Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Premier Explosives Limited Q4 and FY '23 Earnings Conference Call. [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, Mr. Mehta.

Thank you. Good afternoon, everyone. I, on behalf of Stellar Investor Relations, welcome you all to Premier Explosives Limited Q4 and FY '23 earnings conference call. We shall be sharing the key operating and financial highlights for the quarter and full year ended March 31, 2023. We have with us today the senior management team of Premier Explosives Limited, Mr. Tripuraneni 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 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 and full year.

Thank you, Vishal, and good afternoon, everybody. Thank you for joining the call. We'll begin the call with company's operational performance during the quarter and followed by the key industry updates. In our last conference call, we have already informed about the new development on DRDO technologies, which has been already transferred to us, and we are fully working on those technologies. As we completed design and development of the products for foreign companies that is for export purpose, supply orders started coming. And we have manufactured and delivered the first batch of supply order in the month of February and the last quarter of financial year 2023. Execution of these production orders will be done and that is complete execution will be done in financial year 2023, '24. Now during the year, we have generated healthy cash profit of INR 16.5 crores with our execution run rate, stable, and given the nature of our cost structure. The operating leverage of our business will help us to generate better cash flows, which will be utilized towards strengthening of our balance sheet. We had started the year with the order book of INR 389 crores, and we have received order inflow of almost INR 340 crores during the year, and we have reported the current outstanding order book as on 31st March 2023, stood at approximately INR 521 crores, which translates into 2.58x of our financial year '23 revenues. We have discussed the first export shipment of rocket motors for the overseas entity in February 2023. Premier Explosives is the only qualified Indian company for counter measures and the only Indian company, which is in the export of fully assembled rocket motors. In addition to the rocket motors and warheads, production of mines against new orders is going on at Katepally plant. This is expected to give good boost to revenue in the coming quarters and financial year '24, '25. And in addition to the production facility for medium caliber ammunition is ready, and this facility also is expected to generate -- start generating revenue in the financial year '24. The defense revenues were affected during the financial year ending '23 due to the delays in clearances, but deliveries from departments that is export licenses and also the hardware issues the first delivery, which should have been done in the third quarter has come to fourth quarter and further deliveries will be regularized in the current year. Export billing also has deferred due to the delays of this and we are expecting this to be made up in the current year. Now coming on the present industry status about the defense industry as previously stated and as you may be aware, India's defense sector has a robust industrial ecosystem. And the Atmanirbhar Bharat strategy has been working well with the Indian defense industry. And the Indian government's Make in India policy has also been promoting various industries, including the defense industry at large. Supported by government's continuous efforts of policy and excellent support of the country's defense sectors. India accomplished an extraordinary milestone in defense exports in fiscal year '22, '23. Exports have reached an all-time high of about INR 16,000 crores, up by INR 3,000 crores from the previous financial year. It has grown by tenfold since 2016 and '17. India aims to spend INR 2.75 lakh crores on defense equity in fiscal year 2024. Almost all the defense equipment will be purchased from Indian manufacturers to the dismay of the United States and Russia. India's defense imports are dropping year-on-year as the Indian defense sector strengthens. India's defense imports fell by 11% between 2013 and '17. And 2018 to '22, owing mostly cumbersome procurement procedure, efforts to diversify our suppliers and efforts to replace imports with homegrown products. Coming to aerospace industry. With ISRO's success in establishing SSLV, that is a small satellite launch vehicle and government of India's encouragement to private sector to take up satellite launching on commercial basis. Opportunities are opening in space fields, and these are expected to certify in the coming 3 to 4 years. And the mining industry where the coal is the major mining sector. According to the Ministry of Coal, despite the hard environment and covered by Coal India, SECL and other commercial mines in the country, total domestic coal production output has risen to more than 892 million tonnes in financial year '22, '23, up by 14.65% from 778.1 metric tons -- million tonnes in '21, '22. And it marks a historic movement for the coal industry in India. The coal sector's contribution to economic growth has contributed to India's raise under the current government and will continue to meet the country's growing energy needs. India has substantial coal reserves and intends to begin exporting the dry fuel by '24,'25. India is moving from a net importer of coal to net exporter of non-cooking coal. As the government prepares to gradually reduce thermal coal imports by '24, '25, India's coal output is expected to climb to 1 billion tonnes in the next fiscal year, up from 900 million tonnes this fiscal year. The Coal Ministry has revealed that the government has already set a target of 1.3 billion tonnes of coal output for fiscal years '24, '25 and a goal of 1.5 billion tonnes by fiscal year '29, '30. Keeping all these industrial sectors in mind, we expect a health growth for your company in the coming year. Thank you. Now I request our CFO, Mr. Srihari to give our financial performance.

Thank you, sir. Good afternoon, everyone. The result presentation for the quarter has been uploaded in the stock exchanges and on the company's website. I believe you all may have gone through the stream. Now I would present the financial results for the fourth quarter and full year ended 31st March 2023. The revenue from operations for Q4 stands at INR 52 crores as compared to INR 60 crores in the corresponding period last year, which is a degrowth of 13% year-on-year. Our operating profit for Q4 stands at INR 8 crores as compared to INR 5 crores with a growth of 64%. The operating margin for the quarter stands at 15%. In Q4, we reported a net profit of INR 2.3 crores compared to INR 1.2 crores in Q4 with a growth of 98% as compared to the corresponding period last year. The revenue from operations for the financial year '23 stands at INR 202 crores as compared to INR 199 crores in the corresponding period last year, translating a marginal growth year-on-year -- year-on-year growth. Operating profit for FY '23 stands at INR 26 crores as compared to INR 22 crores with a growth of 16% as compared to last year. The operating margin of 13% in FY '23. The net profit in FY '23 stood at INR 6.7 crores compared to profit of INR 5.6 crores in last year, which is -- which recorded a growth of 19%. Company has declared a dividend of INR 1.7 per share for the financial ended 31st March 2023. Now coming to the order book. The company's current total order book stands at INR 521 crores out of which Explosive business comprises around INR 90 crores. The higher-margin defense segment is at INR 304 crores, which is 58% of our total order book, and the service segment that is operational maintenance is around INR 127 crores. The order book represents a strong growth over the previous years. We are confident that with our continued execution run rate, our forthcoming quarters will continue the growth trajectory. 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 Dixit Doshi from Whitestone Financial Advisors Private Limited.

Congratulations on a good performance. Sir, my first question is regarding the order book. So if you can mention the execution time line we are expecting for Explosive and Defense sector?

Yes, the Explosive and Defense section, the execution time line is 1 year, 12 months, out of which because of the delays happened in the last financial year. Yes. It's most of the orders, they are all of 1-year execution period.

Because you expect that this INR 304 crores of defense order book we have, that will be mostly executed entirely in FY '24?

That is the plan. What happens is, this execution, the production is in our hand, but deliveries, they have to be affected only after reinspection and clearance. And in case of exports, after getting the export license from government, which sometimes they are delaying the process of deliveries. So otherwise, they are all supposed to be executed in the current year.

Okay. So let's say, as per the agreements, they are supposed to be executed this year, and considering some delays also, we can execute it in 15 to 18 months.

Yes.

Okay. And in the current year, our revenue from defense and services was INR 98 crores. Can you just mention how much was the defense and how much was the services?

INR 82 crores from defense, sir, INR 16 crores from services.

Okay. Now this year, our order wins were quite good, INR 340 crore order win we have. If you can just guide us through, let's say, what kind of order win we are expecting next year, FY '24? And which are the major orders we are expecting or any highlight you can mention, let's say, where we have participated in the tender and -- or any major tender opening up this year?

See in the rockets and Propellant segment, the existing orders itself will keep coming. Repeat orders will keep coming towards that because as the -- we are producing these and they're providing to assembly to be real. The orders are expected to continue for the existing missile, that is MRSAM and Astra in the coming 2 to 3 years. And also the export orders also, now only the partial quantity only submitted into order, and we are expecting this further to increase in the next financial year and the year later. So these are the things which will continue for the coming 2, 3 years. In addition to that, the new areas that is mines what we are making for ranks and different kinds of mines and also ammunition, which is going to be added in the next financial year and the next.

So can we expect that similar INR 300 crores, INR 400 crore order win per annum will we continue?

Yes. That's what we are expecting.

Or it can be even -- I mean it can be even higher or more or like in that range we can continue?

It can be -- see, we are also expecting some big orders in emergency procurement from MOD in the areas like where we are the present existing Indian supplier, that is the Counter measures. I think that -- once that is finalized, and that should add a big boost to our base.

Okay. And you mentioned that repeat order can come for MRSAM extra. I think recently, BDL has signed the MOU for INR 8,000 crore order for Akash also. So can we expect some order from that also this year?

Yes, yes.

Okay. And typically, if I -- it is my understanding right that 3% to 4% is the kind of opportunity that we cater?

Yes, please.

Yes. So it's my understanding right that for any missile, Akash or Astra, the value of that missile, 3% to 4% is typically our opportunity?

Very difficult to say because it changes from missile to missile.

Broad range would be -- I mean, historically, whatever we have executed, if you can just give a broad range that will also be helpful.

In case of Akash, our -- that is Propellants and energetic materials, the component is higher than that 4% or 5% whereas in case of other missiles where the [indiscernible] and the electronic systems and onboard computers, they are the cost-based components. In that case, this will come down in terms of percentage.

Okay. So this Propellant plus energy would be what, 7%, 8%?

That is in case of Akash we can take. But in case of this other Astra and MRSAM such missiles, it will be around that, I think the below 5%.

Okay. Okay. And so what I understand that in Akash, we give only the Propellant or energy product. But when we export, we give the full rocket motor system, right?

Yes, you're right.

So in terms of export, this 7%, 8% will become much higher?

Yes.

Okay. How much can you mention?

No. In terms of export, we do not know the other end -- customer's end no, what is the -- what kind of sticker [indiscernible] system electronics we are going to add. So we do not know the final land price, sales price. We cannot comment on our percentage.

Okay. And in terms of export, what I understood is, let's say, over the last 1, 1.5 years, whatever orders we have executed those are mostly for the testing things. And once they tested and the product is proper -- matches the quality, then the real order or a big order we can expect. So can we expect some big orders this year? Or it is still in the testing phase and maybe big orders will come in FY '25?

No, we have already received production orders which now we already started production. Like you have mentioned in my -- the first consignment was dispatched in February. So now every month, we have to keep on delivering 1 type of rocket, 100 numbers per month and another type 50 numbers per month. So already production process started for 4 different types of rockets and also warheads.

Okay. Just a couple of things, and then I join back in the queue. So in this BDL or in Akash, we are the sole supplier, right?

No. There are other suppliers also, but we are the largest supplier, maximum quantity we have supplied in past, even now we are supplying. But otherwise, there are others also who took technology from DRDO for producing Akash propellants.

So for that, it's like BDL decide the quantity or it's the tender system?

It's a tender system. L1 process, L1 entry.

Okay. And last thing on this INR 304 crores of order book in the defense, how much would be export?

It was about INR 104 crores.

INR 104 crores.

[Operator Instructions] The next question is from the line of Vijay Goel from ICICI Securities.

My question was on the Explosive segment. So basically, we have done 42% growth in explosives with INR 103 crores of revenues. So I just wanted to know how much explosive volumes we have done for this year and last year, FY '22 and FY '23? Basically, I just wanted to understand how much of this 42% growth was driven by volumes and how much it was driven by realizations?

Yes, Mr. Goel, if I understand correctly, you are asking for the volumes?

Yes, yes, yes.

This is tonnage that we have?

Yes. Yes, sir, in tonnes.

No. For bulk explosives, we have done about 7,500 tonnes in 1 location and about 500 tonnes in other locations, about 8,000 tonnes, we have done last year.

Growth is mainly because of the pricing rather than the volumes.

So the bulk explosives has gone up almost double. I think there was a growth of 100% last year.

No, sir, I mean, 8,000 tons of volumes you have done in FY '23. And what was in FY '22?

FY '22 was almost about 4,000 tonnes only.

We have the next question from the line of Karan Gupta from Varanium Capital.

1 question regarding the total volume.

I'm sorry to interrupt Mr. Gupta, there is a disturbance from your background. May I request you to go to the quiet a place and speak, please?

Yes. Is it better now?

Yes, sir, please proceed.

Yes. So my question is related to the total CapEx we are planning for the next 2 to 3 years. And this segment, how much CapEx we are planning and in segmentation -- segment-wise break-up in the CapEx.

So we have -- we are -- we have the plan to incur at least about INR 25 crores to INR 28 crores CapEx in '23, '24. So which is mainly -- almost all the CapEx is required for the defense only, not for admitting more of the commission, some nominal amounts.

Okay. So INR 25 crores to INR 28 crores.

Yes.

Okay. And full goes to defense sector?

Sorry, I didn't get?

This INR 25 crores to INR 28 crores.

Major quantity will go to defense sector -- Major amount is for defense sector.

Okay. And anything for capacity expansion in terms of volumes?

No. Actually, this CapEx is required to strengthen our existing facilities and maybe adding some production lines and storage facilities. Exactly this amount is not required. I mean, it's not for the -- increase in the capacity.

No, this I understood about this CapEx. But in future, 2 to 3 years any plans sir? Increasing the capacity of bulk explosives or your packaged explosive?

Bulk explosives, it is -- we have no plan of increasing the capacity because we have really great capacity and the licensed capacity also. We are only planning to increase the storage capacity because nowadays, the bulk explosives are more dependent on the imported ammonium nitrate. So there -- the storage gives us additional strength. So a small part of it goes from the increase in the storage capacity. Defense sector, we have already established the facilities for production. But like our CFO said, most of this goes for adding some balancing equipment because when the product changes, it is suppose I give an example. We produce propellants and rocket motors, but all are not same. Different rockets have different motors, different sizes, different propellants. So specific product is produced. You have to -- depending on the requirement, you may have to add additional facilities and capacities. Really, we cannot say it is for increasing the capacity, but utilization of the present capacity.

Okay. Fair enough. And this ammonium nitrate part -- the price has come down, right, from around 65,000 to 60,000 per tonne. Is it chartable.

Yes. You are right.

So compare we are purchasing the most of the industry players are purchasing it, mainly we are importing this thing, right?

Yes.

Sir, any reason risk can you share this thing if it's not the confidential thing?

Price, simple thing is imported price is lower than the domestic -- local price available.

Okay. So domestically, like some chemical companies, also manufacturing this ammonium nitrate part. So we are not developed these prices. So that's why we are importing. So do you see a major exporter of ammonium nitrate in the overseas market?

Beg your pardon, please repeat the last sentence.

Yes. So major export of this ammonium nitrate in the overseas market, who the country or player?

Mostly, it comes from the Eastern block, hello.

Okay. So extremes of any regions or any major player who are exporting majorly to all worldwide?

No. That is not our duty.

Okay, that is confidential.

Nothing confidential, but it's not our area that we have ready information to share.

The next question is from the line of Niraj Mansingka from White Pine Investment Management.

Just wondering to know about the -- you are 1 of the sole suppliers for a lot of products in the propellants and missiles. And can you share us when you see the scale-up of this happening? Or is there a possibility that despite being a full approved supplier, those products may not be bought by the government in longer term also? Just wanted to know some thoughts of yours.

So from the order book, you will understand that at least the coming 2 years, that indicates the current status to you. And we have several things which are lined up, like I have shared in my speech that we have already absorbed some of the technologies from DRDO, which are going to meet the requirements. And government also is going to list them in the negative list for imports. That is nowadays, it is called positive list for a local production. So we expect a good continuance of the growth, like so many products which you mentioned apart from the rockets and missiles, we have counter measures, we have mines we have warheads, which are now all of them are taking off. These are the new additions to our kitty.

We are aware of that. I think we have been discussing that on the call also that these have been taking off for but the order book is actually, if you see the order book of yours, actualy it is coming down over the last 4 quarters. The defense order book been down from 360 to 300 range. So just wanted more color on it that are you still seeing that traction there or you see some more delays with the government and coming up with orders -- further orders.

Further orders?

Yes, because if you see the order book that you were carrying a year back, it was INR 346 crores, now it is back down to INR 302 crores in defense side. So you have actually gone down on the order book, despite the government's intention and entire media releases of a lot of buying from the domestic side. So is this just you see a temporary slowdown? Or do you see larger delays in executing or getting more orders in the future?

The current order is an ongoing process. While we are executing the others on hand, we are also participating in the RFPs, which are in the process, and you know that you yourself commented, we are the -- 1 of the very few players in this line. So we are quite confident that it will continue.

Okay. And the other question is how much supply to MRSAM and LRSAM will scale up and in the production for -- in the near future?

As on date, MRSAM offtake will be in the range of 20 to 25 only per month. This will continue like this in the coming 4, 5 years.

Okay. Okay, got it. So any other products that you think can -- we should look at in terms of largest growth in revenues or order book for you?

There are others which are in pipeline like QRSAM, NGRM and Astra. All these now are yet to be productionized. We have already participated in the development and succeeded we are marked as a qualified vendor. Now they have to get converted into bulk volumes.

Okay. And few times back -- a few quarters, 1 or 2 quarters back, you had said that Astra is tapered down and you're looking at -- or Akash is tapered down, we're looking at Akash Prime whenever it takes over?

The thing more towards Astra and MRSAM that's what I told. Not only that, you can add to that exports.

Okay. And exports are mostly on the rocket motor, right?

Yes.

[Operator Instructions] The next question is from the line of Aman Vij from Astute Investment Management.

My first question is on the motors -- the Rocket Motors division. So we have, I think, the capacity of 200 per month. So if you can talk about what is the current run rate that we are doing? And at peak, what is the peak sales we can do as well as if you can talk about the margins they are getting this full year?

Sorry, can you repeat, please?

So rocket motors, we have a capacity of around 200 per month. Is that right?

No. I don't know this statement of 200.

Where did you get this statement?

The 1 on the previous calls, you have said we can maybe expand it to 200 per month%.

We have a large license capacity. We have a license capacity for 100,000 numbers of topline rocket motors per annum. That is our license capacity. And we also have a huge capacity. The only thing is to add more, we may be requiring some more additional equipment, metals, tooling and some balls like that, which we keep on as the orders come, we keep on doing. So 200 is not our limitation.

Okay. Okay. Sorry. And as of now, what is the run rate that we are doing?

Yes. The present current orders on hand around 200 numbers per month we are doing including export and domestic.

Okay. So that was the confusion. So -- and in terms of, say, we are doing around 2,400 motors per year. So what is the sales that we are getting because of that?

So basically, the major portion of the defense revenue is coming from there only.

Okay. Yes, yes.

Major portion for defense, for the '22, '23 came from the rocket motors and propellants only.

Okay. Okay, sir. I thought it is more for the propellants for the missile versus rocket motor. So has the shift happened that now rocket motors is contributing much more than the propellants for the missile?