Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Thank you, and good afternoon all for joining the call. I hope all and your families continue to remain healthy and safe. To begin, I would like to highlight a significant milestone achieved by the company. We flagged off the second PSOM XL rocket motor, which is strap-on motor to the PSLV of ISRO and further production has started, and it is going on. And this second motor is manufactured at our Katepally facility, and this was a moment of pride for the company. It will pave the way for future growth potential given the government's emphasis on commercializing large and small satellite launch vehicles, and other cutting-edge technology in the global space market. The financial year 2022, which began in the midst of the global pandemic second wave had a minor impact on execution with no notable disruption in raw material supply. However, dispatches were slightly delayed as a result of the increase in COVID-19 instances, and delays in the inspections and visiting the -- visits of the quality control officials. Now this hampered billing in quarter 1 financial year '21. Despite this, we have reported top line of INR 3,273 million in quarter 1 financial year '22. However, with the decline in cases, dispatches resumed normalcy. We expect healthy dispatches in the coming quarter. We continue to remain committed to maintaining our execution momentum and efficiency. With increased contribution from the Defense segment, we expect further expansion in operating margins going forward. On the order inflow front, fiscal 2022 has seen a healthy order inflow of INR 792 million, resulting in a current order book of INR 4,751 million. With higher contribution from the Defense segment, during the last year, our Katepally facility has become fully operational, and we are building up the capabilities at the facility. As a strategy, we are expanding our product portfolio through a forward integration. We have established capabilities and obtained licenses to produce and supply all types of warheads, fuses and bombs over the last 1 year. With this, we have entered into missile and rocket warhead segment. We have also built the capabilities for manufacturing of bombs, both guided and unguided. With our current and the enhanced product portfolio, we expect a higher order inflow in Defense and Space, leading to further improvement in utilization levels of new facility at Katepally. Additionally, during July month, we entered into a deal with Thorimba Global Limited, who are one of the leading companies in the manufacture of ammunition and other defense products for transfer of technology for the manufacture of ammunition. This will provide the company additional growth potential. Now in addition to this, I would like to provide an update on the status of a few significant orders. Our chaffs and flares execution is advancing well, and the dispatches were slightly delayed due to the rise of COVID-19 cases, but conditions began to settle in the last week of June and deliveries began in July month. The current [ orders placed ] are scheduled to be completed within 2 years' time period. And other orders from BDL, we have orders for production of MRSAM and Astra rocket motors from BDL. And the order of MRSAM has already started and progressing well. We are supplying at the rate of 20 to 24 rockets per month. And for Astra, the FIMs have been issued in the month of July, and the production has started. As appraised you on the last earnings call, we have executed 120 numbers of Akash missile supply orders. The inspection of the same has been done, and the deliveries have been made in the month of July. We are expecting that Akash will continue to be at this level for the balance year. In addition to this, BrahMos is another area where we have qualified with the technology. But due to the delay caused by COVID and other issues, the FIMs are yet to be issued by the project. Once the FIMs are issued, the BrahMos production will also commence. The production will be done at Katepally facilities. In addition to that, the inflow of orders for rocket motors is continuing from Israeli companies, and our order book is increasing from that angle. And we are all -- with the execution of the earlier [indiscernible] we have won the trust of the people, and we are getting more orders and bigger rocket motors. So with all this -- in addition to this, we have also [ started manufacturing ] strategic rocket motors at our Katepally facility. The other projects from DRDO that is Veda and AS1P and other projects, which are going to keep our Katepally facility fully occupied. So now I request our CFO to share the financial performance.

Thank you, Sir. Good afternoon, everyone. Results presentation for the quarter has been uploaded on the stock exchanges and on 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 June 31 -- 30, 2021. Total income for the quarter 1 FY '22 stands at INR 327 million as compared to INR 230 million corresponding period last year. EBITDA for the quarter stood at INR 60 million with an EBITDA margin of 18%, resultant of higher contribution from the Defense segment. In Q4, FY '21 reported a profit of INR 35 million. Now coming to the order book. The company's current total order book stands at INR 4,751 million, out of which explosive business comprised around INR 1,248 million, and Defense segment comprised INR 1,927 million and services that is operational maintenance was INR 1,576 million. With this, we'll now open the floor for questions and answers. Thank you very much.

[Operator Instructions] Our first question from Mr. Bhagyesh Kagalkar from HDFC Mutual Fund. [Technical Difficulty] Mr. Kagalkar, sorry sir, we are not able to hear you clearly. Sorry, sir, your voice is breaking. Sir, could you come back in the queue again? Our next question is from Kritika Mehta, individual investor. [Technical Difficulty] Ms. Mehta, sorry to interrupt ma'am. Could you please be a bit louder, ma'am? Sorry, ma'am, could you be a louder again, please? Ms. Mehta, no ma'am, we're not able to hear you clearly. Ma'am, if you could come back...

The audio is not clear.

If you could please come back again, your audio is not clear, ma'am. Thank you, ma'am. [Operator Instructions] And the question is from Mr. Dixit Doshi from Whitestone Financial Advisors.

Sir, I just wanted to ask, in the last con call, it was mentioned that we do many products, and in some of the products, we don't have any competition and there are very few players who can make those kind of products. So if you can just elaborate something about those products and what is the market size or the opportunity side in those kind of products, that is my first question. And secondly, sir, we have recently developed warheads and you also mentioned a bit about warheads in your opening remarks. So if you can elaborate about the kind of opportunity this product has for us and whether we have started delivering the orders for it, whether we have received any orders for it and who will be the competitors for us in warheads? So that's my second question. And sir, my last question is we have developed so many products in last 3 to 4 years, but when we see historically, we have not been able to successfully scale up the sales in these products. So are you open to some kind of JV with larger players in defense like Bharat Forge and Larsen where that can help us in garnering the orders. Because I am sure we have a lot of capabilities and we have developed a lot many products, but unfortunately, we have not seen the kind of sales for the effort that we have put in.

Yes, okay. For first question, we have like -- several times we have mentioned, we have developed influence, we have developed products for rockets like MRSAM, LRSAM and also [ indiscernible ].

Excuse me, sorry to interrupt, sir, but your voice is not clear.

It is the same from the other side, also...

[Technical Difficulty] We welcome the management team back on the call. Sir, please go ahead.

Yes. Is it clear now?

Yes, sir, it's clear now.

Like earlier we have mentioned, today, we are the -- we have the unique status of being the only vendor for certain products, which are called MRSAM, LRSAM, and Astra. All these missiles, the propellants are made by only Premier and supplied. In addition to this, as on date today, we are the only manufacturer of chaffs and flares in India. So the volume of business and opportunity, this is -- it's available in the Internet and everywhere rather than me giving the figures here on that. That is -- yes. Could you please repeat the second and third a little bit, because I cannot...

Yes. Sir, so in your opening remarks, you also mentioned about warheads. And in the presentation also, we have mentioned warheads. So I just wanted to understand how -- have we started getting the orders for warheads? Again, if you can tell us how big this opportunity can be and is it the -- warheads, is it kind of a repeat in nature kind of a product where at every -- after certain years, again, this warhead orders can come to us and who are the main competitors in warheads specifically?

Yes, we bagged our first order for warheads not from domestic market, but rather from export market, which is a good beginning. So that -- we are executing that order. Now about the volume of the business, I'll explain to you in a simple form. Every rocket or missile fired requires a warhead. Right now, we are completely making -- up till now we are making all kinds of tactical missiles, now made in India. So all this now will also -- we'll be doing the warheads. So the volume is almost same as number of missiles and rockets we do. So in addition to this, they're also doing now, we started doing mines. Mines also have got a high explosive pellets, which are like small warheads. So we'll be fully engaged with the present orders and what we have in the technologies we have with us. Third, please?

And sir -- yes. Yes, please continue, sorry.

Third point was?

Third question was, sir, we -- I've noticed that in last couple of years, we have developed so many products and a lot of research goes into it, a lot of effort goes into it. And all credit to you. But only one thing is, we've not been able to garner orders as much as compared to the efforts that we have put in. So for that, are we open to any kind of JV, if possible, with the larger defense players like Bharat Forge or Larsen where that JV can help us in garnering the orders?

Yes. I think my second answer to your second question has answer to third also. This -- what I mentioned, the product, chaffs and flares, Astra and Akash -- sorry, Astra and LRSAM, MRSAM. These are all the products developed in-house. So yes -- and the defense products, the qualification takes a little time. In fact, 1 or 2 years is a very short period. It takes 4 to 5 years, and DRDO takes many years to develop a particular product. So they are now coming. And now today, you see that if you look at the financial figures, how the shift has taken place from a commercial explosives, industrial explosives company now it has become a defense company. Now we are almost 50% is coming from defense. And in the coming years, it will further increase. So all this is because of the in-house development and all the products. In addition to that, now for export market, we are developing products in house. The Israeli requirement, we are developing and -- designing, developing and producing. So these are all from the efforts only. So I don't know why that impression has come that we are developing a lot but not manufacturing.

The next question is from Mr. Bhagyesh Kagalkar from HDFC Mutual Fund.

Am I audible now, sir?

Yes.

Okay. This was my question. You had mentioned that for BrahMos also you are qualified, so that is quite an excellent achievement for the company. And how will the price differentiate approximately between the other motors, Akash and BrahMos?

So size is different. Akash is a smaller one compared to the BrahMos. Yes, it will be bigger only.

How many times?

It's a difficult question to answer. Because these all depends on not on just volume or multiplication of that, but the activities involved in all those.

Okay. And so what are you [ views ] on which programs will gain more traction on the revenue front? The BrahMos JV program or the BDL programs?

We are -- BDL programs are more attractive to us, because we are a single vendor to all the items. And up till now -- in fact, if you look at it, past few years, it is Akash from BDL, which has kept us really floating and then kept the flag high. So now Akash is continuing, and then MRSAM, Astra and a few more missiles are also coming from BDL.

Next question from Mr. Shivan Sarvaiya from JHP Securities Private Limited.

3 questions from my end. One is you spoke about this in your presentation about the NewSpace India Ltd., a commercial arm of ISRO. So if you could throw some more light on how it would have bearings on our business going forward? And what are the opportunities out there that we are going to be tapping in? The second one is, I was just reading about our business and in general and came across that -- so as per my understanding, we are only into solid propellants, and I also was reading about liquid propellants. So my question is that are we getting into a liquid propellants which are used in rockets also? If yes, then is the product development going on? If not, then why are we not doing it? And is there a transition that is happening within the industry that incremental demand from rocket motors is moving towards liquid propellants? So that's my second question. And my third is on bookkeeping. If you could just spell out the working capital days and the debt -- and the debt figure -- borrowing figure, I mean?

Yes, okay. NSIL, like you said, it is the NewSpace India Ltd., a commercial arm of ISRO. And through this, now ISRO has already proven and then performed and designed the PSLV rocket motor, which is now being used for launching the small satellites. And also, they're developing -- developed almost that is SSLV, that is Small Satellite Launch Vehicle. These are to be used for small satellite's launches, which is going to have a very good commercial growth potential. As it is, it is doing well and then in future is going to be, because our costs are low, Indian cost, we are expecting -- ISRO is expecting a good business for these areas. And ISRO being an organization, which is more for developing the things rather than commercial production, they want to develop the commercial manufacturing facilities and companies who can meet this demand. And in that line, they have already started privatizing the production. And they have given order, we have, like I mentioned earlier, we have already produced 2 strap-on motors. It is the first time in ISRO's history that propellants and energy materials are produced outside the ISRO facilities. So we are expecting a good growth in this area. And yes, we are associated in multiple companies, like what you have mentioned -- the companies you have mentioned and others also for strategic partnership and then working on that. Because we -- there are certain areas where the metal components working and all those in which we are not there, yes, we are associating with other bigger companies. And coming to solid and liquid propellants, technical question. Yes, the liquid propellant is not something which is -- can be filled into a rocket motor and stored for the usage, which may come after a few years. It is done just before the usage, like some stages of satellite launch vehicles is liquid propellant. Because you know when you are going to launch the satellite, 1 day before you start filling the liquid propellant into it and fire. Whereas solid propellant is something you can fill it and forget. So its shelf life is 10 years. In 10 years' time, whenever it is needed, it can be fired and used. So that's why the solid propellant is the 1 which is -- it is not the other way. You thought it is going towards liquid propellant. No. It is -- more shift is more towards solid propellant, and most of the defense are all solid. And we are in solid, and we don't want -- we have no plans of entering into liquid propellant line. So I hope I have answered your question.

Yes. So there is no cannibalizing effect out here, right? And this is not -- there is no substitution which is happening in the industry?

No. In fact, solid propellants, composite solid propellants is growing, and they are taking over the place of other propellants.

Okay. Sir, 1 follow-up question on this news, the commercial arm of ISRO. So sir, any idea on what could be the opportunity size here? And what would be our part -- our share in that, that we would be kind of targeting? Some ballpark figure for us to assess the opportunity. By when can that happen?

Instead of me telling the opportunity figures, you are monitoring and watching the company and figures, you should be able to guess it. And about the volume of business and all, I can tell 1 thing. Today, we are the only qualified vendors for all energetics and all those things to ISRO for this PSLV and the other launch vehicles. And the other companies, which are participating in this, all of them are associated with us for supply of these materials. So that can give you what is the volume. We have -- for meeting these future requirements, like earlier, we have informed, land near Sriharikota is meant for this opportunity only. Since the opportunity is big and the window is big, we want to be ready for that, which may take 3, 4 years to come up with completely and then production. And one more thing I want to share with you is in the month of July, the revenue officials and the collector of Nellore District from Andhra Pradesh visited our existing facility to assess the requirement of land and what we are doing and then have the confidence in our capabilities, and he was very much convinced and pleased. And after going back to his office, he himself has given a -- called a press meet and announced that he is recommending to the government for allotment of land. So we are hoping that, that will be completed within this current financial year.

Okay. And sir, the housekeeping question?

Yes, Mr. Srihari will answer that.

Yes. With regard to the working capital cycle, it is almost coming to the average of 120 days for the defense sector and 30 days for the commercial explosives. With regard to the term debt, we have a term debt of about INR 407 lakhs only, and that is getting repaid in next 6 quarters. After 6 quarters, there will not be any term debt. Regarding the working capital, we have a regular limit -- fund based limit of INR 50 crores from various banks and INR 150 crores of non-fund based limit, which is -- which are mostly comprised from the bank guarantees. So there are some loans from the promoter and our sister concern, which is about INR 10 crores. That's all.

Okay. I just 1 follow-up on the working capital days. This working capital cycle, you see it within this range only, right? It will not get elongated beyond the 120 days? That itself is pretty high.

But in case of defense, we are experiencing the average of 120 days at this moment. So we are trying to -- I mean get some much better way. But at this moment, there is an average of 120 days.

Next question comes from Mr. Dinesh Kamath from Frontline Ventures.

I got 3 questions from my side. A bit separate from the accounts. I'd like to know what is the succession plan in place for the company? If you could kindly throw some light on the same. Second question that I had is that word is out that the company's promoter stake is up for sale. Is this correct? The third question is, if yes, what is the price of valuation that the promoters of the company is looking to sell?

Shall I answer? Hello? Yes, the question is finished, sir?

Yes, my questions are finished.

Okay. First one is, yes, succession plan. Till date, it is a professionally run company. And we have very well planned succession in the system, like Dr. Gupta, who is Chairman and Managing Director, he's still the Chairman and Managing Director; and I am assisting him as Managing Director, and I'm being trained under him. So I have no doubts. And we have our Director Operations, Mr. Durga Prasad is there. We have already -- we are all professionals who have spent our almost lifetime with the company, and then we have every moment of the company, we are part of it. So we have no doubts about anything. But if there are -- Mr. Gupta has his family and his children. When the -- at the right opportunity or right moment, they may always join.

Okay. Is Mr. Gupta looking to sell his stake?

No. At least we have no idea. I don't think it is personally, that question has to be asked him in person probably. We will not be able to answer that. And he still holds his stake as everybody knows, 41.45% stake he still holds in the company.

[indiscernible] what will be priced at?

This is a personal question, which has to be asked to Mr. Gupta. We won't be able to answer on the company's performance.

Next question from Mr. Hitesh Savanth from O3 Capital.

Hello, is my line audible?

Yes.

In your opening remarks, you mentioned about this transfer technology from Thorimba Global. Could you elaborate that a little more?

Yes. You mean about the company or the products, technology transfer?

Yes, both and how is it likely to affect margin, sir?

Yes. Thorimba is a company, which is -- which has presence in many countries with manufacture of ammunition and other defense products, including Europe and Asia and Americas. So right now, under Make in India scheme, we have signed an agreement with them for ammunition, particularly medium caliber ammunition, which include grenade ammunition and other ammunitions of the 30 mm, 40 mm, various sizes. So which now RFPs are out from the government, that is from MoD. So we are hoping that by seizing this then that will definitely push up the turnover and margins of the company in the coming 2, 3 years.

Are you looking at any capital raise?

No. Like Katepally, we have already built our facility for ammunition and all those. But there may be some outflow towards the technology transfer costs.

Sure, sir. Any estimate on that, sir?

Estimate could be anything like INR 5 crores to INR 10 crores in total.

Next question from Ms. Kritika Mehta, individual investor.

First of all, congratulations on the great margin you have achieved. I just wanted to check, what is the incremental margin contributed by the defense segment? And do you think these margins will be sustainable in long term?

If you see that -- I mean, product mix, the defense turnout has gone up from 7% in the last year quarter to 38% in the current quarter. So the margins in defense, as you all are aware, are good. And because of that, bottom line has improved. So we are expecting the same trend will continue in future also, in coming quarters.

And sir, any projection on incremental margin in the service and other segments?

Actually, service sector, I mean, whatever we are getting, we have the SHAR contract to continue for next 7 years.

Service sector will not be an incremental margin. It will almost remain stable, because service is purely on the manpower and all those things, which is linked with the consumer price index and we also get increase from them year-on-year, price increase linked to CPI. So both will go parallel there.

[Operator Instructions] Next question from Mr. Dixit Doshi from Whitestone Financial Advisors.

Can you hear me?

Yes.

Yes. Sir, my question is, firstly, on the execution. So we have an order book of INR 180 crores in defense and around INR 125 crore in explosives. So over what period it will get executed?

2 years.

2 years?

Yes. The explosives, that is for almost 1 year only, but the defense one is for 2 years.

Okay. Because -- okay. So it will be not more than INR 100 crore of revenue from defense, we can expect? Maybe any new -- obviously, any new order will come then the revenue can go up, otherwise, it will be less than INR 100 crore kind of revenue run rate in defense?

Yes. So right, but we are expecting, like -- this is a regular ongoing process, the tenders coming, we participating and coming. So whatever is the order book as on date in hand.

Any rough idea you can give that what kind of order inflow we can expect in defense particular in this year?

Like I have announced in my opening remarks, I mentioned about the order inflow. First quarter the order inflow on defense side is...

In the defense, we have received about INR 42 crores order inflows during the last 4 months, I mean, from April to till date. And we are expecting this -- I mean, the same trend will continue for the coming months, also.

This is only an indicator of what we have mentioned. The trend will continue.

This INR 42 crore is included in this INR 180 crore defense order book, right?

Yes.

Okay. Sir, my second question is, you mentioned -- in the Katepally plant in presentation, you have mentioned that there are many products like HMX, RDX, ammunition, mines, warheads, et cetera. So broadly, if you can give a market potential of some of these products it would be great. Because I understand you usually don't give a guidance for any particular product. But then it becomes very difficult for us to judge whether -- obviously, you do multiple products, but then how much revenue we can generate, it's difficult to judge.

Okay. One of the reasons why we try to keep it low is, it is -- you're also the stakeholder of the company. The opportunity window and other things and all those, if we keep on making it public, then probably we need the -- we may lose that opportunity and other things. That's why we try to play low key.

I understand that you can't share your data. But let's say, like you are planning to enter warheads or RDX or mines, then what would be the annual orders from government or Indian Defense, annual requirement of these products? Then whatever you get or any other company get that's a separate thing, but what would be the annual requirement of the government?

The requirement of the government, whatever government announces, it is there in the Internet. We have to also take out and calculate, if I have to give you that annual requirement. But it is -- we work on tender to tender basis, RFP to RFP. And like I have mentioned to you, the names of the products. Those are -- I have also given you the numbers, which we are supplying and what we are doing. That is for the present supplies. In addition to that, the new products, what we have introduced, mines, yes, there is a good opportunity. Because right now, mines, many type of mines are being imported. Now there will be -- once we start making, they'll become indigenized. And like you are -- day by day, you're seeing that the number of items getting into negative list, like chaffs and flares, what we are producing. So these, once they enter into negative list, then the use -- there'll be no imports. They'll be only sourced from domestic manufacturers. And today, we are the domestic manufacturers. I hope this will give you the indication.

Yes. And sir, 1 more question is, obviously, we are getting a good success in entering into the Israel Aerospace program. So it's been almost 1 year, and we have received some small orders like INR 1 crore, some INR 10 crore order. When do you feel this testing projects will get over and we can expect some sizable orders from?

Today, our order book from -- towards exports, from these Israeli orders is -- Yes. It's INR 25 crores is the round figure. So it is not anymore INR 1 crores or INR 2 crores. We have already executed the initial small orders. We are into bigger orders.

Okay. And 1 last question from my side. We have been in this range of INR 50 crores to INR 150 crores of defense revenue from many years now. When -- let's say, over the next 3 to 4 years, if all of these projects, which we are targeting from Katepally plant get a good reasonable size orders, then can we do INR 300 crores, INR 400 crores kind of only defense revenue in, let's say, next 3, 4 years?

No, it will not be only defense revenue of INR 300 crores. Yes, definitely, we are -- from our projections and targets, we are seeing some INR 300 crores plus in the next financial year, that is '22, '23, but it will not be only from the defense. Both will go. We are not going to leave the commercial explosives field where we have all the expertise and everything. So that will remain and together we'll maintain.

Okay. And 1 last question. You -- in earlier calls, you have mentioned that the raw material prices have went up and due to that, the margins in the explosive segment has come down significantly, and we were not making a good profit. How is the situation now? Have we get any price hikes from our clients or has the raw material prices come down?

No, the same situation. Even now the same conditions are prevailing.

[Operator Instructions] The next question from Shruti. [Operator Instructions] So we have a question from Mr. Dixit Doshi from Whitestone Financial Advisors.

Sir, any update on the BMCS project?

BMCS project, earlier RFPs were canceled, new RFPs are still not there. So the status is same, no improvement.

[Operator Instructions] We have the next question from Mr. Pranav Parekh, individual investor.

Just 1 small query on the Katepally plant. By when do we expect to hit peak utilization? And what sort of revenues can we look at, say, over the next 4, 5 years?

We are already now operating at the peak levels. Propellant plant is running to the full capacity. We already have the orders on that. We are working on that. And high explosives plant, HMX, RDX plant also is working to a full capacity. It is ammunition and mines, yes, we started producing, and we have released the first quantities produced. And they are under proofing and qualification. Once they are through, probably, we'll be doing it. And warheads, you are already aware of it. First order we received, and we are doing it. And as we proceed with this, these orders are linked with the number of missiles and rockets produced. So once we do that and complete, and we are expecting the flow of orders against this. So it is ammunition and warheads, these are the things which are now in the trial production. Others are all now productionized. They are going on.

So what sort of revenue can we hit on peak utilization just on the Katepally plant?

Just one moment.

Next year, we are expecting about INR 75 crores and it's -- go on increasing. Probably we will be reaching about INR 130 crores, INR 140 crores in the -- after 2 years.

Okay. But will that be peak utilization? After that, you have to spend further to get more revenue out of the same plant or you'll be able to add more?

It depends upon the ammunition and order. Yes, it is -- so how it is going to do. This is based on the present orders in hand and indications, orders in pipeline and other things we are expecting. But yes, there is a possibility of now -- now all Israeli projects what we are doing, once they get converted into production orders in bulk, then the opportunity is large.

Opportunity is large, I understood. But do we have the large enough capacity to cater to that, suppose if Israel were to say within the next 2 months?

Yes, we have -- now we have 2 plants, for propellants, we have 2 plants, earlier PDK plant and now Katepally. Together, we'll be able to meet that is -- but we have to do some tooling and all those things. That is any motor we do that we have to spend on that at that time. Otherwise, capital and facilities available and all those capacities, those were already for meeting all this.

The next question is from Shruti K, individual investor.

I just wanted to understand, do you have any update on the land identification for setting up the facility near Sriharikota?

Yes. I informed just a few minutes back that land has been identified by the state government and already earmarked for us. And before final recommendation, the collector has visited our existing facilities at Peddakandukur and Katepally to understand the requirement. In the first week of July, he visited us, and he was very much impressed and convinced. And as soon as he went back, he has given a press note saying that he has visited and he's convinced and happy and he is recommending to the government [indiscernible]. [Audio Gap]