Premier Explosives Q3FY17 Concall Summary

Performance Highlights

Revenue guidance of Rs 225 by FY 17 year end out of which Rs 65 Cr will be defense income including service income. Evenue for FY18 will be around Rs 260 Cr

Operating margins are expected to be between 9.2%-9.5%.

Company has recently met Andhra Cm and has expressed interest in setting up a plant in Andhra Pradesh for meeting ISRO’s requirement 

Order Book Breakup

Total order book as on 31st Dec 2016 at Rs 256 Cr

Defense Business

Total order book of Rs 112 Cr. It includes Akash, LRSAM, Astra as well as Rs 33 Cr for counter measures that is called chaffs and flares

  • Pinaka
    • Another recent test successfully conducted for Pinaka II which is an extended range guided rocket. This should translate into production but not definite timeline provided
    • The order will be shared between ordinance factory, Premier explosives ad another competitor
    • Company has provided 36 solid propellants till now, all used for tests. Order will be sizeable
    • Company is providing only solid propellants but is not the exclusive player
  • LRSAM
    • Total order size expected to be Rs 12000 Cr which includes complete missile system and launchers
    • Share of propellant will be just 2-5%. Most of the money goes into launching vehicles, seekers, electronic systems
    • Still waiting for awarding of the order by MoD
  • Akash
    • No clarification on timeline- one to two-year timeframe
  • Decline in revenue of defense is because some of the products require raw material confirmations either from BDL side or from the quality inspection that goes on. Decline in Q3 is expected to be compensated in Q4 FY17
  • Total order of Rs 112 CR will take 1-1.5 year to complete. Orders completed in Q2 was of Rs 12-13 Cr
  • Technical arrangement with BMCs also pending clarity from Govt of India on orders. Negotiations are on
  • Company has got license for war-heads. Timelines for commercialization difficult to predict
  • Defense order pipeline missiles like Akash, Astra LRSAM, MSRAM and QRSAM. MRSAM may come earlier than LRSAM. For MRSAM, actual integration of missile will be done by BDL. Orders will thus flow from BDL
  • Clarification on order from Ministry of Defense (MoD)_ When order is floated, a certain %age is reserved for Ordinance factory. But if Ordiance factory cannot supply in required time frame or cannot satisfy the quality, MoD is free to give the order to private players. Pinaka is reserved for Ordinance Factory. Pinaka II is available to private players
  • Company is hopeful to execute the entire Rs 112 Cr order within next 18 months- a tough ask indeed

Explosives Business

  • Is expected to continue to grow at 20% run rate
  • Major growth is coming from Coal India tenders as well as Singareni Colliers which is in Telangana
  • Tender is floated y Cola India as well as Singareni Colliers and Neyveli Lignite every 2-3 years and the company has to bid to get the tenders
  • Exports for explosive business will be Rs 17 Cr in FY 17 compared to Rs 14-15 Cr n FY 16

Update on Subsidiary

  • Clarity awaited on technology collaborations
  • Discussions pending on a tripartite basis. Foreign OEMs do not want to commit technology or investment until clarity from MOD in the shape of RFI and the ultimately is received
  • Various models possible
    • Teaming arrangement- Technology is provided by foreign OEM’s and PEL will set up manufacturing facilities. Good for executing urgent orders with shorter timeframe
    • Joint Ventures- Take longer time as they entail industrial license as well as physical assets like land

New Order wins

  • PEL secured Rs 27 Cr order in Q2 from BDL was supposed to be exhausted by June 2017 but is delayed by a few months
  • Rs 33 Cr from air force in Q3 which is a one year contract
  • PEL has 13-14 DIPP nee industrial licenses.
  • Sizeable orders of around Rs 50 Cr each can be expected 5-6 years down the line

 EBITDA Margins

  • EBITDA margins should improve slightly to 10% from 9% currently. PEL is hiring more people and investing in new products so there is a cap on EBITDA margin improvement.
  • Decline in EBITDA margins in Q3 because in commercial explosives business margins depend on what quantum of raw materials are sourced domestically and what how much is imported
  • Raw material cost is increasing impacting margins. CF costs $260-$265 from Russia. From China, it costs $235-$240. So, it fluctuates QoQ depending on percentages of imported vs domestic raw material

 CAPEX plans

  • Debottlenecking capex of Rs 22-23 Cr going on
  • Should be completed by Feb-March of 2018

Detonators Business

  •   Detonators business is under pressure. Affected by demonetization as most payments are in cash. Demonetization will be good for organized players in the long run

Operating Expenses

Key expenditures that are coming up impacting the operating expenses are:

  • Employee expenses
    • Worker’s wages are re-negotiated every three years. Hence the increase
    • Additional impact due to amendment to the Bonus Act that has increased minimum bonus to Rs 7000 from Rs 3500 earlier
    • Company is also hiring more people in preparation for new orders
    • Only inflationary increase is expected in near future
  • Selling expenses pertaining to exports
    • Repairs and maintenance at the operations and maintenance contract. The company got this contracts almost 10 years ago
    • Expenses on explosive vans, that are vehicles that carry raw material to the mines

  BDL & BEL Clarification

  • BEL is putting a facility in Anantpur district for missile systems. BDL is taking some land in Karnool district. BDL had announced earlier that they are bushing land near Hyderabad. No further updates post these announcements
  • BDL will continue to do missile integration an BEL will do the systems and radar

 International Business

  • PEL exports to Greece, Jordan, Egypt, Philippines and Thailand
  • Exports for explosive business will be Rs 17 Cr in FY 17 compared to Rs 14-15 Cr in FY 16
  • PEL did explore buying a plant in Mozambique a year back but the plans got shelved owing to civil disturbances in the country
  • No plan to set up manufacturing facility outside India and currently the focus is defense orders

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