sir, in terms of warheads, you mentioned about the quantities at the Katepally plant, 2,500 units, 5,000 units. So can you -- sorry, but can you just repeat that?

These are the licensed quantities.

Yes.

Warhead is 2,500 units in blast-type warhead. There are different types of warheads, 3 different types. So blast warhead is 2,500, and fragmentation warhead is 5,000, and shaped-charged warhead is 2,500 units.

Shaped warhead. And there was some 4 lakh unit also from one item.

Yes, we have fuses.

Sorry?

Electronic fuses.

Fuses. Okay. Okay. And -- so these are in terms of units. So, at, let's say, optimum utilization, what kind of revenue this all products can generate in terms of rupees, if you can?

See, these all -- name doesn't give what is the size and all those. It only puts in one kind of classification. But warheads can be of 1 kilo or 10 kilos or 0.5 kilograms also. So we can't give a figure for that. Similarly, fuses also. Yes.

So let's say, these products, are they currently imported by the Army or these are already manufactured by some other company in India? And what could be the size of these products -- opportunity size? Let's say, whether we get the order or not, but what would be the opportunity size?

See, the -- yes, in olden days, missiles, they were -- themselves were getting imported. So warhead is part of a missile. So few rockets which were being made in India, those rockets, some warheads and all the old conventional warheads are being made by ordnance factories and others. But all the new missiles, which are introduced, that is MRSAM, Astra, BrahMos, all these things, -- now like we said that we are making propellant, each rocket motor also needs a warhead and also needs some fuse. So that is the opportunity.

Can you just quantify in terms of rupees opportunity size?

So like I mentioned, the sizes and all those they vary. So we can't really say that in terms of rupees.

Okay. Okay.

Like it -- and that will be floated and we will understand the -- actually in clear terms. This is very early to say any number on that.

Okay. Okay. Secondly, sir, in terms of exclusive and also in terms of defense, what kind of order book we can expect in H2? If there are some -- we already have tendered or we are participating in any tender, what kind of fresh order inflow we expect in H2 in both the segments?

No, at present, it is an ongoing process, tenders and participating and all those. Yes, several RFPs and tenders are in line in which we have participated. And we may get all of them or we may get some, so...

Yes. At this point only, like we were discussing it earlier, chaff and flares, which we have already participated in the tender, at any moment that should come. The value of that would be around INR 34 crores.

Okay. And is there any other where we are already L1?

Astra is another missile, where not only L1, right now, we are the single supplier for it. And VDL is the integration agency. VDL has already negotiated the price with us, and it is in the process of ordering. Similarly, MRSAM also -- we already have the order. They have requested us whether we can -- against the same order, same terms and conditions, whether we can double the quantity. So these are going on. And there is a new one which is coming that is vertical launch SRSAM, where, again, we are the only provider of propellants and all those. So that is one thing actually going on. And PJ-10, PJ-10 that is BrahMos. BrahMos, now the trial production is going on at our Katepally unit. Once the trial production is completed, then it is going to be regularized, and it will get converted into orders.

Okay. And in Katepally plant, you also mentioned that assembly of rocket has started, even the trial production of HMX and RDX have been completed. So any tenders going on for these products also, any opportunities in the near future?

Yes. As far as rocket assembly is concerned, as like we have already informed earlier, we have -- we are holding orders from Israel, Israel Aerospace Industries, 5 rockets...

Yes. But that was quite small order. So anything significant we're expecting rocket or HMX/RDX side?

Yes. HMX/RDX alone is not the thing. It is the warheads which we are going to make with HMX/RDX. They'll be used in the assembly. And rockets and missiles, yes, the new rockets which are being introduced, the government is seriously thinking of going for integration to the agencies, which have already worked in the explosives and are aware of handling explosives and hot integration.

Okay. Okay. And sir, now that we have already completed the half year, and you are saying that the things are coming back to normal, so any guidance in terms of what kind of revenue we can generate this year, FY '21, and even FY '22?

Yes. Our target is something like INR 200 crores for the full year, but let us see whether -- I mean, it depends upon some of the FIMs and all that. But our target is INR 200 crores, this year.

And anything broadly on next year?

Let us see that one.

Okay. Okay. And last one thing. So in -- if I see our first 6-month sale is around INR 68 crores and our receivables are also almost kind of INR 62 crores, so how is the situation in terms of payments? Are we getting it on time? Or are we getting it now from the government? And similar with that -- in continuation to that, our short-term borrowing is already INR 57 crores. So because of this delay in the receivable, are we expecting some more buildup in the short-term loan? Can that increase?

Yes, that may remain more or less same because we are hoping to collect some of the receivables. In October already, we have got some good amounts already received, and a few more remounts are expected in balance of this month or early November. But the...

Okay. Yes, yes. Sorry.

Yes. In terms of the total utilization and all that, yes, you are right because more receivables are outstanding, we had to borrow higher amount. We were actually discussing that point how to reduce the borrowing and reduce the finance cost.

Okay. And last -- just one last question. So we took a moratorium during the last 6 months, so are -- now that our moratorium ended on 31st August, so are we back to the normal payments? Or are we planning for any restructuring of orders?

I think it will go -- repayment will start, only we put a word to them if -- basically the term loan which is there with HDFC Bank, so we requested them if they can give a -- some more early levy time, but they have yet to answer on that.

[Operator Instructions] The next question is from the line of N. K. Arora, Individual Investor.

First my congratulations to the management for securing a industrial license for warheads. My first question is, sir, we have all the capability to produce warheads or will require some technology assistance?

We have capability for producing the warhead, but like each warhead is specific to a particular missile, so there we also need some input specific to that missile and all those to produce. Otherwise, the manufacturing facility, equipment, process and all those are -- we are quite conversant.

Secondly, sir, who -- like warheads, which are used in missiles, who is the order for these warheads, like BDL or the defense industry?

BDL. Defense industry doesn't directly take warhead. The warhead goes into the assembly of the missile. Right now, BDL is the only integrating agency which is integrating missiles. Now in future, I think many other people are planning to enter. And we are also receiving a lot of queries.

Okay. And thirdly sir, we have received all the licenses to produce warheads or some other licenses are also required?

No. We have received all the licenses. You require manufacturing license, you require storage license, you require sale license. So we have all of them.

Secondly, sir, ISRO is again starting flights from next month onwards. So -- and they are starting the small satellite launch vehicle also. So anything, especially, which has come to the space front from the company side?

So like I have mentioned earlier, we have an order for producing strap-on motors for PSLV. Now that activity also was suspended during the lockdown period, but it has started. Now they are not able to visit, but regular video conferences are taking place, and then we are exchanging the reports and all those. And now we got clearance for casting. There's a process where they -- step-by-step they give clearance. Now they've given clearance for full-scale motor casting. And the hardware also issued by ISRO. So before December, I think first motor -- second motor, rather, first motor we have already produced. Second motor we'll complete in December. And another 2, if everything goes well, then in this current financial year.

Thirdly sir, there was some piece of land to be allotted near SHAR for propellant plant, so any progress on that front, sir?

The land is identified. Earlier land, which was allotted was found not suitable for our purpose. So we went back and then requested for a different location. Now the land is identified, and it is earmarked for us, surveyed and reports and all completely submitted. So now government has asked commissioner of industries to get into it and then expedite the allotment process. It is going on because there are so many steps in reaching the hand in the government process.

The next question is from the line of Hardik Jain from ISJ Securities.

Most of my questions are answered. I just have 1 question. So you said that we'll be supplying this strap-on motor for -- 1 strap-on motor before December and 2 other by end of March. So how big is the value for this 3 motors that we'll supply in this year? How much revenue can we book from it this year?

Revenue is a competitive figure where the -- we don't want to declare that. Because we win all these orders against competition.

Okay. Okay. And we also -- we're also doing some Akash propellant. And -- so what is the size of this order, the propellant that we are doing for Akash?

The order is for 1 lot of -- no, earlier, we have completed. As you are all aware, we have done more than 2,200 numbers. Now -- yes, the BDL has completed their order what they have to supply. Now their next order is in the pipeline. So during that process, they have released order for 1 lot of booster grain and 2 lots of sustainer grain. So -- which will be around 60 and 120.

60 and 120 numbers?

Yes.

And -- so I just want to gauge, sir, in terms of value, how big this opportunity can be? Because in future also we'll be supplying probably this material, too, for Akash.

No. And again, this is a sensitive concern.

The next question is from the line of [ Tejas Garg ] from Counter Cyclical Investments.

Sir, recently, Solar Industries got an order of over INR 400 crore to supply 1 million pieces of multimode hand grenade. Sir, so I understand like we were also manufacturing hand grenades, sir, so did we participate in this bid?

No. We don't produce hand grenades. What we call hand grenades are mob control devices used for tear gas and oleoresin gas like chilli bombs kind of things, not the grenades what Solar Industries is going to supply. So we have consciously did not participate on that for safety and security reasons.

Okay, sir. And sir, also, sir, now we -- sir, majority of our revenue is coming from Defense sector. And -- sir, but still, our operating margins have not increased, sir, in fact around, sir, 8, 10 years back, our operating margin used to be around 20% when predominantly we were explosives and basically detonator company and now even though we have been able to transition to Defense sector contributing to majority of our revenues, but sir, why our margins are not increasing?

8 to 10 years back, all the detonators and other products are not in this much competition. That is why over the period of time, we thought let us focus more on the defense products. But to your question of current why it is still low. Yes, we have to still -- the toplines should still be a little more higher to absorb the fixed costs.

If you look at our past 3 or 4 years balance sheet, you will see that it was only some 20%, 25% was the defense contribution. And now it has slowly, it is changing. Now it is reaching a level of 50%. So it's not that we have completely switched over. It's not an overnight process. The defense industry, it has its own gestation period.

Okay, sir. And sir, like we have INR 220 crore worth of defense order, sir. So now, sir, is there a schedule to supply this? Or as soon as we are able to supply the government, so basically, our customer is ready to accept, basically, the deliveries?

See, the schedule is not preventing us from supplies, but there is a deadline. Before this deadline, you have to complete the deliveries. But it doesn't fully depend on our hands because they have to issue free issue materials, FIMs, they are called. So we are high-energy people. We make energetic material, whereas the missile contains a lot of hardware, metal components and all those, which are issued to us by our customer. And when their vendor delays the supply of these hardwares, so then it gets delayed. So yes, then what happens then we request that because of you could not supply, we request for extension of delivery periods, so they extend, that's the process -- ongoing process. Yes, one point, where Akash is there where there are no hardware, and we could produce in full hog and then supply 2,200 numbers.

Sure, sir. Sir, so basically, this INR 220 crore worth of defense orders broadly, sir, by when is this executable? Like in the next 1 year, 2 year, by when we will deliver this INR 220 crore?

Yes, except the service contract what we have with ISRO, which is a long-term contract, all others are deliverable in 1-year period.

Okay, sir. So basically, sir, in the -- over the next 4 quarters, our -- we should be basically, by and large, executing around INR 55 crore worth of defense orders per quarter, broadly speaking?

Yes. Yes, that is the target like already discussed. But if the FIMs don't come in time and all that...

Yes, some orders can overflow from this quarter to other quarter or some other quarter to this quarter, it can happen. But yes, broadly, what you said is correct.

Yes. Let us not go purely by some number divided by some quarter that is difficult to answer those kind of questions.

Okay, sir. Sir, so, sir, by -- from Q3 onwards, sir, what kind of quarterly run rate per quarter do you expect as far as topline is concerned?

Again, you are asking the same question. So let us wait. Like we already told our target for the full year is about INR 200 crores, so let us see that first and then let us go for the balance of the period.

The next question is from the line of Anurag Patil from Roha Asset Managers.

Sir, can you please elaborate a little more on this new policy. [Technical Difficulty]

Mr. Patil, sorry to interrupt you sir. Please use the handset mode, the audio is breaking, sir.

Is it clear now. [Technical Difficulty]

No, sir. The audio is breaking from your line.

Just give me a second. Hello?

Yes, sir. Please go ahead.

Yes. Sir, can you please elaborate a little more on this new offset policy, how it will be affecting the overall industry dynamics?

Yes. The new offset -- it's not new offset policy, rather it is new defense acquisition policy. You mean that?

Yes, sir. Yes, sir.

Yes. The basic idea behind it and the thing is to bring impetus to defense industry by increasing the Indian content and also by declaring 101 number of items as ban from imports. And then encouraging the foreign investments by increasing it to 74% from 49%. So purpose of all this is to -- because even though a lot of measures are taken by government, if you see the past 4, 5 years, there isn't much. So now they are trying to push it further, so that it'll attract more and more -- it will become more attractive.

Okay. And sir, is it possible to quantify what kind of opportunity it can create for us or overall industry -- incremental opportunity?

No, I don't think -- because this opportunity is not just our business. It has so many things, like hardware, capital, tanks, aircrafts, yes, submarine, ships, guns, so many things are there in it. So those are all not familiar with. Ours is high energy materials, ammunition, rockets, missiles and all those. Yes.

And sir, recently, government has test fired almost 12 missiles so what kind of opportunity it can create for us in these -- combined all these 12 missiles?

Like I mentioned, we are the only providers of propellant in several of these missiles, which are being tested by the government. So the movement they get productionized and they come to assembly line, so definitely, first, at least 500 to 1,000 numbers only we'll be supplying. We do not know whether by that time anybody can come or not, but that's an opportunity. Like already, the few of them are now on the production line, that is MRSAM, Astra, I mentioned you and LRSAM. These are already -- after Akash, these are the next missiles which are going -- being productionized by BDL. So other than this, there are other still in DRDO trials. Qualification trials are going on. Those are the next ones, which will come. And BrahMos, yes, of course, already -- BrahMos is another missile, which is already now in usage and in launch.

Okay, sir. And one last question. What would be the CapEx number for FY '21?

Yes. It will be INR 65 crores to INR 70 crores.

The next question is from the line of Pankaj Bobade from Axis Securities.

Sir, first question would be regarding industry as the previous analyst also asked. So there are 12-odd missiles which are under various types -- stages, maybe in production stage or trial stage, so how does these -- production of these in missiles change the dynamics of the industry? Yes. And secondly, -- second question is related to our company. So, these missiles would be procured on, say, tendering basis. So would we be -- how do we people bid for it? And how would our margins increase going forward?

See, like we have mentioned out of this 12, I won't name them now, but at least 6 of them are loaded with our propellant. They are qualified with only our propellant, Premier Explosives propellant. So all these days they are in the R&D mode at DRDO qualification and all those. Now 2 of them have come to production like I mentioned. As the balance come into production, definitely, we are the people who are going to be benefited and the industry also. All the other vendors who are working with DRDO, now they will get the opportunity to supply for production. It's a big boost.

Sir, generally, when some order would be made, so how would -- big would be the order? I mean there are certain, what you call, regiments of these missiles, right? So how big can this order book be? I just want a color. I don't want the exact number.

No. Like we -- our experience with Akash and other, say, MRSAM, they start with the 2-digit figure, the 70, 80 numbers, 60 numbers. Then the next step, they go to 150 to 200 and then next, they go to 400 to 500 like that. It is incremental increase, they do it. Our Air Force and Army also places order on them like that, and they also do it like that.

So in value terms, how the industry can benefit from these order books? So what can be the quantifiable order book for the industry as a whole?

No, that we are not ready to that information because industry, as such, there are many players in it, hardware and all those. And even our part of it also, we -- this is a sensitive information, price-sensitive that's why we don't want to.

Okay. Regarding the margins...

Yes?

Well, as these are tender-based order books, so going forward, everybody would be like -- would like to bag it and hence would bid for the lowest one. So how do we see our margins going forward?

Our industry, as I have already mentioned, we have the advantage of being in the niche area. And then right now, the single vendor for the -- these missiles, the propellant. So it is more we will be competing against ourselves only rather than competing with others.

Okay. So do we see us going towards the peak margins, which we had seen a couple of years back?

Yes, we are hoping.

The next question is from the line of [ Nitin Gandhi ] from KIFS Trade Capital.

Can you give some color on CWIP and some more details, it's almost INR 66 crores now?

Yes. This is like we discussed in earlier calls also. The project is at Katepally. It is a greenfield project. Total of 250 acres land is there, and the facilities are being built for manufacture of different products, one of them is solid propellants and rocket assembly. Others, maybe technically, maybe Mr. Chowdary will explain that better.

Like Katepally, we have so many products, which we have already announced and you are aware, where we got all the licenses. And another product, which doesn't require license, but we got into is the thermal insulation, which is, again, addition to our products, which last year, we have announced. Now that is another area of capital investment, which we have invested and which will appear in this year. And as on date, we want to consolidate with whatever we have invested, but we never know because with the new requirement of ammunition and all those things where we already have the license or we are going to get licenses, there if need comes, we may have to.

So this -- what's the additional amount which you have planned is on date and that is yet to be spent? And when is the INR 66 crore is likely to be...

We do not know. It depends on when the orders come or when the RFPs come from MoD. So as on date, we have already invested. We -- that is what Mr. Subba Rao has told. The current financial year, that is the thing.

Any amount which is yet to be spent in 1 year, which we have planned?

No, if you are asking me about 1 year, there will be some equipment like balancing equipment or capital maintenance, those kind of things are there. But there is no major project which we have conceived that we -- except what is -- what may happen at SHAR, where we are already discussing about taking the land. So that is a different question. And may be -- that may be too early to quantify any number in terms of rupees. Let us see that. But other than that, what will happen is only normal maintenance CapEx.

How much that will be, sir?

There is no answer for that.

Okay. As far as the thermal insulation is concerned, where the license is not required, can you give some more details?

Thermal insulation is a material, which is used for lining of rocket motors. Rocket motor is a metal -- it's made of metal. And when such a propellant is burning inside the rocket motor with the heat, the heat can even melt the metal casing or heat can escape. So a special type of rubber is used as an insulation material. It is lined inside the rocket motor, which withstands high temperature and very low conductivity. So when the -- inside the rocket motor, it is something like 2,000 to 3,500 degrees centigrade. Whereas outside, it will not allow it to go beyond 60 to 70 degrees max, 50 to 70 degrees. So this is a special thing, which is earlier, -- it's not that we are first-time making. There are other vendors, only few. So now we have established the facility because many times, like I was mentioning, our free issue materials were getting delayed because these activities were getting delayed or free issue material from our customer were getting delayed. Now with this in place, now we ourselves are able to do thermal insulation lining and even for ISRO also now big rocket motors. And also Agni scale big rocket motors, we already started doing. So this is increasing compared to last year, now further we have gone ahead.

Okay. And as far as explosive is concerned, order book is generally executed within what time, sir?

The latest order, which we got and reported as INR 83 crores is for 2 years.

Okay. Okay. And out of INR 116 crores, INR 83 crores is included, right?

Yes.

So -- and balance is within 2 -- next H2, it will get executed, correct?

Yes. Yes.

Okay. And service contract execution period timeframe is how much?

Balance is about 9 years at -- 8.5 years...

8.5 years.

At SHAR. Yes.

At Jagdalpur, we have already completed. They requested us to extend it by another 6 months, then another 6 months. Now it is totally 1 year extension because they have not yet completed the formalities of tendering.

[Operator Instructions] The next question is a follow-up question from the line of Milan Shah from Urmil Research.

Hello?

Yes.

Sir, we have R&D expenditure is increasing from 0.32% to 0.48% in '19. Is it increasing every year, sir, or we are going to make any new research and development?

You said about R&D expenditure?

Yes. Yes.

Yes. The increase in R&D?

Yes.

Yes, we have a very active R&D. So we keep developing the products. Like you are aware that chaffs and flares, flare is in our in-house development product. And we have this design and development of Israeli rocket motors in-house. Then like I mentioned, the propellant made for all these new -- 6 new kind of missiles is -- that's all Premier-developed product. So R&D activity keeps going. So expenditure is built on that.

Okay. And sir, BF Premier Energy System Private Limited is going through any development on that side?

I beg your pardon.

BF Premier Energy Systems we have created with Bharat Forge Group?

Yes, it's a -- company is still existing, but we are yet to find a business, common business where we can participate together.

Okay. And sir, Israeli Aerospace is a government entity or a private limited company in Israel?

It is a private company, but with some government participation.

Okay. Okay. I only asked because the potential of -- because you have cracked the Israeli scientists so we are very proud that Indian company is doing work for Israel company. Otherwise, all Israel company is giving for world over, but we are proud that we are a [indiscernible].

Yes. Thank you very much for the compliment.

[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Sir, first question in terms of margins. So can you just give a breakup of our margin for defense and explosive separately? And if I see this recent INR 84 crore order from Singareni, do they have a better margin compared to what we used to do in last couple of years in Explosive division?

Yes. Our expenses are -- actually, for the company as a whole, it is difficult to distinguish between -- because facilities are common, products are, of course, there are differences, but utilization is common. So it is difficult to differentiate between the 2. Regarding the recent orders about Singareni, which you were asking. Yes. Again, it is a very competitive bid certainly.

Prices are only getting lowered, not increasing because of competition.

So it is -- so in last couple of years, the margins were quite low in Explosive division. So is it at that level or even worse than that level, the new order?

Even worse.

Okay. Okay. And sir, my second question is, just a broad question. So I understand in most of our products you don't like to mention about the price per product and don't give the absolute number in terms of what kind of the opportunity that products have. So it is sometimes getting difficult for us to gauge the potential of Premier Explosives. So if you can broadly say, let's say, even in next 3 to 5 years, we have multiple products, 15, 20 products of RDX/HMX, for ISRO strap-on motor, propellant, many other products, chaff and flares. So in terms of opportunity size, let's say, broadly in 3 to 5 years, what kind of revenue we can generate on a yearly basis from a defense segment or which of these products individually have the potential to do INR 50 crore to INR 100 crore kind of revenue? Or it is unlikely that these products can do INR 100 crore -- single products can do INR 100 crores topline in defense?

Yes. That is, again, certainly a difficult question because what we'll repeat, what are the new products that we will get and all that. Every year, all the products may not be there. That is why it is getting difficult, of course, both confidentiality also is there. But if you're asking like a very long-term thing like we mentioned earlier, we are thinking like going to -- I mean, in the -- 2 years back, it was like INR 250 crores. So at that time, we were telling like it will go to INR 300 crores, INR 400 crores and plus kind of target that will remain still the reachable target.

And...

Our products have got the potential of reaching that stand-alone INR 100 crores, what you said. But the question is these products are not regular consumables like explosives used in the coal industry or something like that. These are bought on need basis by the Army and all those. So we cannot really tell that, which product is, that's why we have multiple products, and we can keep on catering to different markets.

Sir, just a follow-up on that. So let's say, this is my understanding right, that do these products do have a size of doing INR 100 crore individually, but the problem is that in some years, we have order from chaffs and flares and next year there was no chaffs and flares award. So because of that, we remain in the range bound sale of a different segment?

Yes, that is the reality. I mean suddenly something may come and that may not be expected. Say this, what I mentioned, flare and chaff which is there, maybe 6 months back, we were not expecting, but because of China and all that, they floated that order and then quickly, they gave a very tight schedule also. These are the things which are not really predictable.

The next question is from the line of [ Anil Udar ] from Renuka Investments.

The first question which I would like to ask you is, in the discussion we had right now, you said we've got licenses for warheads, my question to you is how fast can you start manufacturing them at our Katepally plant? And what can be the demand? In the sense, as you said, for the blast warhead, which is 2,500 license quantities, can we take our capacity to that in 2 years or it will take a long time for us to do so?

So the manufacturing facility is ready. Already, we are ready with the manufacturing, like I mentioned, trial production and all we started. Now once we have the facility, the customer has to be told that we are ready with the facility. See, unlike these other products where you are ready with the product and then you can launch. Defense, you have to qualify. So it takes time, yes.

Okay. But how fast can you think that we can get the orders from the Defense Department or DRDO? Can you give -- shed some light on it?

We are interacting with them, and we are informing everybody that we are ready. We have the license for manufacturing. We have -- plant is ready and all those. And now everybody has shown interest. And hoping that this -- before the end of this year, we'll get into some production of warheads.

So this can be the Make in India story, which our Prime Minister is saying. This can be the biggest and the best Make in India story that we can tell to the world also, if I'm right? Because manufacturing warheads up till now was a part of the government scenario itself, now it's coming to the private sector. Am I right?

Yes, yes.

Yes. My second question to you, sir, as per Mr. Sivan of ISRO draft state policy has been presented in the parliament -- would be presented in the next few days or so.

Yes, it's only...

Yes -- yes, please, please, please go on.

No, it's only draft.

Yes, yes. But it allows private players and the satellite launches and all other allied activities. And basically, what we have seen is all the start-ups are in the designing of boosters and rocket motors and launch vehicles. And I think we are the only company in the private sector manufacturing boosters and rocket motors because handling explosive is a very niche area for a privilege few. How big can this opportunity be if this sector opens up for private? Because we are the only people to do the handling of explosives and manufacturing of the boosters, as you said, we'll be doing one booster in the month of December and 2 boosters by the end of March. So if this small space launch vehicle thing that you are saying is 200 payload satellites would be launched, so how big can this opportunity be for our company? Can you shed some light on it, sir?

Our knowledge is also same as your knowledge, what ISRO has announced and Dr. Sivan has given the figures and all those. We don't have any other individual -- our own figures or inputs on that.

No, but there are some certain private start-ups who are into designing of digital and motors, have they approached us for manufacturing of the product?

Yes, they have approached us and they presented their needs and all those. Yes, discussions are going on.

Because both companies are just -- they are closing out of even 500 square feet room, having been given a market capitalization of INR 200 crores and whereas we as our explosive manufacturing company is undervalued compared to them. So basically, what I would want to understand is how can this opportunity be? Like what they are saying is, Antriksh is saying you would be launching about 40 vehicles a year. So if we get the order for manufacturing of those motors, how big can that opportunity be?

See, one thing I think we should understand this ISRO, if you look at what is happening for the past 6 months, the total things, there's a total disturbance of their programs and plans and all those because of COVID. So -- yes, what happens, and all those are not known. Yes, the opportunities are coming, and it is open to individuals to market their satellite and all those. That is what Mr. Sivan also told. Private companies can market internationally. And then do it. And like you rightly said, yes, they are operating from a 500 square feet room, whereas we have all the manufacturing facility. So yes, they have to come to us and they have to -- they are going to depend on the existing facilities rather than putting up the facilities and all those.

No, because taking a license for an explosive production itself is 5 to 6 years. So I don't think anybody will venture into that. They would come to you and get the job work done from you for the manufacturing of the motors. Am I right?

Yes. So far, yes, it is.

All the best for designing, manufacturing of Akash and many other missiles to keep India safe, sir.

Thanks a lot.

The next question is from the line of Hardik Jain from ISJ Securities.

Yes. Sir, we're doing some export orders for Israel Aerospace and also for Turkey. So any further development there? Are we talking to them for the next leg of orders, so if you can give some details?

Yes. As far as Israel aerospace industry is concerned, like we have already mentioned, we have completed the development and demonstration of 2 products -- 2 orders. Third one is going on. Fourth and fifth are in the process of development and demonstration. So first 2 numbers, the production orders are being processed and worked out. And -- but because they are not yet delivered because of this disturbance in logistics, they have to do the dynamic testing, and then they will clear the production orders for them. So we are hoping that once this is done. Now earlier, they were supposed to be shipped to Israel, but now because of various other problems -- because delivery is in their scope. We deliver at our factory, so they have to carry and all those. There are problems in that. Now they are working on air shipping. So once...

Okay. So you're saying that first 2 orders although development and demonstration are completed, we could not ship it due to COVID, but we'll be shipping it now, right?

Yes. Any time, it may happen coming 1 week to 10 days.

Okay. And so first 2 orders will be -- the revenue will be booked this year before March?

Yes.

And then we have 3 more orders for which demonstrations are going on?

Yes, third also almost through. It is ready. We are waiting for SCOMET license for the third one. First 2, we got. Third one, we are waiting for the license. Once we get the license, that also can go.

So I assume these orders are like on a test basis the Israel Aerospace has placed with us and a larger opportunity is there. So are we talking to them...

Yes. These are design and development orders. So to their requirements, we design also and demonstrate, develop and then they get converted into production orders. But they are paying for all the development and demonstration whatever is there.

Okay. And what about -- see, sir, we have been doing some orders for Turkey as well?

Turkey, we have the order but the government permissions are still not received, and we are not sure what is going to happen.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Yes. Thank you all for the interest showed in the Premier Explosives quarterly results participation. We hope, we will do much better in the coming quarters. Thanks a lot.

Thank you. Ladies and gentlemen, on behalf of Premier Explosives Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you very much.