Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Premier Explosives Limited Q4 and FY '24 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, sir.

Thank you. Good afternoon, everyone. I, on behalf of Stellar Investor Relations, welcome you all to Premier Explosives Limited Q4 and FY '24 earnings conference call. We shall be sharing the key operating and financial highlights for the fourth quarter and full year ended March 31, 2024. Today, we have with us 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 shared on the company's website and exchanges. Now I invite Mr. Chowdary to share his initial remarks on the company's performance for the fourth quarter and full year. Thank you, and over to you, sir.

Thank you, Vishal. Good afternoon, everyone, and thank you for joining. Premier Explosives continues to deliver an improved performance, as mentioned in the earlier calls. We have received the pending revenue from the Israel export order, and this has shown an exponential jump in the revenue of the quarter. We are happy to announce that we have highest ever quarterly revenue in Q4 of financial year '24. Having said that, we continue to post robust growth in Defense and Space segment revenue of 135% in Q4 and 88% in financial year 2024. In terms of order inflow and backlogs, we started financial year '24 with an order book of almost INR 521 crores. And as it peaks, the new orders [indiscernible] in the year till end of March 2024. Our current outstanding order book stands at approximately INR 964 crores, a strong growth of 85% year-on-year and translates into 3.6x of our financial year 2024 revenue. 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. The countermeasure further are under execution at various stages. As indicated in the last con call, the billing of these products has started with a small volume in March, a significant portion of this billing will be done during the first half of financial year 2025. Other orders from overseas, Bharat Dynamics and other PSUs and other large Indian corporates are being repeated as per the time line. We have different types of orders from various entities and export orders value for defense products alone is currently standing at INR 316 crores. We have shipped out next lot of rocket motors in Q4. Further billing in this segment will be done in financial year 2024-'25. Continuous production [indiscernible] orders is going on and dispatches will happen as per the availability of vessels. Future outlook of Premier Explosives, Premier is the only qualified Indian company for counter measures, and the only Indian company which specializes in the export of fully assembled rocket motor. In addition to the rocket motors and warheads, Premier has entered into manufacturing of mines and ammunitions as well. As I mentioned in our last conference call, the first batch of Nipun Mines has been supplied in April 2024. The supplies of balance order quantity is scheduled to complete in financial year '24-'25. Premier has successfully completed the development of 40mm HEAP and HEDP ammunition for UBGL and HBGL under the DCPP program of DRDO. Now we hope we will participate in RFPs being generated by paramilitary forces and Indian Army. We expect the production and supplies to start in the current financial year. In addition to the above, the company started exporting RDX and HMX. Commercial explosives divisions are performing well and expected to continue in coming years also. In terms of cash flow, we have generated healthy cash profit of INR 9.6 crores in the quarter 4 financial year and INR 39.6 crores in the whole year ending '24. Along with steady execution of run rate, coupled with inherent features of our cost structure, with respect to increased operational leverage in our business, this will lead 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'll continue to work towards becoming a prominent player in the domestic as well as export space. Coming to the defense industry, it gives me great pleasure to announce a significant milestone in India's defense sectors. I'm delighted to inform you that Indian defense exports have reached our next unprecedented height surpassing the INR 21,000 crore mark for the first time in the history of independent India. Furthermore, our total defense manufacturing has achieved a monumental figure of INR 1 lakh crore. This achievement underscores India's journey towards self-reliance or aatmanirbhar in defense production. It is worth noting that leaders across the globe have acknowledged India's potential indicating that the 21st century shall witness India's emergence as a prominent player in the global level. In line with our policy to reward our shareholders, Board of Directors have recommended a dividend INR 2.50 per share. However, the same will be subject to the approval of shareholders. 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 operations for Q4 stands at INR 87 crores as compared to INR 52 crores in the corresponding previous year last year, which shows a growth of 66% year-on-year. Our operating profit for Q4 stands at INR 15 crores as compared to INR 8 crores with a growth of 86%. The operating margin for the quarter stands at 17.4%, which grew by 189 basis points in Q4 FY '24. We reported a net profit of INR 6.6 crores compared to INR 2.3 crores in last year's similar quarter with a growth of 184% year-on-year. Let me take you to the financial year 2024 performance. The revenue from the operations post FY '24 stands at INR 272 crores as compared to INR 202 crores in the corresponding previous year last year -- period last year, translating into 34% year-on-year growth. Operating profit for FY '24 stands at INR 59 crores as compared to INR 26 crores in the corresponding period last year, which saw a robust growth of 127%. The operating margin stood at 21.5%, which grew by 875 basis points in FY '24. The net profit in FY 2024 stood at INR 28 crores compared to the profit of INR 7 crores in last year, which has showed a tremendous growth of 321% year-on-year. Now coming to the order book. The company's current order book stands at INR 965 crores, out of which the defense segment forms the majority of INR 834 crores, which is 86% of the total order book. Explosives segment stands at INR 19 crores and service segment, which is the operational maintenance, stands at INR 111 crores. During the quarter, the domestic order book is at 89% and export order book is at 11% of the total order book. The order book references solid and strong growth toward the previous year. We are very much confident that with our continued execution, run rate in the forthcoming quarters will be continuing with the growth trajectory. With this, we will now open the floor for questions and answers.

[Operator Instructions]. The first question is from the line of Dipen Vakil from Research Analyst.

Congratulations on a great year. Sir, my first question would be how -- what would be your guidance for, say, FY '25 and do you think the margin -- the higher margin that we achieved this year is sustainable in the coming years as well?

The margins will be in the same line because the same business will continue in the same way, will be in the range of 18% to 20% or 21% of EBITDA for the year ending '25.

And any guidance on the revenue front?

Normally, we do not give any guidance. But based on the existing order book and the time line, we should be able to some -- I mean, some -- maybe some good improvement from now.

Got it, sir. Sir, my second question is, sir, we have witnessed a huge influx of order -- export orders. So can you throw some light from what areas those exports are coming and how is our ammunition side of business faring? So are we seeing any improved activity or demand? So where is the demand coming from, from the export segment? If you can throw some light on that area.

Export, we are -- as I mentioned earlier, the exports we are doing industrial explosives exports are continuing, and we are exporting rocket motors, warheads and we are also -- now we started exporting HMX and RDX also.

Okay. So this -- so the demand that we have right now, it's sustainable going ahead as well?

Yes.

The next question is from the line of [ Shreya Jain from Niveshaay ]

Congratulations on a great year, sir. My question was regarding our gross margins. We've been getting good growth in top line. But for this quarter, the gross margins have reduced significantly. So what could be the reason for the same?

Normally, it depends on the product mix, madam. We normally do -- I mean, we are in the different kind of products there. So some products gives us a good margin. Some products may be somewhat lesser. But the difference is not so much. I think we -- in this quarter also, we have reached about 17%, 18%.

No, no. I'm talking about gross margins. The margins we got from producing the top line.

Okay. So it basically depends on the product mix madam, basis the production.

So for this quarter, our product mix -- in our product mix, mainly it was defense. The major revenue came from defense but defense is a high-margin business, right? So what could be the reason for the lower margins in gross profit this year this quarter?

No, you're comparing only with the gross margin, right?

Yes, yes, gross margin.

So it depends on the -- actually, we can say that maybe because it's overall product mix only madam.

Okay, okay sir. The other question I had was for the CapEx that you announced that you might be doing. So can you throw some light on that, what kind of product you are thinking of? And what kind of expense that will be incurred in this CapEx?

Right now, our target is going into expanding our raw material capacity, manufacturing capacity to meet the present international demand. And also the new areas that we are expanding in the aerospace as well as ammunition space. These are the areas where we are going to grow, CapEx is going in that area.

Okay, sir. And my last question was regarding the QIP. So can you throw some light on that as well? What would be the funds be used for? Will it just be for the CapEx or something else would you have in mind for that?

A significant amount out of this we have proposed will be used for CapEx and some portion will be used for the repayment of existing debt.

The next question is from the line of Abhishek Poddar from HDFC Mutual Fund.

Congratulations on a very good quarter.

Can you speak a little louder, sir?

Am I audible? Is it fair?

Yes, now it is.

Congratulations on a very good quarter. So 2 questions. Sir, if you could talk about your order inflow expectations for next 1 to 3 years, just to give us some understanding how do you see the opportunity? And what kind of order inflows you would be hoping for? And if you could cover the products like rocket motors and propulsion systems, countermeasures, ammunitions and mines. And if you could talk a little about all of them and including also RDX and HMX, what opportunities exist in each of these product lines for us.

Like I already mentioned in my speech. This opportunity -- we will be maintaining the same level of order book, executing and maintaining the same level of order book. That is expected. In addition to this, we are expanding in the raw materials segment, with the raw materials. We are expecting a significant contribution from export of these raw materials like TNT and RDX, HMX and all those. This will add to the present export market trends and our income from rocket motors and warheads and other things. These raw materials are going to add to that income. Countermeasures also, it will continue at least coming 4, 5 years, the same level of production and supply will continue.

Okay. So it's about that order book will not fall. It will be in the range of INR 900 crores to INR 1,000 crores. That is what you're referring to?

Yes, that's what we're referring to.

And sir, what is the life of this order book? Today, we have about INR 970 crores. How long it will take for you to execute the entire order book?

Except the orders from ISRO, which is of long term, that is another 6 years, all other orders are the current and they are of 1 year to 2 years.

Understood. Okay. So the way we could think of it is that if it is going to be executed in 2 years. So every year, you will be getting the same amount -- every 2 years you'll be getting the same amount of order inflows. That's how we should think about it?

Yes, that's what we are expecting.

Understood. And sir, if you could also talk about the CapEx and the QIP money. How much of the QIP money will be used in CapEx? And which are the particular facilities that you want to expand to? And how much will be the CapEx incurred in those? And also what CapEx we should expect in '25 and '26.

So actually about 60% of the money we are proposing for the CapEx, but that will be -- we are looking at increase in the new location as well as existing locations for the expansion of the existing facilities. So the detailed -- I mean, numbers will -- I think will come at a later date.

Okay. And this -- what products will be -- you'll be putting the capacity for?

Yes. I just now mentioned about those, the explosive raw materials, the new place TNT, trinitrotoluene, and then RDX, HMX Expansion and also expansion of our ammunition production and propellant production. So these are the areas where we are going to expand.

Understood. And this CapEx will not be used for ammunitions and mines?

Mines, we already have the capacity. So I don't think we need anything to be added. It's mainly the raw material explosives, which the international demand has gone up. So to meet our own requirement and to meet the export demand, we have to create new facilities and expand the existing capacity. So the CapEx will go into those areas mainly.

Understood. And sir, there was this MOU we signed in Orissa. Can you tell us about what is the status of that project? And how are we thinking about that investment?

There is no MOU signed, it is -- we have -- the Orissa government has identified as one of the potential investors in Orissa. And you know our kind of industry needs large land. So they have offered us a land of 500 acres where we can expand our capacities and all those things. And the Orissa government has issued a letter to Orissa Industrial Development Corporation to identify land for allotment to Premier. We have already seen 4, 5 land banks, which were shown to us and shortlisted and this is continuing. The process is going on because of the election and all those election code, there is a little delay. But now, next week onwards again from June month onwards, the activity will start. It may take 5 to 6 months to get allotted. If we get within 5 to 6 months, that is very fast.

And what products are you thinking about in this facility, sir?

Mainly, I want to go for first for TNT and then filling of bombs, ammunitions, those are the areas.

The next question is from the line of Suman Kumar from Antique Stock Broking Limited.

I had one question.

Sir, can you just speak a little louder, please?

Yes. Am I audible now?

Yes, now it's better. Go ahead.

I was doing a report analysis, and I just came across -- so could you please help me get bulk explosive production volume and detonator production volume for FY '24, please?

You want to know the product volumes?

Yes, sir.

One second. You want the volumes produced or question is not clear.

Yes, sir. The volumes produced for bulk explosives in FY '24.

So bulk explosives, we have done about -- one second. Can give the value by tonnage?

You want the value or tonnage? Volume?

Ideally speaking both would be the better, sir. The value as well as the tonnage.

So we have done about 8,500 metric tonnes of bulk explosive in financial year '23-'24. Detonators about 10 million.

Detonators is a market which is going out. So the quantities are not decided by us. They are decided by PESO and they are giving a limit, and we are selling up to the limit we have given. So next financial year, it is going to be zero.

Okay. So sir, assuming the 8,500 tonnes which you produce, can we get a sense of what was the value of this, the 8,500 tonnes produced?

You want the value?

Yes, sir.

It's about INR 38.5 crores.

INR 38.5 crores?

Yes.

Okay sir, and just one more bookkeeping question. I understand that we have an order execution cycle of 1 to 2 years, as was mentioned.

I can't hear, your voice is not clear.

Yes, sir. So currently, as mentioned, we have an order execution cycle for 1 to 2 years. So considering our current capacity, and we are also doing a significant CapEx to raise our capacities. So how should we plan because if the execution cycle is 1 to 2 years, the CapEx to increase our capacity to be able to manage this higher order delivery. So the CapEx will be incurred in one year or it will be in a lesser period or how will the CapEx pan out essentially?

So we understood your concern. Present order book, execution, our existing capacities are sufficient. The capacity is not for these orders. These are -- the CapEx is for the future order. This is not going to affect the present production supplies. Their production is already going on.

The next question is from the line of Ketan Gandhi from Gandhi & Securities.

Yes, sir, congratulation on a good set of numbers. And my question pertains to the Rudram-II, which has been launched -- trial launch 2 days or 3 days back, which has been successful. So what rail are we playing there?

No, we are propellant rocket motor manufacturers for that. We are the recipients of ToT from DRDO.

So we are the exclusive or there is some competition there?

Right now, we are only there. But we can't tell. Others can also -- when it is a ToT from DRDL or DRDO, others also can approach and take them. But as on date, we are the only ones.

And sir, what is the total number of these missiles you are expecting in the next 4 to 5 years?

Rudram-II, we have no knowledge of that. That's a DRDO information. Quantities and all, we cannot tell that.

Okay. And sir, in this year, this time presentation Q4 investor presentation, you have mentioned about Pinaka-I and Pinaka-II. Previously, we were not there in Pinaka-II. So can you throw some light on that?

Even now, we are not there in Pinaka-II. Pinaka-I also, we have technology transfer and we can produce. We have the capability of producing the Pinaka propellant. But right now, we are not doing that. We are busy with other products. This area, we have not participated in that area.

Why I'm asking this question because we have mentioned this time, first time in the presentation about Pinaka-II, that's why I was asking.

I don't know, where did we mention it. Right now, we are not producing any Pinaka. So I don't know.

I think misprint or I mean we have to redo that.