Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call of Premier Explosives Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Mehta. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I, on behalf of Stellar Investor Relations, welcome you all to the Premier Explosives Limited Q4 and FY '22 Earnings Conference Call. We shall be sharing the key operating and financial highlights for the quarter and full year ended March 31, 2022. We have with us today the senior management team of Premier Explosives Limited, Mr. T. V. Chowdary, Managing Director; and Mr. Srihari Pakalapati, Chief Financial Officer. Before we begin, I would like to state that some of the statements made in today's discussion may be forward-looking in nature and may involve risk and uncertainties. Documents relating to the company's financial performance have already been e-mailed to you. Now I would like Mr. Chowdary to share his initial remarks on the company's performance for the quarter. Thank you, and over to you, sir.

Thank you, Mr. Vishal. Good afternoon, everybody, and thank you for joining the call. We'll begin the call with the key industry update, followed by an update on the company's operational performance during the quarter. To begin with, the government's impetus towards defense sector continues to be promising. And India's defense budget for the financial year '22-'23 stands at INR 5.25 lakh crores with an increase of almost 10% from previous year's budget with a major push on procurement of weapons and military platform from domestic producers. Of this INR 1.52 lakh crore is proposed to be utilized for capital expenditure that includes the purchase of military equipment, warships and new arms. The procurement of this will also focused at promoting the domestic manufacturing of defense requirement. Out of the total budget allocation, 68% of the budget will be sourced from the domestic industry and 35% of the defense budget on R&D will be kept aside for partnership with private sector. As per the Finance Ministry, the Government of India is committed on reducing imports and promoting self-reliance equipment for the Indian Armed Forces. Through the special purpose vehicle model, private industry will be allowed to design and manufacture military platforms and equipment in collaboration with DRDO and other organizations. India's defense industry will evolve as a strategically vital sector and a source of employment in the private sector with a primary focus on improving the country's warfighting capabilities. Due to the technological complexity of modern weapon and the [ government's ] preference for domestic suppliers, competition in defense manufacturing is still developing in India. As the Atmanirbhar Bharat program is in defense develops and more chances are made available, active participation in the development of credible military manufacturing lines can be vital for the development of MSME culture through entrepreneurial ability and creativity. And with the recent testing of missile, India conducted 2 successful anti-ship missile test, BrahMos and Uran. And you're all aware, BrahMos is an anti-ship missile, India has signed a big [ order ] with Philippines. In addition, India also successfully test-drived a new version of the BrahMos supersonic cruise missile off the coast of Odisha in Balasore. So these are interesting areas where the growth is going to take the impetus. Now apart from the defense sector, coming to industrial explosives. Compared to the year '21-'22 and the '20-'21, [ things ] started improving in terms of raw material prices. Raw metal prices have skyrocketed up to almost 200% in last 1 year, which made it very, very difficult to survive and then supply. But now things are changing, the prices are stabilizing and also the supplies for coal sector, pricing of the supplies to coal sector policy and all those have changed and that has brought a little relief to the industry. Now coming to our company's performance. After numerous headwinds in the recent past, we are now moving towards growth trajectory. During the quarter, we have generated healthy cash profit of INR 16.67 crores. The change in business mix with the increase in contribution of defense segment will augur well for our overall margin. Further, with the pandemic-related disruptions hopefully firmly behind us, we are experiencing strong momentum in our execution. And let me update you on the status of [ Q3 ] orders received during the last few weeks. We have signed a contract with overseas customer for USD 13.13 million for supply of rocket motors and received the order from Singareni Collieries Company Limited worth INR 104.84 crores for supplying of SME explosives and accessories. Signed contract with MoD for supply of new family of munitions for a total value of INR 44.58 crores and received order from MoD for manufacturing of 50MM MTV flares worth INR 57.90 crores. These are some of our notable orders. We are extremely pleased to report that our current outstanding order book as on date stood at approximately INR 630 crores, which translates into more than 3x of our financial year '22 revenues. The dispatches for chaffs and flares were as per our expectation. And the other areas where the new missile that is production of BrahMos, Pralay, we have already reached the stage of completing our ToT and entering into commercial bidding. Apart from this, the supplies towards MRSAM requirement and Astra requirement, they are progressing, and these are dependent on the FIMs to be received from customer. The supplies will depend on the FIM supply data. And in the last went quarter, we have supplied a total of 84 numbers of MRSAM and 7 numbers of Astra and further quantity is going to be delivered in the current quarter. With this, now I request our CFO, Mr. Srihari, to give the financial performance. Thank you.

Thank you, sir. Good afternoon, everyone. The results presentation for the fourth quarter and the financial 2021-'22 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 would present the financial results for the quarter and full year ended 31st March 2022. The revenue from operations for Q4 stands at INR 60.5 crores as compared to INR 35.4 crores corresponding previous -- corresponding period last year and INR 50.8 crores in Q3. Our operating profit for Q4 stands at INR 4.9 crores as compared to INR 7.1 crores in the corresponding period last year and INR 4.5 crores in the Q3. In Q4, we reported a net profit of INR 1.2 crores compared to INR 2.7 crores in Q4 last year and INR 60 lakhs in Q3. The revenue from operations for FY '22 stands at INR 199 crores as compared to INR 153 crores in the corresponding period last year, which is translating into 30% growth year-on-year. EBITDA for financial year '22 stands at INR 22.3 crores as compared to INR 6.6 crores in the conforming period last year, which is a strong growth of 235% year-on-year. The operating margin of 11.2% in FY '22 improved from 4.4% in FY '21. Net profit in FY '22 stood at INR 5.6 crores compared to a loss of INR 10.7 crores in FY 2021. The company has already diverted our shareholders and on the back of the robust performance, the management has announced a dividend of INR 1.50 per share, which is translating to 15% of the [indiscernible]. Now coming to the order book. The company's current total order book stands at INR 630 crores, out of which explosives business comprised around INR 137 crores. The higher margin defense segment is at INR 348 crores, which is around 55% of our total order book, and the service segment is the further balance of INR 146 crores. This order book represents a strong growth over the previous year and is at the highest ever level. We are confident that with our content execution run rate -- continued execution run rate, our forthcoming quarters will continue the growth trajectory that we have seen in the past few months. With this, we now open the floor for questions and answers. Thank you very much.

[Operator Instructions] The first question is from the line of Shivan MS from JHP Securities.

Am I audible?

Yes.

Yes, sir. Sir, my first question is on our margins. Sir, we've been having greater exposure to defense, which is a high-margin business. But during the quarter and the last couple of quarters, our margins have been under tremendous pressure. So could you just explain the reasons for the same? And what is the outlook going ahead?

This is -- you're right that there are some good margins even from the defense sector. I mean, the margins have been continued. But with some sort of losses absorbed from the SMS, I mean, bulk explosives and other commercial explosives. So it is something like a net adjusted profit, we can say. But coming forward, I think with the kind of revival happened in the bulk explosives and commercial explosives, so we are confident that the things will be comfortable and the margins will be improved -- the overall margins will be improved.

Okay. Sir, if I look at the GP margin of March and of December, means March has been around 45%, December has been around 50%. So what is the reason for this dip in the gross profit margin, sir?

So basically, the change in the product mix because the contribution from the defense was -- I mean, great in the -- March quarter last year. This quarter is best contribution, moreover the product mix also because we have got the different products, which have got it different margins. So basically, it was net of the product mix.

Okay. And sir, moving ahead, where do you see these margins stabilizing at considering we have a INR 630 crore order book, what is the broad margin range that we are looking at while executing this order book?

Yes. Like I explained in my opening remarks and also what Mr. Srihari said, the last year, there was a lot of strain on the balance sheet in our profits and bottom line because of the unexpected increase in raw material prices, ammonium nitrate in the bulk explosives. But the prices were committed earlier, we had to maintain our supplies as per the prices. So we had to take some kind of loss, beating at that area. But now the prices have stabilized, ammonium nitrate prices have come down and the pricing for -- price escalation clauses and the present order all those -- [ there is a reason in that ] to help the industry to come back. So I think that will take care of whatever beating we took in the last 2 quarters of last financial year. Now we look forward to make a big margin there also. With that stabilizing and then supporting, now the margins from defense industry being good, and this coming at least not going in negative direction. We are hoping that next year is going to be good.

The audio is breaking from your line, Mr. Shivan. We are not able to hear you clearly. We request you to rejoin the question queue. We'll move on to the next question from the line of [ Devang Shah from InvestSavvy Portfolio Management ].

Am I audible, sir?

Yes, sir.

Sir, my first question, what's your revenue growth outlook [Technical Difficulty]?

Mr. [ Shah ], may we request you to please repeat your question? The audio is not clear from your line.

Am I audible now?

No. A lot of disturbance.

Hello?

Now you can go ahead, sir, slowly.

Sir, what is your revenue growth outlook?

Sir, considering our order book and recent order inflows, we are -- I mean, comparatively much better growth because last year, we have grown by 30% if you see the top line. This year, we should be much better because considering our order book as on hand.

My second question, sir, as you are saying that you are having a raw material cost prices due to rise in ammonium nitrate prices. Sir, do you feel in other -- also coal and crude also impacting your raw operating cost also? That's what I wanted to know, apart from ammonium nitrate.

Beg your pardon, coal?

Coal and crude.

Crude, of course, it doesn't directly affect us, but indirectly, it affects because the petrochemicals are affected, ammonia is therefore, affected the price of ammonia. So as well ammonium nitrate price also gets affected.

Okay. And my last question is, sir, you [Technical Difficulty].

Sorry to interrupt you. The voice is not clear from your line, sir.

[Technical Difficulty]

Sir, the audio is breaking from your line. We request you to rejoin the question queue.

Okay.

We'll move on to the next question from the line of Shivan MS from JHP Securities.

Yes, sir. Sorry, I got -- there was bad reception. Sir, continuing with the ammonium nitrate prices, sir, when do you expect the defense orders to be -- you can easily have price clauses out there I think.

Sorry? Sir, the question is not very clear. Can you please repeat?

Mr. Shivan, we are not able to hear you, sir. Mr. Shivan, we are not able to hear you, sir, please. The line for the current participant has got disconnected. We'll move on to the next question from the line of [ Aryan Verma ], individual investor.

Am I audible?

Yes.

Yes, sir, please.

Yes. Great set of numbers. I just wanted to clarify that the fabrication and supply of R-III rocker motor propulsion system for DRDL for INR 13 crores that we have received. It is maintained that it was not a material order. So what do we mean by that?

It is not clear. It's not clear.

I'm saying that the --. Am I audible?

Mr. Verma, request you if you can use the handset mode, please.

Am I audible now?

Yes, sir.

Better.

So what I was asking was that the recent order of the fabrication and the supply of R-III rocket motors that we have received of INR 13 crores, you have mentioned that this is not a material order. So do we mean that this is a development order? And is there a chance for this to convert into a production order?

Material, it means, normally, we consider as a material if it the order value cost is 10% of the turnover, which is at least INR 20 crores. So normally, we wanted to declare, even though if it is less than INR 20 crores, it was a voluntary disclosure. So that's why we mentioned it was not a material order. That's in the value, not anything else.

The line for the current participant has got disconnected. [Operator Instructions] The next question is from the line of Shivan MS from JHP Securities.

Yes, sir. I hope I'm audible.

Yes, sir.

Yes, sir. Sir, I was just trying to ask, in our order book, one would have expected price escalation clauses to be in place at least for the defense order book. So why then the dip in the margins?

Sir, we explained you that there was not much dip in margins in defense. Mostly, the dip has come from the other regions, industrial explosives and other divisions because of the ammonium nitrate and other issues that got offset by the margins in the defense, first of all. Second thing, in defense also, there are different products, wherein the margins are different. It is not uniform, the second thing. Third one, the things got stabilized in the industrial explosives segment also. And we are now expecting some good things to happen and the losses will not be delayed in coming days. So the defense margins will be -- I mean, stabilize.

And one more thing is, in the defense products also, during the development and the design and the qualification stage, the price we get is higher. But once you get converted into products of this, where it is the volumes which increase, where the margin will be a little reduced. That is how the business goes.

Okay. So sir, a majority of -- our -- the current year the execution is going to be from the bulk orders that we would have got from defense, right? They would not be the initial small trial orders?

Both will continue because today's trial order will become a bulk order after 5 or 6 years. It's like that. So both will continue fair well.

Okay. And sir, we had discussed regarding the Israeli orders, which were under -- which were trial orders in the last year and you are expecting some bigger orders from them. Sir, what is -- has that fructified? Or what is the status for the same?

Yes, 3 of them have [ tipped ] into bulk orders. Another one big order, it is, like you mentioned, about the price escalation. Discussions are going on. Maybe by next month, we will be coming out with the quantities and figures.

Okay, sir. And these 3 bulk orders, sir, what would be the contribution in our current order book?

Sorry?

Current order book.

You're asking about the bulk orders one?

Yes, the 3 Israeli orders, which are in hand, what would be the outstanding order book -- their share in the outstanding order book?

That was about INR 40 crores. That was only in the development and design balance order book. And we have yet to sign the final mass production order, and then we'll declare. The 3 numbers what I was telling, the order book, the value is around INR 40 crores.

Okay. Sir, we were expecting some bigger orders, right, of...

That is what Mr. Srihari just now told. The bigger order we are expecting in June month.

Okay. Got it. And sir, when I look at our cash flows and the operating cash flows, even in the September quarter when we had discussed and currently also, they have been in the negative range, mainly because of heavy -- high debtor days, sir. So sir, what is our plan to navigate through this? Because there has been a continuous operating -- negative cash flows.

If you see the moment the contribution from defense is going up, obviously, the receivables are going up. Because we know that the realization from defense takes time, so -- unlike the industrial explosives. So the same has been reflected there in the receivables. And as of 31 March we are almost to 70% of our receivables comes from the -- came from the defense sector. So subsequently, most of the receivables have been realized subsequently.

Okay. So out of the current debtors, the receivables, sir, how much has been -- means as at 31 March, the outstanding, sir, how much has been realized?

Almost about -- more than 60%.

So out of INR 71 crores, 60% of that has been realized?

Yes.

[Operator Instructions] The next question is from the line of Abhishek Poddar from HDFC Mutual Fund.

Sir, regarding this INR 630 crores of order book, if you can give some understanding of the execution schedule? How should we see '23, '24, '25 for this?

So most of the order book will be executed in the next 24 months.

Okay.

Except the order book on service sector part, which is for a period of long-term contracts, 7 years, but the supplies and all those are for 24 months.

Okay. And sir, the services will be linear for 7 years or it will be increasing?

It will be increasing. There is a price escalation clause. In fact, this COVID has affected our service contractors also because entry restrictions at Sriharikota establishment and all those. After that now it should also increase the volume and plus there is a price escalation clause, which gives us every year increase to us.

Okay. Understood. So services is like 23%, so we should assume that will be 7 years and the balance 80% or 77%, that will be executed in '23 and '24 from this?

Yes.

Right. And sir, some understanding on how are you looking at order inflows from defense and explosives in the next 12 and 24 months?

Defense orders, yes, because we are participating in many tenders and RSPs inside the country and also for exports. So we are hoping a healthy inflow of defense orders. And commercial explosives, of course, this is annual orders. So now Singareni order is over. We have to complete the supplies against the order. And Coal India, we are expecting some new orders, which is, I think, may take a month or 2 to finalize some of them.

All right. So like last year was very strong in terms of order inflows, it's close to INR 400 crores based upon the [indiscernible] number. Would you expect this momentum to continue? Or we kind of peak out in these order inflow numbers?

So we expect to continue, based on our participation, we expect to continue.

Right. And the order book mix will remain same, sir, like 55% is defense. So should we assume that, that will continue in the same way?

It will further increase. The defense percentage may increase.

Okay. Understood. And sir, the margins, this year, we closed with 10.5% EBITDA margins. And with the bulk losses going away, where do you see that settling?

Normally, we don't give any guidance, but definitely, you can see a lot of improvement in coming quarter.

Okay. So the defense contribution going up, that will be margin accretive.

Yes, defense and also aerospace. We have not specifically talked about aerospace. So both together should give us a push.

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

Hello. Can you hear me, sir?

You have to be a little louder, sir.

Hello. Can you hear me, sir?

Yes, a little bit lower. It's very low, right?

Hello?

Yes, you can go ahead now.

Okay. Congratulations for taking my question and also a good set of number. Sir, I want to understand, we have received the industrial license, PESO license for warhead and fuses. It is already we have this product or this is a new product lineup?

This is our new product lineup, sir, new lines in warhead particularly. But last year itself, we started production. We already started production and then some orders we executed.

Okay. And sir, what is the export order from the order book, quantifying the number?

So you want to quantified number?

About INR 175 crores, sir.

Okay. And sir, what is the debt level on 31st March?

Sir, we have the term debt of hardly INR 2 crores, which will be repaired in the next 2, 3 quarters. It will be done 0 -- technically, it will be 0 by '22-'23. And there is some working capital debt, which is about INR 70 crores. So that's it. We don't have any other debt on our balance sheet.

Very good for -- we are going to be debt-free on -- working capital is [indiscernible] this month, we are going to [indiscernible] very good.

[Operator Instructions] The next question is from the line of [ Bellam Rao ] from individual investor.

I have one question on the financial and one question generally about the company. Now with the order book where it is and execution period being a bit less than 2 years. So it will be safe to assume the turnover will be more than half the order book. Am I right?

Yes, sir. It should be. I think we -- yes, it should be.

Okay. Second question is, the raw material prices having stabilized, do you expect something like 13%, 14% operating margins?

No, sir. This line such margin is not visible as on date.

So a general question. Now I was just going through the website, it doesn't say about rocket motors, but you got an order. So I presume you are now making the rocket motor as such, it's just about -- being just the explosive material. Am I right?

Yes. We are making the full rocket motor.

Yes, exactly. So like Skyroot, are there any plans either yourselves or allowing somebody else develop a full rocket?

No, that is different line we work. And here already on our own, we are making a full rocket. That's what I told you. But the Skyroot is for --. Yes, I understand. Skyroot is for satellite launch vehicles, but our rockets are tactical missiles -- for tactical missiles.

It means a smaller in size, is it or...

Yes, yes. These are the 2 different that is -- space rockets are much, much larger. But we are making for ISRO, not for Skyroot.

That I know. Skyroot is --. Okay that I understand. That I know also. Okay. Similarly, is there any plan I was thinking like that?

Well, there are other people like Skyroot who are getting into startups, getting into the satellite launch vehicles. They are already in touch with us. And we're also one of the partners for the privatization scheme for ISRO.

I see. Okay, good. That's good. Okay. But the website could be update that information, I think.

We need to do right now. Thank you for your suggestion.

[Operator Instructions] The next question is from the line of Shivan MS from JHP Securities.

Sir, one question was on the NewSpace India Limited, the ISRO's new arm. Sir, could you give some update on that? We were supposed to tie up out there, I guess, and some land at Sriharikota was identified for that opportunity.

Yes, the land has been identified and still going through the government process. Now -- so we are hoping that this year, year '22-'23, the government -- the land will be handed over to us. In addition to that, we are already producing some of the requirements of ISRO in our new Katapelly plant.

Okay. Can sir, this space opportunity, sir, what is this opportunity size that we could be tapping moving ahead?

See, the size in terms of numbers will be less because unlike a defense where we have tactical rockets and missiles are made in hundreds and thousands, where it will not be like that. It will be a single digit or 2-digit numbers maximum what we'll be producing. So in terms of turnover and all those, it will not be as big as defense opportunities.

So you said it will be as big as?

It will not be as big as defense opportunity, that's what I said.

Okay. And the margins would be similar to defense or higher?

Yes, margin will be similar to defense.

Okay. Got it. And sir, in one of the previous participants, you said that there have been bulk explosive losses within this year. Sir, could you quantify those losses, which are not expected to come moving ahead?

You want to know our losses for the previous year?

Yes, you said there were certain losses that you had to take in the bulk explosives segment, if I heard correctly, which will not come in the current year. Is my understanding correct out here?

See, in the allocation of the overheads and all those, we follow different kind of head office and all those distribution based on the contributions from the particular division. So exactly giving you the figures on the division wise is a little difficult.

Okay. Any ballpark, sir, so that we understand what could be our margin profile moving ahead? Because there has been a significant change that has happened. That's why. That's my reason to ask the question.

This being a highly competitive field, there are more than 40 competitors in industrial explosives. So this is a little bit [ construed ] information. I hope you will understand.

Okay. Correct. But sir, one thing is for certain, right, that the margin improvement from FY '22 to FY '23 will be substantial.

Yes. Definitely, year '22-'23 is going to be better.

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

Yes. Thank you very much, and thank you very much, everybody for the interest shown in the company and its performance and also for wishing us better future. Thank you very much.

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