Premier Explosives Limited (526247) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Premier Explosives Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note this call is recorded. I now hand the conference over to Mr. Vishal Mehta from Stellar IR Advisors Private Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. I, on behalf of Stellar Investor Relations, welcome you all to Premier Exposures Limited Q1 FY '25 Earnings Conference Call. We shall be sharing the key operating and financial highlights for the first quarter ended June 30, 2024. Today, we have with us the senior management team of Premier Explosives Limited, Mr. T.V. Chowdary, Managing Director; and Mr. Shirihari 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 first quarter of financial year 2025. Thank you, and over to you, sir.

Thank you, Vishal. Good evening, everyone, and thanks for joining. Premier Explosives continues to deliver an important performance, improved performance, as mentioned in the earlier calls. As I have mentioned during the last quarter con call, if we have already reviewed the pending revenues in the last quarter from the Israeli export, this has shown an exponential jump in the revenue during the last year, and also due to an emergency order from Ministry of Defense. And going ahead, we are expected to receive new orders from the Ministry of Defense on regular intervals. It's a smaller point -- it's similar quantity. During the quarter 1 of financial year 2025, our revenue has grown compared to previous year, same period, which is a good growth for the company and even our operating margins have been showing a stable growth momentum. Our current outstanding order book stands at INR 899 crores and translates into 3.31x of financial year 2024 revenue. During the quarter, some of the big orders have been executed, and this will help the company to bid for bigger and better orders from Ministry of Defense as well as Indian Defense industry and foreign defense entity. Our orders are at different stage of execution, and our order execution from various entities such as Bharat Dynamics overseas and [indiscernible] repeated and processed as per schedule. Our defense export orders alone are currently standing at INR 165 crores. Coming on the recent updates, as you all know, the company will be doing a CapEx plan as your company has received the letter from The Industrial Promotion & Investment Corporation of Odisha Limited, IPICOL informing the State Level Single Window Clearance Authority through an in-principle approval for setting up defense explosives, raw materials and ammunition plant in 3 phases at Rayagada District with a total investment of about INR 864 crores. Coming to future outlook. Premier is the only qualified Indian company for countermeasures and the only Indian company which specializes in the exports of fully assembled rocket motors. In addition to the rocket motor, our heads -- also Premier has entered into manufacturing and exports. Premier has entered into manufacturing of mines and ammunitions as well through Atmanirbhar Bharat initiative. Invigilation lists have been promoted by MOD and Defense Ministry for various defense products, which need to be manufactured domestically for the defense sector instead of being sourced via imports. This will also help the future growth of Premier participating in the list. As I mentioned in conference calls, we have supplied first lot of Nipun Mines in the month of May, June 2024 and the supplies of balance orders are to be scheduled to complete the financial year 2024, 2025. Premier has successfully completed the development of 40mm HEAP and HEDP ammunition for UBGL and HBGL as per the DCPP program of DRDO. Now we hope that we'll be able to participate in RFPs being generated by paramilitary forces and Indian Army. We expect the production and supplies to start in the current financial year, that is financial year ending 2025. In addition to the Board statement, the company has also 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 in the quarter 1 of financial year '25. Along with steady execution of run rate, coupled with inherent features of our cost structure, we expect to increase 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 remain positive about the defense and aerospace industries, and we'll continue to see -- become a major participant in both the domestic and export markets in these areas. Coming to the Defense industry. It gives me great pleasure to announce a significant milestone in India's defense sector. India's defense sector has achieved a significant milestone in self reliance, its domestic production reaching a record of INR 1.27 lakh crores in 2023, '24, a 16.8% increase from the previous year. Over last 5 years, defense production value has risen by over 60%. The Ministry of Defense reported that public sector undertakings accounted to 79.2% of this output. Defense exports also grew surpassing INR 21,000 crores. This growth highlights India's commitment to becoming a leading global hub for defense manufacturing. A role being played by Premier also gives us a great pleasure and pride in exporting the defense products. Now coming to the aerospace industry. Micro, small and medium enterprises play a pivotal role in boosting India's aerospace sector by providing essential components and services. However, the factor faces challenges such as high cost and limited access to advanced technology. Government support through policy interventions, financial assistance and infrastructure development is crucial to enhance the competitiveness of MSMEs and ensure sustainable growth in the aerospace industry. This support can help India become a global leader in aerospace manufacturing also. Now I request Mr. Srihari, our CFO to share the financial performance.

Thank you, sir. Good evening, everyone. The result presentation for the quarter has been uploaded on the stock exchanges and on the company's website. I believe you may have gone through the same. The revenue from operations for Q1 FY '25 stands at INR 83 crores as compared to INR 62 crores in the corresponding previous quarter last year, which shows a growth of 34% year-on-year. Our operating profit for Q1 stands at INR 16 crores as compared to INR 17 crores. The operating margin for the quarter stands at 19%. We reported a net profit of INR 7.3 crores compared to INR 8.2 crores in the last year's single quarter. Now coming to the order book. The company's current order book stands at INR 899 crores, out of which the Defense segment order is majority of INR 765 crores, which is equal to 85% of the total order book. Explosive segment stands at INR 28 crores and Service segment, which is Operational & Maintenance Services segment stands at INR 107 crores. During the quarter, the domestic order book stands at 92% and export order book is at 8% of the total order book. The order book shows a solid and strong growth towards the previous year. We are very much content 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 Niraj Mansingka from White Pine Investments Management Private Limited.

I just had a question on the execution of shafts order. When you see -- when do you see the scale up of the revenues from your side because the order has been received some time back, and the run rate of revenues are yet to show that scale up for the shaft and flares?

Yes. The shafts and flares order together we are dependent for deliveries on some components or imported components, which got delayed due to the Red Sea problem. This was mentioned by me in the last con call also. Now the material has come to us and the process is going on. And the first consignment of shafts are expected to be delivered in the month of September.

But sir, would there be some -- in the past, we have seen some penalties being given by the government because of the delays. So would that be applicable? Or is the penalty not applicable because of the delay...

That will be applicable because government has no role in this. So the delays cannot be attributed to government or anything. So we have -- once we cross that, LD will be applicable to us.

Okay. And what was the -- any range of the LDs that can come to us in amount or percentage?

No. Actually, that depends on the delivery schedules. We are expecting the deliveries to be delayed by another 2 to 3 months. So the LDs are almost -- so as for the contract, I think there are LDs which is equal to almost 15%.

So it's 15% a year?

15%, yes, to the maximum LD.

Okay. So if it's 2 to 3 months, assuming it's 3 months, is it right to say it is around 3%, 4% or so?

Sorry?

If it is 3 months of delay, then LD would be how much? Like it'd be around 3% range or 15% range?

No. Normally, the LD is about 1.4% for every week, I think by after -- I mean, after 10 weeks automatically we will be reaching almost higher slab of the trailing range.

[Operator Instructions] The next question is from the line of Avi Agrawal from Arihant Capital Markets Limited.

Can you hear me?

Yes, sir, please go ahead.

Yes, I wanted to know your outlook about the order book since I can see a slight decline in the order book from March '24. So how do we see the order book going ahead? And the margins, as shown on a year-on-year comparison basis, the EBITDA margins are around 26% and right now, we are around 19%. So what's your outlook on that?

So first thing is there has been some execution during the last 3 months. And because of that, the order book has come down, especially in the defense side, first part. Second part, I think exactly during the quarter, there were no significant inflows. There were no significant order inflows during the particular quarter, which will not be the case in future, first thing. Second thing, the order -- I mean, our EBITDA margins are about 19% as compared to last year, it was about higher price, but it depends on the product mix basically. So it varies between 19%, 22%, 23%, 24%. So it varies, it depends on the product mix.

So what is the guidance you would like to give for data margins going forward?

Like always, we give the indication, in the range of around 18% is the EBITDA. Otherwise, some quarters, it may be higher, some quarters it will be lower. So consistently, we'll have to think about that level.

The next question is from the line of Sarjeet Yadav Sfrom Mount Intra Finance Private Limited.

I had a question regarding the current order book. I really see the majority of the order book from shaft and flares, and we expect it to be executed during the next few quarters. So what are the new orders we are looking at, which may fulfill the order book and maintain the guidance of each and every industry which was given in the last quarter?

We are participating in multiple RFPs from defense industry and other industries and it is not a regular flow from every month-to-month basis. So definitely, we are expecting that shaft and flares also there is RFP, which we are participating, and for other rocket motors. And also, parallelly, we are getting the export orders also. So we hope that we'll be in the range of same, INR 800 crores to INR 1,000 crores, it will be maintained.

So by the end of this year, approximately same order book will remain?

Yes. We expect.

[Operator Instructions] The next question is from the line of Amit Dikshit from ICICI Securities.

I have couple of questions. The first one is essentially going on Niraj question further on the LDs. Now since this Red Sea prices is something that is not in our control also, so won't we be contesting in this LD [indiscernible] or it doesn't fall under this [indiscernible] at all?

See, these are -- the others are accepted on emergency procurement basis, and these LDs are already factored into our pricing and costing at that time. So like we have announced earlier also, we have to execute everything in one year, then we'll be doing a turnover of INR 800 crores, INR 900 crores. But we are not -- right from the beginning, this is expected that half the country we'll be executing in this year and half in next financial year. That is the schedule we are following. So this LD is already factored into it and the LD cannot be waived off because this is an emergency procurement order.

Okay. That's very clear. The second question is on essentially the programs that we are seeing, particularly on the size now. As we understand that BDL has already started executing that INR [indiscernible] crores order on [indiscernible]. Akash possibly will get executed from Q1 FY '26. So those kind of orders, do we expect from these 2 platforms? And any other major platform that we are expecting order from in this financial year?

This financial year, the missile side is financially a major uplift. At the year end, others may mature but supplies will start next financial year. Brahmos is one important project where a lot of activities going on and then government is planning to export. And Akash, of course, is there. This financial year itself, we have delivered Akash very important quantity, which BDL is going to export. So in addition to that, we are expecting some contribution from MRSAM and Astra in the current financial year.

Okay. Then last one from my side is on exports. Now we have seen one of your [indiscernible] and listed one of course receiving a significant number of export orders of significant quantum I would say in Q4. Now we are also into high-energy explosives and also do you also expect some kind of similar traction in export orders? And is it possible to provide the export -- more color on export order book at this stage?

See, presently, our export orders include the high explosives also what you mentioned.

INR 68 crores is the order book.

Yes. This current order book includes the orders for high exposures. And also because of our self consumption, we are not able to fully cater to export business, export market, but we are expanding and enhancing our capacity in RDX and HMX that I think it will go up. Present order book is at INR 68 crores level for the high explosives export order book.

And just the ultimate last question. Is it possible to provide some CapEx guidance for business?

Beg y\your pardon, please repeat your question.

CapEx guidance for this year?

CapEx guidance.

So here, there are 2 issues. One, the expansion of existing capacities which we are expecting to incur at least INR 25 crores to INR 30 crores in the next 6 months, which we are already prepared for that with [indiscernible] and some sort of permit. So with regard to the additional facilities at the new locations, like Odisha, for that we need the CapEx of INR 250 crores to INR 275 crores, which will take up at a later stage once we are ready with the documentation part. So these 2 are different, entirely different.

The next question is from the line of [indiscernible] from Systematics Group. Sorry to interrupt you, sir. May I request you to please come to the mic and speak?

So like has the company seen any like new innovation in this quarter year, and like innovation you see foresee?

Current quarter innovation in terms of new products or something?

New products.

We have already -- we have absorbed the DRDO technology for mines and 40mm grenade ammunition lab I mentioned in my initial note. I don't call that innovation, I call it the new products added to our list by absorbing the technology. Yes, we have observed. But in terms of business, it may not reflect in this quarter or coming quarter. It will take 2, 3 quarters before it gets converted into business.

Okay. And I was also wondering that the revenue was about INR 829 million, right, like for Q1 FY '25, right, 34% Y-o-Y. So you project that to sort of grow like the foreseeable future, revenue based on the current standing of the operations and the services?

I think the growth, overall year, the growth in revenues will be much ahead of the -- I mean, much better than this, overall years.

Okay. And I also want to ask that -- I also heard that from one of the questions that the EBITDA margin for FY '25 is about 19%. So that's lower than last year, right, the EBITDA margin?

So this 19% is only for the Q1. So -- but it is not the guidance for the whole year. Okay, first because -- last year, it was 22%. I think it varies depends on the -- I mean, it depends on the product mix. A lot of other factors influence the EBITDA margin.

Okay. I got it. One more thing. So you always said that the defense industry is like seeing the most amount of growth, right, in terms of spike in revenue overall sales in defense industry?

Yes, defense -- I mean, in line with our order book, where I mean, the issue -- you can see, I mean, significant orders from the defense, which are supposed to be executed in this year and next year. So obviously, the major revenue is expected to come from that defense, at least in '25 and '26.

[Operator Instructions] The next question is from the line of Ashish Soni from [indiscernible].

Sir, regarding these shafts and flares, was it possible to get it by aircraft that raw material or whatever import? And is there any mitigation plan for avoiding such thing in future?

See in flares, the payload is explosive material. That has to come by sea only in containers. By air we can get, but the charges will be much higher. The shaft material, which is enough material, that can come by air.

But any mitigation plan is company taking to avoid such scenario because Red Sea issue is not going away so soon, right, and you have still some more orders?

Now the Red Sea issue is over. So we got our first consignment of shaft payload. So the assembly is going on. And we hope that in future, it will not be there.

And other thing you mentioned in the opening remarks that you're getting approval from paramilitary forces and armed forces, how much of like revenue or order book that can help and from which year onwards?

That is about the 40mm ammunition I think you are talking about?

Yes.

We expect some contribution only in the next financial year.

Will it be substantial to current revenue base or it will be like meager amount only?

It is neither meager or substantial. Yes, it will be -- that also will contribute probably another 10% or 15% of the turnover.

[Operator Instructions] The next question is from the line of Praveen Jay from [indiscernible].

Sir, am I audible?

Yes, sir, please.

Sir, my first question is something on the of shafts and flares. So we implemented -- now that the first shipment we can expect in the month of September. Sir, how would the total order broken here, sir, in terms of revenue recognition? And in which quarter, going forward, we can expect a major revenue to be booked in this particular order of shafts and flares?

I think this is only my expectation because it depends on a lot of external factors, but about 60% to 70% revenue is expected to account in this '24, '25 and the balance will be in the next year.

Right, sir, right. Sir, and I have one more doubt on the CapEx side. So on the Odisha CapEx, which you are saying, which is about INR 200 crores, what would be the asset turnover which is expected in the particular asset which we are planning for in Odisha?

It should be about 3 to 4x, sir.

[Operator Instructions] The next question is from the line of Rupen P from RN Associates.

My question it pertains for the longer term, say, over the next 4 to 5 years. Because you are in the process of setting up a greenfield facility at Odisha, which is the biggest CapEx undertaken by the company in its history, so considering that over the next 4 to 5 years, where do you see overall company in terms of, say, size currently? Current year, you may be targeting maybe north of INR 700 crores, INR 800 crores of revenue. So going forward, over next 4 to 5 years, with the kind of CapEx you all are going to undertake, where do you see the company in terms of, say, your defense capability, defense revenue, space as well as aerospace. So that's -- so just if you can share your perspectives?

We look at INR 1,000 crores turnover in the coming 5 years. That much only we can look at, beyond that is difficult to predict.

No, sir, because in any case, current year itself is going to be much better because if you are successful in...

This year and next year we have targeted something like INR 500 crores, INR 600 crores. But after that, maintaining, sustaining this is the important thing, and we are looking at something like INR 1,000 crores in the coming 5 years.

And in terms of capabilities, like say, business mix within the defense vertical, like currently, missile programs, that constitutes lion's share. So going forward, what other capabilities you are developing? And how significant is that going to be in terms of overall contribution to the revenue?

I think basically, you are mainly focusing on Odisha greenfield projects, right? So this is -- actually basically, that facility, as we have explained in the earlier question, that facility is expected to add INR 500 crores to INR 600 crores over a period of 3 to 4 years. You got my point?

And we are not in the commodity business that consistently the offtake will go on increasing, consumption will go on increasing, no. We are in the business of war machinery and war. So the consumption -- when the conflicts are there, the consumption will be more. But later, when the peace is there, it will be less. So we cannot say that every year, we keep on growing and expanding only. So that's why we have set a target of INR 1,000 crores which is a reasonably achievable target. And then we should maintain consistently beyond that. That's the idea.

Right. And coming to space sector, like say, government is encouraging and soliciting participants on private players in SSLV, that is, small satellite launch vehicles. So where do we stand on that front?

See that is -- that needs a large capital investment of the SSLV if we have to get into it. We are the most qualified to get in, but that looks -- that needs a lot of CapEx, and we have to look at the returns on the CapEx, the presenting and then the predictions and all those. At this stage, commenting on that is a little difficult.

Okay. So would it be fair to presume that we would be participating in that opportunity as a component and subsystem or subassembly supplier?

Yes. We are already there. We have participated in it. It's going on.

Okay. Okay. So space vertical, how big can it become, say, over the next 4, 5 years?

See what we hear and all those predictions from -- in space and then NSIL and all those, it's going to be very big, large. But it is expected to take 10 years. So you have to invest and then wait for the 10 years. That is the thing in it. So we are there for subsystem suppliers and all those. On our own entering is a little doubtful affair.

[Operator Instructions] The next question is from the line of Prathamesh Sawant from Mirae Asset Capital Markets.

Sir, the company, so just wanted to understand of the products that we supply to Defense, what is the annual consumption size of the total market? And like what percentage are we serving right now?

I don't think this can be answered by us. No.

Any ballpark where we can understand what's the size of market, like of the exposure -- defense material that we supply to the...

See, we depend on the -- mainly on the MOD's consumption and the consumption data and all those are not available for general usage and all those. Yes, the requirement, it comes RFP to RFP and we supply the RFP and then we go to the next product or probably next, I'll say, quantity which comes. So we cannot predict consistently this much is going to be consumed regularly every quarter or every year, and then that will be announced. Yes, that's not right also.

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

Just wanted some more clarity on the plan of Odisha CapEx. These are 3-phase CapEx and total spending of INR 860 crores, right?