Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Premier Explosives Limited Q3 and 9M FY '24 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, sir.

Thank you, Viren. Good afternoon, everyone. I, on behalf of Stellar Investor Relations, welcome you all to Premier Explosives Limited Q3 and 9M FY '24 Earnings Conference Call. We shall be sharing the key operating and financial highlights for the third quarter and 9 months ended December 31, 2023. 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 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 and 9 months. Thank you.

Thank you, Vishal. Good afternoon, everyone, and thank you for joining the call. Premier Explosives continues to deliver an improving execution run rate apart from the past quarter, which saw a dip in revenue due to the geopolitical situation in Israel and around. We believe this will be corrected to the large extent in the current quarter. Having said that, for the 9 months of financial year '24, we continue to post robust growth of 64% in different segment revenue. In terms of order inflow and backlog, we started financial year '24 with an order book of almost INR 521 crores and added to it new orders of INR 731 crores in the year till date.. Our current outstanding order book stands at approximately INR 1,026.6 crores, a strong growth of 71% year-on-year and translates into 5.1x of our financial year 2023 revenues. Execution of these orders will help us to bid for bigger and better orders from Indian defense industry as well as from the foreign defense entities. Execution update of key orders ahead. The countermeasures orders are under execution at various stages and expecting the commencement of billings from March 2024 onwards, subject to the clearance of user, significant portion of billing will be during financial year '24, '25 with regard to these orders. Other orders from overseas Bharat Dynamics and other PSUs and the other large corporates, Indian corporates are being executed as per the time line. In addition to that, we have different types of orders from various entities and export orders for defense products alone is currently standing at INR 124 crores. We have successfully completed design and development for various international clients establishing dedicated production lines for bulk production. Future outlook of Premier Explosives. Premier Explosives is the only qualified Indian company for countermeasures and the only Indian company, which is in the export of fully assembled rocket motors. In addition to the rocket motors and warheads, now Premier has entered into manufacturing of mines and ammunitions as well. As I have mentioned in our last conference call, bulk production of Nipun mines has started, and the first installment of these will be offered from pre-dispatch inspection in the month -- fourth quarter of financial year '24. Premier has successfully completed the development of 40mm HEMP and HEDP ammunition for UBGL and HBGL under DCCP program of DRDO. Now we hope we will participate in the RFPs being generated by paramilitary forces and Indian Army. And we expect the production and supplies to start in the current financial year itself. And in addition to this, the HMX and RDX plants and high explosives plants, which were earlier producing for self consumption and also for domestic market, started exporting. We are -- more and more export orders are coming, and then we expect a big growth in this area in the coming year. Premier has also completed the bulk shock tube production plant, which has come into production as we are expecting a contribution from this plant in the coming years. In terms of cash flows, we have generated healthy cash profit of INR 4.7 crores in the quarter 3 financial year '24 and INR 30 crores in 9 months of financial year '24. Along with steady execution of run rate, coupled with the inherent features of our cost structure it is set to increase operational leverage in our business, leading to enhanced cash flow generation. The improved cash flows will be utilized to strengthen our balance sheet. We continue to remain optimistic about the defense and aerospace industry and we will continue to work towards becoming a prominent player in the domestic as well as export space. Now I request Mr. Srihari, our CFO to share the financial performance.

Thank you, sir. Good afternoon, everyone. The result 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. The revenue from the operations for Q3 FY '24 stands at INR 45 crores as compared to INR 37 crores in the corresponding period last year, which saw a growth of 19% year-on-year. Our operating profit for Q3 FY '24 stands at INR 4.9 crores as compared to INR 4.7 crores. The operating margin for the quarter stands at 11% in Q3 FY '24. We reported a net profit of INR 1.7 crores compared to INR 0.6 crores in last year's similar quarter, with a growth of 190%. Let me take you to the 9-month performance. The revenue from the operations for 9 months ended 31 December, 2024, stands at INR 185 crores as compared to INR 150 crores in the corresponding period last year, translating into 24% year-on-year growth. Operating profit for 9 months FY '24 stands at INR 43 crores as compared to INR 18 crores in the corresponding period last year, which saw a robust growth of 145%. The operating margin stood at 23.5% in 9 months ended 31 December, 2024. Net profit in 9 months stood at INR 21 crores compared to profit of INR 4 crores in last year, which has showed a tremendous growth of 394% year-on-year. Now coming to the order book. The company's current total order book stands at INR 1,027 crores, out of which the higher margin defense segment forms the majority of INR 889 crores, which is 87% of the total order book. Explosive segment stands at INR 22 crores. And service segment, that is the operational maintenance fees at INR 115 crores. During the quarter, domestic order book is at 88% and export order book at 12% of the total order book. The order book represents a solid and strong growth over the previous year. We are very much confident that our continued execution run rate, and we expect forthcoming quarters will be continuing with the growth trajectory. 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 Dipen Vakil from InCred Equities.

Sir, my first question is on the lines of the geopolitical issue that you mentioned. Sir, is it possible for you to give more light into where we are seeing this impact. And right now, if we are seeing an impact on receivables, so how are the -- how is the demand currently from these geographies?

The demand is, you know, all the orders are in place and then we already have that. The only -- and we have produced the products. They are in the inventory. Now deliveries because of the war conditions there, initially, the flights got affected. And also now you know that the ships also in the Red Sea are affected because of that, the deliveries are taking time. Now we find that these conditions within Israel have improved and normalcy has come. Industry is working and all those are going on. It's only a question of delivery. And we are expecting that this February month itself, we should be delivering it.

So my understanding is that there's only the logistic -- logistics is currently the issue for Israel geography, but not on the pricing front or receivable front. Am I correct?

Yes.

Okay. And we expect that to be rectified say, by fourth quarter or it will take some more time?

Yes, already people have started traveling between Israel and India. So goods also started. So I think that so on it will be regular activity.

Got it. Got it. Sir, my second question is on the lines of sir, as a high energy manufacturer, what would be your key raw materials that you use? And how is the pricing scenario for those key raw materials currently? Like are they -- how are the levels versus year-on-year?

Different raw materials because we are not one single product manufacturer like only mining explosives since we have multiple products, raw materials are also quite diverse. And right now, except some two items, most of the raw materials are all produced it in the country, and we are working within the country.

Okay. Okay. Okay. Sir, my last question is, you mentioned there are some opportunities in ammunition. Sir, what kind of opportunities are we seeing in the ammunition side? Because we are seeing a lot of participation competition in terms of increasing even from the private players. So what kind of opportunities do we see in ammunition front going ahead?

See up till now, the ammunition is either being produced by ordnance factories are being imported. So now it is opening up into private industry for producing and then supplies again as to Atmanirbhar Bharat. So we are focusing on the medium caliber ammunition whereas others have established small caliber and others. So we expect that this is going to be a good area of growth.

Any order -- so this is like a 1-year horizon or more than that? So is it like -- when can we start expecting some deliveries or executions to start in this space?

We just completed the product trials and completed establishing the production facility and completed the product price. Next then comes the NCNC trials with the user and then various other checks and all those. So these things, they will take -- at least to take the order shape 2 to 3 years.

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

This is -- first question is regarding the margins. So if you could give some clarity, is it because of the lower defense revenues that the margins have come down to 11% because clearly, in first half, the defense revenues are much higher.

Exactly sir. You are right.

Okay. So sir, in the last call, we had mentioned that we're looking at about 26% to 28% kind of margin on the defense orders. So that outlook remains as it is?

Yes sir.

Understood. Sir, second is, sir given the large order book that we have of INR 10.3 billion, is it that our hands are too full and we would be waiting for taking up another large order or it's not like that and you would continue to look at the major orders? And if you can give some color also that in what products would you expect major orders in next 1 year and 2 years' time frame?

No, we are working against procuring further major orders and doing. It's not that our hands are full. Different products, this product mix keeps on changing. So we can't decide that 1 product, we have a big order that means our hands are full. I have explained this in my last call also, I think. Am I clear?

Yes. So sir, just trying to understand, given the production facilities that we have built up in Katepally and all our execution has ramped up. So what key products we'd be targeting where the potential is more for us to get orders?

We have one in Katepally and also from export transits from Israel and also domestic. So what happens is these orders when we receive the order. It takes 6 months to build up the tooling system and also components and the procurement of raw materials and all those. So after receiving order after 6 months or something, the production starts, then there will be pre-dispatch inspections so all those. So we are going through that. Our capacity, there is no issue of capacity. We have enough capacity.

Right. And sir, in Pinaka what is our scope of work. You have mentioned Pinaka Mark I and Mark II we can manufacture. What is the scope of work there sir?

We have qualified for manufacturing of propellants and other energy components, not the entire Pinaka rocket motor. But in future, right now, the two companies are already doing that. If there is further opportunity, then we can enter that field.

Understood. Sir, just 1 last question from my side. You did mention on opening marks regarding design development for various clients and you have established production line. Could you give some clarity that what products you're looking at for these international clients?

So right now, we are producing with different rocket motors for Israel and also warheads. So what happens, one rocket you design. And then when the bulk supply you do, the related fixtures, tooling, we have to make that, building up the sufficient quantity of fixtures and tooling for a production batch of a lot of 50 numbers, 100 numbers in 1 batch that is called production line building. And once you do that, then you do the mass production continue.

Right. So the current order book would reflect rocket motors, but fixtures and tooling is something that you would expect in future, is it?

In what we are having production orders we have already done. It has started production. Future orders when they come, it will be like that, when you're receiving orders and developing orders and then building the -- this is called the production line building, the tooling and fixtures related to that product. And then you produce the bulk. Right now, we're already doing that.

The next question is from the line of Jayesh Shah from Ohm Portfolio Equity Research.

Sir, my questions again relate to this problem in Israel. Can you quantify what is the extent of sales lost? And would it be entirely made up in the fourth quarter?

We have not lost any sale, the offer is very much in hand.

The dispatched are getting delayed. Things are getting -- we are unable to make a billing.

It's only dispatch in the logistics delays, that's all.

Right. So if I see that you had a -- second quarter, you had defense revenues of INR 54 crores, which has dropped to INR 22 crores. So entire INR 30 crores is what is lying in inventory and will result in sale in the fourth quarter?

Yes, they are at different -- in fact...

No, no, actually, we are expecting this to happen. But in fact, even we have received an advance because of the material getting stuck and we are unable to -- because of the logistics issues, our customers have readied with the advance also against the stocks. So the only thing is a matter of dispatch. That is expected to happen somewhere around February.

Right, right. Yes. But the amount is roughly around INR 25 crores to INR 30 crores?

Plus or minus, somewhere nearby.

Okay. And just to reconfirm your emergency orders for chaff are supposed to begin from February to August for around INR 500 crores? So fourth quarter would really be lumpy now because of this INR 30 crores and say, INR 100 crores of the emergency chaff order of INR 150 crores. Is my understanding broadly correct?

No, whatever is -- I mean, shifted from third quarter, there will be accounting. But again we are in -- the execution of the emergency orders is under process. And I think we are expecting some quantities to be built in -- somewhere in fag end of -- I mean, this quarter -- the coming quarter. But I think, again, depending on the PD inspections, clearance from the MoDs and all, there are a lot of different parts. But we are expecting some billing to happen in the last quarter, some billing which we have done.

Okay. Understood. No problem. And just coming back again...

Not that INR 100 crores or INR 10 crores but we are expecting some billings. It again depends on the clearances from the MoD and PD inspection.

Right, right, right. And again, going back to this INR 30 crores, what is stuck in Israel, will you experience higher cost due to freight and all? Or will that be totally passed on. So is your initial margins intact? Or will there be a cost escalation and lower margins?

Freight and transportation is not in our scope. Our prices are probably at factory prices. So that is not going to affect us.

I see. I see. Okay. And what was the actual order inflow in this third quarter?

So I think it was about INR 23 crores.

INR 23 crores, okay.

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

Sir, we had spoken last quarter that we will start deliveries from February for these chaffs and...

A little louder, sir.

So we had said in the last quarter that we'll be delivering the -- start deliveries of the chaffs in February 2024. But right now, I'm speaking of March, which is subject to defense approvals. So any thoughts on how is it -- there is a possibility that there might be more shipment in Q4 itself and maybe shifted to the next year financial year? Is it a possibility?

So actually, there are no time lines because actually, the supplies have to be made within such a time. There are no separate schedules in between. But we are trying to make some billing in summer this year itself, some billing. But again, some issues like PDIs and clearance from defense are subject to -- every time, it is subject to their clearances only. But it is part of this billing only. Every -- this total played in 4 tranches, 4 installments, not more than that. So we have to wait for the first installment to discuss quantity to be ready and then offer all together. We cannot offer whatever is ready and then clear it in this financial year and go to next year. So because of that reason, there will be always an uncertainty whether it will come in the last week of this year or it will go to the first week or second week of the next year, it's like that.

Got it. And sir, if I -- if we really think from a Israel issue which is happening, what we have been thinking is there would be more increase in the demand of rocket motors because of the use of -- consumption of the missiles and et cetera. So I'm surprised on the delay in the shipment. So can you give some color on the fact that globally, there are a lot of shortages of the defense consumables. So any impact it can have you on a bettering revenues from the export market?

Actually, the export orders what we are executing were placed on us before the conflict started. So this cannot be linked to that. But about the increase in the demand and all those, I don't think we'll be able to comment on that.

Okay. Got it. And the last question, you had given a guidance of INR 300 crores of revenue for FY '24 and INR 500 crores for FY '25. So does our FY '24 revenue guidance continues to stay? Or is it -- would be lower for this year?

Maybe around 10% plus or minus may happen.

So around INR 270 crores...

FY '25 will be much better than what you were talking.

Okay. Got it. And sir, last question on the ammunition on the RFPs. Can you give some color on the RFPs on the large RFP that is delayed in opening up. So any comment on that?

No, those RFPs, it is not known almost we are -- these are what we are talking of the new RFPs coming. These are coming specifically for the Made in India products. The old RFPs were the imports or foreign technology and all that.

Okay. And when will the -- when do you expect the paramilitary forces ammunition orders to flow through?

See they're in the different stages, RFI, RFP and then user trials and all those. Now they are at the user trail stages. So once user trials are completed, I think they will come back shortly around. I mentioned earlier, these things to come to bulk production stage, they may take 2 to 3 years.

Right, right. And sir, how many companies would be probably qualified for the user trials?

Right now this -- under DCCP program, they have -- two companies have worked with DRDO, one of them is Premier.

The next question is from the line of Santanu Chatterjee from Mount Intra Fund Private Limited.

Okay. Actually wants to get much more -- greater clarity in your order book position. As you have mentioned that INR 23 crores order inflow was there in the quarter 3 itself. But if I look after your current presentation, sir, in Q3 presentation, you have mentioned that YTD order book inflow was INR 731 crores. And in your last Q2 presentation, you have mentioned up to 30 September YTD order book was INR 615 crores. That means order inflow for Q3 was INR 116 crores. Why this disparity, sir?

We will check and come back.

Because if I look after that you have executed INR 44 crores order book in this quarter, you have recognized revenue INR 44 crores. So last 30 September, your order book was INR 1,054 crores so if I deduct that thing, so order book will come back to INR 1,010 crores. And if you add back INR 116 crores, then your order book will be -- in the vicinity of INR 1,126 crores. Instead of that, you have mentioned that current order book is INR 1,026 crores. So there is a INR 100 crores mismatch of order book.

One second. I think there is some issue of the GST. In this INR 615 crores, I think GST was excluded. And in here the GST was added.

No, sir, actually, in the presentation itself, you have mentioned in both presentations you have mentioned that, that order book was excluding GST.

Correct, correct. But I think it was including GST. But anyway, we'll check on that despite.

Okay, sir, okay. And sir, what kind of order book you are envisaging for the next couple of years?

I think that at present that this will continue sir the trend, the way the conditions are appearing current trend of -- we'll be able to maintain the INR 1,000 crores order book continuously.

Okay. And sir, is there any need for fresh CapEx to support your upcoming opportunities?

As on date, we don't have, but we'll definitely share by the end of the year, if there is any.

The next question is from the line of [ R.K. Lata from YES Investment ].

My doubts have been cleared in earlier questions. So now no question on my side and all good wishes for your future.

The next question is from the line of Khush Nahar from Electrum PMS.

Sir, I had two questions. One, would it be -- if we were to assume that our current order book of INR 1,026 crores, will it be executable in the next 12 to 15 months?

A significant portion will be executed in the next 12 months, a significant portion of that.

Okay. And the second question, the tax rate has been on the higher side for the last couple of quarters. So are we trying to shift to the 25% tax rate going ahead? Or this will be maintained?

Earlier, we used to have some MAT -- earlier we used to cover under MAT, and we had some credits and now we are coming into the regular tax end of it.

So we can say from quarter 4, it would be 25% only?

Exactly, yes. We are gradually moving to the 25%.

The next question is from the line of [ Shubham Upadhyay from The Microcap Minute ].

I'm [ Shivam Upadhyay from The Microcap Minute ]. So basically, most of my questions have been answered, but I wanted to ask about the operating margins, which have been a little bit under pressure for this particular quarter. So when do we see that those margins coming back to the quarter 2 FY '24 levels, that it'd be 28%.

Didn't understood.

I think he wants to know this 28% margins [indiscernible].

Sir, actually, this depends on the product mix and the segment, segmental revenue. Normally, if the product mix -- depends on the product mix. Since, we have got so many products. So some products are giving good margins. Some others are not giving that much margin so far. Second part, as you are aware, I think we have got different segments wherein defense is comparatively performing well. So again, the performance of every quarter depends on the segmental revenue as well as the product mix. So it may vary. So first 2 quarters was good because of the product mix and segmental revenue.

Okay. And so my second question is like a lot has been asked about the Israeli conflict. So my question is a little bit more specific. Do we see some kind of revenue contribution in quarter 4 from the Israel conflict, like do we see, because there has been delivery issues, right? So do you see revenue contributions delivery issues get resolved in quarter 4 FY '24?

Yes, please. We are expecting the -- all the shortfalls of third quarter will be made up in the fourth quarter.

The next question is from the line [ Prathamesh Rajopadhye from Proinvest Nirmiti ].

So even I had a question on the order book. So can you just clarify that whether we have lost orders this quarter? And also if possible, if you can just check the PPT? And if there are any changes, can you just share the revised PPT on the stock exchange? And my second question is, apart from Israel, do we see any other opportunities for export in the defense segment?

Yes, we are already exporting and then some more opportunities are also in pipeline.

Yes. And the first question, is like have we lost any orders this quarter?

No, no, no. We have never lost any order in hand, once we have received, we have never lost any order.

Okay. And in the earlier participant question, you said that you will maintain INR 1,000 crores order book comfortably, but like now after we execute the chaffs and flare order like, I guess the order book would be down by INR 500 crores approximately. So do you see any large orders in the near term, let's say, in the next 2 quarters?

We look at the chaffs and flares itself as a regular continuous offtake will be there. May not be of INR 550 crores every year, but yes, INR 300 crores to INR 400 crores will be there. In addition to that, I told you we are adding the mines and ammunition and also RDX and HMX exports we've started. So all those things together, we believe we can maintain that.

Okay. So like INR 300 crores is like what is required annually by the IAF. So can we assume that?

Sorry?