Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Premier Explosives Limited Conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Hina. Thank you, and over to you.

Thank you. Good morning, everyone. I, on behalf of Stellar Investor Relations, welcome you all to the Premier Explosives Limited Q4 and FY '21 Earnings Conference Call. We shall be sharing the key operating and financial highlights for the quarter and year ended March 31, 2021. We have with us today the senior management team of Premier Explosives Limited, Mr. T.V. Chowdary, Deputy Managing Director; Mr. Srihari Pakalapati, 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 emailed 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. Good morning, and thank you for joining the call. I hope all of you and your families are healthy and safe. And I would take this opportunity to thank each and every employee at Premier Explosives for their continued support in navigating through the challenging times. The fiscal year 2021 was a challenging and unprecedented year on all accounts. However, a swift recovery was experienced during the second half on account of various measures undertaken by Government of India followed by the rollout of the vaccine and last year's stellar Union Budget that is focused on giving impetus to the economy. At Premier, our focus was on maintaining our execution momentum and efficiency, which has led to post-satisfactory top line despite tough initial quarters. Our intensified focus on the defense business is yielding results. Our defense contribution has risen from around 26% in year ending '19 to 49% in year ending '21. And with higher other intake from the defense space, this is expected to improve further resulting in improved operating margins going forward. Coming to the company's major developments in the 1 year. Katepally has made significant contributions to the growth. We received industrial licenses and also PESO manufacturing production license for manufacturing of all types of warheads, electronic and mechanical fuses and bombs. This was also mentioned on our earlier earnings call, and we recently received our first order for the manufacture and supply of warheads amounting to USD 134 -- USD 135, that is around INR 10 million from Israel. With this, a new avenue has opened for us for making warheads. Up till now, we were doing propellents and rocket motors. Now we have the capability, and then we'll be producing warheads for the missiles and rockets. In addition to warheads, we will be also producing the bombs, which are guided and unguided bonds. And this first order of warheads is going to be delivered in the first 12 months, and this will be executed at Katepally facility. Not only this Katepally facility has also added one more. We have executed a trial order for tank ammunition, that is 120 mm APFSDS from our Katepally plant. And also, we are going to execute the orders for mines, that is various mines, which we have already acquired technologies. So in addition, we have received orders for defense and commercial explosives totaling to INR 562 million in the current quarter with improving export order intake, bringing the current total order balance to INR 4,598 million. The total order book excludes the HMX and RDX starter received from Turkey, which was canceled rather -- we expressed our inability because the export permit was not given for Turkey by Government of India. So this loss is taken care by additional orders we received and additional exports orders we received for HMX and RDX. The company also has -- has also received export order for rocket motors. Already, we have shared this information earlier. In addition to that, further orders for development and supply of rocket motors has been received from Israel. And once these development orders are completed, that will open avenues for bulk production of these rocket motors for export purpose. And with all this, we are expecting to breakeven at Katepally factory within the financial year '21-'22 itself. Now I would like to update on the status of a few major orders. In the month of April and May, the execution and dispatches were bit hampered by the second way of COVID-19. On the other hand, we did not face any significant issue on raw materials procurement front. With the reduction in COVID-19 cases, we are witnessing improvement in execution. And with the increased ease of movement, order inspection has begun leading to improvement in dispatches. Our shafts and flares execution is progressing well with the availability of imported raw materials. And in the month of July -- the delayed inspections are going to take place in the month of July, and we are expecting to deliver this from July month onwards. And the present orders of shafts and flares are expected to be completed in 2 years period. Coming to our other rocket motors, that is we have orders from BDL -- production orders for MRSAM and Astra rocket motors. MRSAM execution has already started, and we are supplying at the rate of 20 to 24 numbers per month. Here, the supplies depend on the free issue materials issued by the customer. So as per their issuing of that, we are executing this, which is coming to 22 to 24 numbers per month. And Astra motor, we are producing for BRDL. But bulk production, even though we have ordered, the FIMs are expected to be issued from the month of July. So this production has to start from month of July and continue. Further to the orders in hand, we have already received inquiries for next level of requirement for Astra, MRSAM and also for Akash. After completing the Akash previous orders in last year, we received another 120 numbers supply order, which we have completed and they are going to be delivered in the month of July. We are expecting that Akash will continue to be at this level for the coming balance. In addition to this, BrahMos is another area where we have qualified the technology and all. But due to the delays caused by COVID and other issues, the FIMs are yet to be issued by project. Once the FIMs have issued, this BrahMos production also will start. And this is going to happen in Katepally. The Katepally facility, which is good for large rocket motors, is now producing rocket motors up to 2 meters dia, which we did not have the facility at Peddakandukur. So we already have the orders in our hand from ASL and also PSOM-XL, which is stap-on motor for VSSC. These are being produced at Katepally facility. And we are also working for that MSIL outsourcing of PSLV, and we are hoping that we'll [indiscernible] in a big way. With the government putting a strong emphasis on improving the country's defense production capabilities in order to reduce reliance on imports and become self relevant through Make in India initiative, we anticipate an increase in defense order activity. And this new facility at Katepally will come to utilization further by producing mines, bombs and ammunition. Now I request our CFO, Mr. Srihari, to share the financial performance. Yes, I think I missed in my this, one of the important milestones I wanted to share is the first PSOM-XL produced at Katepally is being flagged off on 30th, tomorrow, by Director, VSSC, Dr. Somanath. So it's a movement for all of us. So I thought I'll share that. Thank you.

Thank you, sir. Good morning, everyone. The result presentation for the quarter has been uploaded on the stock exchanges in the company's website. I believe you all may have gone through the same. Now I will present the financial results for the quarter ended March 31, 2021. The total income for Q4 in FY '21 stands at INR 353 million as compared with INR 343 million corresponding period last year. Positive EBITDA for the quarter stood at INR 71 million. This is mainly due to the change in products mix and reduction of expenditure. The contribution from defense has gone from 38% to 49% during this period. The export orders from the commercial explosive segment also helped further improvement in terms of performance. A significant reduction of expenses recorded during this period, which is about INR 40 million has come down. In Q4 FY '21, we reported a cost of INR 27 million. Now coming to the order book. The company's current order -- total balance order book stands at INR 5,480 million, out of which explosives business comprises of INR 1,293 million and defense segments comprised of INR 2,527 million. Mainly this includes -- export orders consist of INR 500 million, which is in SPD which we have about INR 350 million and commercial explosives, which is about INR 150 million as on date. So with this, we'll now open the floor for questions and answers. Thank you very much.

[Operator Instructions] The first question is from the line of Bhagyesh from HDFC Mutual Fund.

Congratulations for good set of numbers in Q4. The operating margin has indeed gone up. Sir, the issue here is the Katepally plant. Is it now getting fully commissioned at the end of this fiscal year with the depreciation and interest charges on the book? Also, the utilization in the plant will remain low in the first year. Am I right, essentially? And how much is the execution potential because the key customers for the first time you're doing a 2-meter dia motor and most of the customers including most corporations are saying big order book is here. So what is the potential here? Can you quantify, roughly at least?

Actually, it was commissioned during the Q4. Actually, we have capitalized the assets only on January 31. And the depreciation charge for the 2 months, which was about INR 91 lakhs. And I think...

Yes. Order potential, we already started receiving orders and we received. And we are executing already 3 orders from there. One is strap-on motors, PSOM-XL. And second is, as I mentioned, the 2-meter dia. It is called VEDA project. And we are also producing for -- it is called A1P. So anyhow these are all DRDO names and all those. And I don't think I won't be -- I'll be able to share all those. But yes, we have already started receiving, and utilization has already started. I think before the end of the year itself -- by the middle of the year itself, we'll be reaching the utilization, almost 80% utilization level.

Okay. 80% utilization this year, okay [indiscernible] Okay. It's a Government of India policy to encourage everyone to export the ammunitions and things essentially. Okay. We have won an order from Israel. So what is the addressable market for us, say, in Southeast Asia, Israel and -- or even Turkey because you are doing business with Turkey also ultimately?

No, we are not doing the with Turkey. The first order we received for HMX, RDX, we could not execute. We have informed them we will not be able to execute. So -- because the SCOMET license which is needed for export is not given. But yes, Israel order, we are fully executing. There we -- and also to Europe, we are exporting commercial explosives. And rocket motors and the warheads, we are exporting to Israel. And we are getting more and more orders as they are gaining more confidence in us. We have already executed 3 orders, 3 motors we have developed and supplied. Based on that performance, we received more and more. Right now, our order book level is at 400 million -- about $400 million.

400 million?

INR 400 million worth of equivalent export orders we already received from Israel for Katepally which includes also HMX.

Okay. And sir, just one clarification. As far as the rocket motors modes are concerned, we are doing this stuff. Who are the competitors for us in the exposures? Is it OFB and solar essentially, even for these orders?

I do not know. For many products, we have no competitors. There are -- yes, for some products we have competition. But many products, we don't have competition as on date. We are single source because we have developed those products.

The next question is from the line of Vinit Jain, an individual investor.

Can you share some light on the increments and the raw material pricing? In the last call also you have mentioned about increase in the prices, how is it impacting our P&L?

In fact, it is affecting P&L, but it affected positively because we -- some of the Coal India orders and all those, anticipating that, we did not take the orders. Because of that, even though the prices have gone up, some areas, yes, they are affected, but mostly, we are not affected as much as others.

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

Can you hear me, sir?

Yes.

Okay. Congratulations for good set of numbers. And sir, I want to know what is the order value of company total because [indiscernible]

Actually, what happened, the order book -- as of today, our order book -- actually, order book was about -- order book as on the date is INR 4,597 million.

We got one more order from the RDX category to the extent of INR 850 million. So output coming to the earlier figure what we told, INR 5,480 million.

Okay, sir. Okay, sir. We are first producer of NHN-based detonators. We have given license to US companies, right?

Sorry. Didn't get you.

We are a first producer of the NHN-based detonators. Hello?

I didn't get you, sir. Can you please repeat? Your voice is not clear.

We are a first producer of NHN-based detonator. And we have given license to US companies. We are getting any royalty from US companies?

You're talking about royalty on product?

Your speech is not clear. I think something wrong with the instrument.

One minute. Can you hear me, sir?

Yes, it's better.

Okay. We are a first producer of NHN based detonators and we have given license to US companies, right?

Yes. Yes.

So we can get any royalties from those company? Any lineup to given any other countries for those licenses?

No. That was an order for a lump-sum amount. There is no royalty, regular royalty on it.

Okay. What is the -- any lineup in research and development, sir? Any expenditure for those research?

Of course, R&D keeps continuing, but right -- that part is over. What now R&D is going on is on defense-related products. We are -- like shafts and flares, what we are selling, they are generated from in-house R&D only. Today, they are contributing good revenue. So like I shared about development of the Israel, that's also R&D only. We are developing the missiles to their specifications and then being designed and supplied. So R&D is a continuous activity.

And what is the debt on today, sir, on book?

Beg your pardon?

Debt. Debt of -- total debt of company.

Yes. So there is working capital debt from the bank is about INR 373 million. So -- which is a regular working capital kind of thing. And during the year, we raised some money from [indiscernible] scheme. I mean, government-supported loan from HDFC, we have received INR 53 million, and SBI some INR 30 million. So which is payable after 12 months. There's a [indiscernible] of 12 months. So this is about -- INR 83 million, there is an MSME loan under the term loan of INR 47 million, which is payable next 6 quarters, so that is getting repaid. Actually, every quarter, we are paying about INR 65 lakhs. So that will be repaid entirely in the next 6 quarters. So the [indiscernible] will continue like that. And there is some unsecured loan from the promoter and our subsidiary company, which is about INR 107 million. So this is all we have.

[Operator Instructions] The next question is from the line of Manoj Tiwari, an individual investor.

Yes, my question is, Bharat Dynamics has recently linked contracts with defense ministry for anti-tank guided missiles. Do we expect the order for the manufacturing and supply of propellant for the same FES? What will be the quantum of order if you can share?

No. This one is, as we understand, it is made from double base propellant. We are not into that.

The next question is from the line of Kishore Agarwal, an individual investor.

My question is with regards to the margin. What drove the significant margin improvement in the quarter? Is it only mix or was there any one-off in the margins as well? And my second question is with regards to your order pipeline. So your order book as of 31st March has come down from last year's levels. I understand the Turkey order is a component of that, but what's your order pipeline in rupees per absolute, if you can quantify how much orders can you bag in FY '22? Those are my questions.

Actually, the performance has improved in there, I mean, due to the various reasons. The main reason was change in product mix. Yes, the defense contribution came in a positive way. The contribution from defense has gone up significantly during the quarter. It will -- we expect it to continue in the future also for the coming quarters, first thing. Second thing, there are a lot of reduction expenditure compared to -- if you can check -- compared with the previous figure, there was a reduction in the expenditure, which also reflected in the bottom figure. The third one is the order book. Yes, you said that order book has reduced because of the Turkey order removal. We have removed the Turkey order as of 31st March. And -- but what we can say that we have received significant orders during the -- I mean, last 2.5 months during the current quarter. We have received about 60 -- INR 643 million order book, I mean, received in orders during the current 2.5 months. Okay. So in coming quarters also, I mean, the contribution from the defense will be improved. And in overall, also, we can say -- we are referring the growth of about 35% to 40% in the top line in the coming year. And bottom, I think we are hopeful that it will be a good -- I mean, it will be good because of the products mix and contribution from the defense. And we are also seeing a lot of reduction of losses in the commercial explosives because we are trying to -- there are some export orders from commercial explosives, wherein the relations are comparatively very good. Actually, that also made difference in the last quarter. So it is a good positive improvement, we can say. So -- but the top end will be about 35% to 40% growth will be what we are expecting, sir.

I would like to add one more thing here. One of the major contributors is reduction of expenses in terms of employee expenses because we have -- because of the VRS, there is a reduction in employees and employee cost. And whatever increase happened in the last year is taken care by the reduction in the employees and then other expenses. So this also has contributed to reduced expenditure and increased profitability. And now commercial explosives, we are concentrating more on exports and a better value realization rather than trying to achieve volumes. That also has given a good contribution. Whatever we are -- business we have done in defense, that is supported by this commercial explosives business.

Just a follow-up. So I understand your other expenses and employee cost has come down. But also, you had a significant improvement in gross margin. The quarterly gross margin is at one of the highest levels you have ever achieved. Is it primarily a function of mix? And do you expect this to continue?

Yes. It's primarily due to mix, and it will continue.

[Operator Instructions] The next question is from the line of [ Shilpa Sen from Dhruthi Investments. ]

Sir, I wanted to know what is the impact of the second wave of COVID on our execution? As you mentioned that the dispatches have got delayed due to delay in inspections. So has dispatches started now?

Yes. The operations started. Operations are continuing by staggering the shifts and all those. But the inspecting agencies, the third-party inspecting agencies for defense products, they were not able to travel because of these inspections. Now we are expecting all those to start from July month, but our production continued. Now we'll up the stock, and we are offering for inspection right now.

Okay, sir. Okay. Sir, also following up on the earlier question on the earlier in commercial explosives, which geographies are we targeting, if I could know?

Sorry?

Following up on the commercial explosives, which geographies are we targeting?

Sorry, in the export market, you are talking?

Yes. Yes, sir.

That is there in our presentation where we were -- to all the countries where we are exporting.

Okay, sir. Okay. So if I could know what -- do we have a CapEx plan for FY '22? Are we planning any major CapEx?

No. No major CapEx in this. There will be always something wherever we have to do, when the production requires some balancing we have to do, but there is no major CapEx like Katepally plant, something like that now.

Okay. Sir, also if you could give us some guidance on the revenue and EBITDA for the full year of FY '22?

Actually, we are expecting the growth of about 35 to -- 30% to 35% on the top line. And bottom, because of a better -- I mean, better contribution from the defense, we are expecting about 15%, 20% EBITDA like kind of things.

Next question is from the line of Nitin Gandhi from KIFS Trade Capital. Mr. Gandhi, we can't hear you that well.

Is it clear?

A bit loud, please.

May we request you to use your handset, please?

I'm in handset?

Yes.

Shall I go ahead?

Yes. Tell me.

I wanted to know, how much of the loss in the commercial explosives in FY '21?

You were asking specific for commercial explosives?

Yes.

I don't think we have that separate -- it's only calculated for the total company because the facilities are common.

Okay. So we were expecting that this year commercial explosives will be turning breakeven plus. So I was just thinking of what you are doing. Because it's correlating what previous question was answered that last year, the margins were somewhere around 4%, and now we are saying that it's likely to be 15%, right?

Yes. Because of the defense production and defense products what we have. The export also is there, no. you must have noticed that the export orders we have significant quantity towards defense as well as industrial explosives.

Sir, what is the time frame for the execution of order book for explosives and defense separately, if you can share?

For defense, we have 2 years maximum. Some -- most of them are 12 months. Some of them are in 2 years, and shafts and flares also for 2 years. Then we have contracts, that is service contracts. Service contract is -- original order is for 10 years. Out of 10, we have completed 2 years. Now it is for -- balance is for 8 years.

Right. And how do you think that your orders can come up? What is the bidding pipeline which you have in the coming next 1 or 2 quarters?

Bidding for the industrial explosive is different. You know that, that is going by reverse bidding. So there -- but we have a line that, yes, we don't go below this line, just for the accepting. So that is helping us in maintaining our position. And when it comes to defense, defense is -- these are all by limited tenders.

So tender is likely to open up next in 2 quarters if everything goes...

Yes. There are several tenders where we have participated, and they are expected to be opened.

Can you share some size of it?

Size. I don't think that is right at the moment because -- the sizes and all those. They are all, what you say -- the figures will be given, but they will be executed in how many years and all, it depends upon the FIMs issued by them and all those. But as and when they come, we are going on sharing with you. So they will come very soon.

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

Sir, [indiscernible] what is the potential or we got orders for this kind of product from [indiscernible]

Potential for the product?

Yes.

Yes, there is good potential because they are indicating almost 36 launches per annum in future, which may happen after 4 or 5 years. So they want to depend for the small satellite launches in the private industry. That is what is -- it is open to everybody.

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

Yes. Thank you very much for participating in this, and we hope that we could answer the best possible [indiscernible] questions. And we hope to continue the good results what are expected. Thank you.

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