Premier Explosives Limited (526247) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Premier Explosives Limited Q3 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 from Stellar Investor Relations. 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 Q3 and 9 months FY '23 earnings conference call. We shall be sharing the key operating and financial highlights for the quarter and 9 months ended December 31, 2022. 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 e-mailed to you. Now I invite Mr. Chowdary to share his initial remarks on the company's performance for the quarter.

Thank you, Mr. Vishal. Good afternoon, everyone, and thank you for joining the call. We'll begin the call with company's operational performance during the quarter followed by the key industry updates. The recent updates for missiles and rockets, I am pleased to inform that some of the DRDO-developed technologies, which are transferred to us, have productionized and we received production orders from BDL who is the lead integrator for these projects. And in addition to this, as I have shared earlier, we have received several design and development orders for export purpose. Out of it, 4 numbers we received supply orders and productionization has started, and the deliveries are supposed to be effected in the last quarter of the current financial year. Yes, we always continued to move on our growth track during the quarter. We have generated healthy cash profit of INR 3.3 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 flow, which will be utilized towards strengthening our balance sheet. The changing business mix with the increase in contribution of defense segment will augur well for our overall margins. On the order intake front, there has been good progress. Let me take you through the new order update issues during 9 months of financial year 2023. The company has recently signed an MOU with Hindustan Aeronautics Limited in the field of manufacturing, assembly and testing, storage and transportation of explosives for bombs and missiles. Received new orders from Israel Aerospace Industries Limited for manufacturing and supply of warhead with total value of USD 537,500 which is equal to INR 4.3 crores and expect to be delivered by May 2023. Production and supply of booster rocket motors for a total value of USD 688,000 equivalent to INR 5.5 crore and the deliveries are expected by March 2023. The company also received an advanced amount of USD 2.44 million, that is INR 19.4 crores towards the development of production lines and procurement of raw materials for the orders received from the overseas entity for supply of rocket motors. During the quarter, the company has received an order from VSSC, that is, Vikram Sarabhai Space Centre for production and supply of 3 sets of PSOM-XL Motors for the PSLV launch vehicle for a total value of INR 3.45 crores, and it will be executed at Katepally, and we have already exhibited 4 PSOM-XL Motors from Katepally and PDK. And this part has to be executed within a period of 8 months. There are some of our notable updates on quarterly order. We are extremely pleased to report that our current outsizing order book as on December 31, 2022, stood at approximately INR 575 crores which translates into 3x of our financial year '22 revenues. In addition to the rocket motors and warheads, production of plates against new orders is going on. This is expected to give good boost to revenue in the fourth quarter and financial year '23, '24. Coming to the Defense Industry future. And the Defense Industry like we have been mentioned and like you may also be aware, Defense sector has a strong manufacturing ecosystem, recently organized Defense Expo in October 2022, which offers to Indian Defense sector, particularly to showcase its chance to present its roots, technologies and solutions to the government decision maker. Along with participation from 63 nations, the last edition of this expo saw an unprecedented gathering of over 600 exhibitors, both physically and online and experienced a huge success of this Expo 2022, which saw 451 MOU ToT agreements to advance India's growing defense industry networking. Efforts are being made to improve manufacturing capabilities. India has recently emerged as a major defense exporter, especially with the development of a strong defense industrial environment and exports to more than 75 countries after seeing a ninefold increase in defense exports over the past 5 years. In '21, '22, India's defense exports reached a record high of INR 14,000 crores. This achievement was made possible with the government's initiatives to increase the export of military equipment to friendly foreign nations. Further, the government of India is targeting to cross INR 19,000 crores mark for defense exports by 2023 and well on course to attain the target of 25,000 crores worth of exports by 2025. Now coming to the industrial explosives segment, the cost of raw materials, which have increased by approximately 200% in the past year -- in the previous year, are ally stabilizing and this also holds true for the coal mining industry. You could see several some reversal trend in some of the raw material prices. The domestic coal output is said increase to 1017 metric tons in '23, '24 and is further likely to increase by 9% to 10% in '24, '25 in light of the anticipated rise in coal consumption owing to economic expansion. Now, I request our CFO to share the financial performance.

Thank you, sir. Good afternoon to 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. Now I would present the financial results for the quarter and 9 months ended 31st December 2022. The revenue from operations for Q3 FY '23 stands at INR 37 crores as compared to INR 50.8 crores in the corresponding period last year with a de-growth of 26.6%. Our operating profit for Q3 FY '23 stands at INR 5 crores as compared to INR 4 crores in the corresponding period last year. The operating margin for the quarter stands at 13%. In Q3 FY '23, we reported a net profit of INR 0.6 crores compared to the same in Q3 FY '22. The revenue from operations for 9 months ended -- I mean, 9 months FY '23 stands at INR 150 crores as compared to INR 139 crores in the corresponding period last year, which is translating into an 8% growth year-on-year. Operating profit for 9 months stands at INR 18 crores as compared to INR 17 crores in the corresponding period last year, which shows a flattish growth. The operating margin of 12% in 9 months FY '23. Net profit in 9 months FY '23 stood at INR 4 crores compared to INR 4 crores in 9 months FY '22. Now coming to the order book. The company's current total order book stands at INR 575 crores, out of which explorative business comprises around INR 108 crores. Defense segment is at INR 335 crores, which is around 58% of our total order book. On the southern segment, that is operations and management is around INR 132 crores. The order book retains a strong growth over the [Audio Gap]

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

First question is on the order book for space. If you can quantify that. And also if you can talk about, typically, we are, as of now, providing mostly motors to the rockets. So what is the typical percentage cost of a motor of the total cost of the rocket? And these are the questions on the space side, if you can talk about the same.

Sorry, can you repeat what exactly.

Percentage of rocket motors on the overall order book.

No, no. I was talking about percentage of the cost of motor as the total cost of a rocket, just to understand if a rocket costs example [ $15 ] million. So what is the typical cost of a motor in that?

This is very difficult to say because the cost, it has 3 divisions, rocket motor, basically. One is rocket motor and missiles -- has 3. One is Rocket motor. Second is the warhead and then guidance system, electronics and all those things, seekers. So this domain remains as on date with the rocket motor and then warhead in some cases. But seeker is definitely -- seeker and then those portions are the costliest parts of the motor. And percentage, I won't be able to tell. Probably BDL can tell this part.

And sorry, what is our order book as of today in the Space division?

In defense, we have INR 335 crores order book.

Yes, that I know, sir. Specifically, you need to ISRO or Space. I was talking about that.

ISRO Space requirement.

Yes. Out of this order book, how much is for Space/ISRO.

Right now, it is only around INR 3.45 crores.

Okay. So the new orders which you were talking about at the start, that is not into the order book?

Yes, it's a new order book which we received was INR 3.45 crores. Old order, we have executed.

Okay, sir. My second question is 2, 3 years back, you used to talk about we had bid for ammunition, I believe, grenade. So if you can update on that order.

RFP is still not opened and finalized. And in the meantime, parallelly, we are working with, as I mentioned in my initial notes, we are working with ARDE on a DCPP program for development of ammunition. So whereas the RFP is still not opened commercially.

Okay. Okay. So correct me if I'm wrong, but solar industries had won orders for some grenade. So we didn't bid for that order. Our bidding was for separate products? If you can talk about the same?

The solar industry is not into this ammunition as far as I know, but if they are there, can act. But you may be talking about some multimode grenade.

Yes, yes, yes.

No. We -- consciously, we did not participate in that tender. So they are alone in that and we are not in that business as on date.

Okay. Okay. But in our portfolio, with ARDE, which you are talking about, do you have this option of grenades also? Is it multimode? Or is it different?

See, the multimode grenades, as far as I know, they are like any hand grenades. What I'm talking to grenade is grenade ammunition, which is fired from a grenade launcher. It's a larger ammunition, 40 millimeter, 30 millimeter, which is fired from a gun or multi-grenade launcher or a under-barrel gun launcher. That is the ammunition, which we have participated and waiting for it to be awarded.

Okay. And if you can talk about what is the opportunity in this category, the grenade launcher, grenade basically.

The opportunity is good in the grenade ammunition. Right now, it is being imported and then some quantity is being I think made by Ordinance Factory, but there is a good demand and the RFP quantities are also good.

Okay. And when do we expect, sir, any orders -- confirmed order from this category?

I think it may happen in the next financial year, probably in the middle of financial year. Because we have to go through the qualification process and all those, then only it will be -- after all technical quantitation, then only it will happen. But apart from that RFPs, our facility, we are also planning for many agencies who want to outsource to us for manufacturing, that are also we are planning and the discussions are going on. So we are not just dependent on only on the RFP.

Sure, sir. And sir, last point on this, how many players have bid for this? And if you can quantify the imported amount just to understand what is the opportunity.

It's a little difficult to say. This is not an open information. We have to get from, I think, 3 or 4 agents have participated in it, including us.

Okay. Sir, next question is on the -- so in the presentation, you have talked about we are supplying a propellant to the missile program basically of the 6-missile program. So sir, typically, I just wanted to understand, you mentioned last call, we have INR 100 crore order book combined of this 6 programs per year. But sir, isn't this number too less, because my understanding is these 6 programs, the amount of orders that is expected is much, much more. So since we have very high market share in the products which you have mentioned. So why is that order book only INR 100 crores per year and not more. If the propellant cost as the cost of total missile is very small. Is that the reason we have only INR 100 crore order book instead of much bigger number?

So where did you get this INR 100 crores?

Last time some -- an analyst had asked you this question. So out of that 6 programs we have, what is the order book expected. So you mentioned additional INR 100 crores per year.

2 Which program, ISRO program?

No, no, not ISRO. This missile programs, Slide #20. Slide #20, we have 6 missiles programs, Akash, MRSAM, Agni, BrahMos?

Okay. Okay. See, these are -- in these programs, the hardware and everything is coming as FIM because Akash, MRSAM, Astra, these programs. So our portion is only the propellant. And it is linked with the numbers taken for assembly by BDL. So the BDL right now the quantities which are happening there, it is that. And Akash program, which was really going in a big way, that is almost tapered down. It is tapering down. So that quantities have reduced. Other counties to come and take over, it may take time. So that's why we have indicated a figure of that.

And we are as of now only doing propellants. We are not into the motors in these missiles as of now, right?

We are doing both. These projects -- this is -- BDL is making the hardware and all those, and they are dependent on us for propellant. Where there's other programs and all those others, we are including the hardware, we are applying exports to Israel and other countries, including hardware, we are supplying entire rocket motor, not just propellant. Similarly, the new projects like NGRAM and other, this includes the hardware also in our scope, full rocket motor assembly.

Yes. You have talked about you're developing motor for Astra missiles also. Is it Astra Mark II dual pulse motors or we are only talking about Astra Mark I only?

Astra, we are not developing the motor. Astra, propellant is developed by us. Astra rocket motors and all by other agencies from the DRDO.

Okay. On the Slide 18, you've mentioned production under ToT Astra motor -- in production under ToT?

Yes, first production order has come. But like we have mentioned that it depends -- execution depends on the FIMs hardware to be supplied. BDL still is in the initial stages for Astra. MRSAM, yes, we are getting continuously and we are regularly producing and delivering them. But Astra still, it has to pick up.

But are we developing II-stage and III-stage motors for missile?

For Astra, you're talking?

Any missile, sir. The advanced motors, advanced missiles, where there is II stage and III stage.

As I mentioned to you about NGRAM, Rudram, where we are with hardware, we are [indiscernible].

Okay. Okay. Sure, sir. Final question, sir, on the defense side.

And all export orders of rocket motors, all are complete rocket motor, including hardware and everything.

Okay. Okay. And sorry, how much is export order out of our total rocket motor order, just to understand the price where we will be providing both hardware and propellant versus only propellant?

With hardware, we have the order book. I mean, the order book includes the hardware exports is about INR 100 crores. Exports are all complete rocket motor. It's not hardware or it's not propellant. It's complete rocket motor is exported.

Sure, sir. And do we expect further orders in this where we are both the complete rocket motor.

Yes, yes. Only part of the development only got converted into production orders. Now there are others in line which have completed the development and demonstrated performance and all those. Now they have to be converted into production orders.

Great. Last question from my side on the defense order book which we have of INR 330 crores, sir. We were expecting to execute much more than INR 70-odd crores we have done in 9 months. So was there any delay in, say, December quarter normally is a good quarter for defense. So do we expect a very high ramp-up in Q4? Or do you think only next year, we'll be able to execute most of this defense order book.

No, actually, we are expecting the billing to happen in Q4. Most of the billing is expected to happen in Q4. A lot of clearances and permission are yet to come. So I think that will become -- clearances, permissions means -- if you see these export are particularly, they are shipped. So availability of ship and then containers because you require the ship which carries the explosives. So unless we bill it, it will not appear in the paper. So we are expecting that to be completed in the fourth quarter.

So you expect maybe like a big portion. So defense wise, at the start of the year, we had a target of maybe around INR 150 crores for the full year, but we have done only INR 70 crores. So do you think Q4, we will be able to make up for the loss? Or do you think next year only we can target this INR 150 crore kind of run rate in defense?

So we expect some good numbers. We cannot share an exact number, but we can get -- you can expect a good number to happen in Q4.

We are finding a little difficulty in hearing. I think a lot of strain we have to put on understanding the question. Is it possible to improve it further, audio.

Should I reconnect your line. [Operator Instructions] Next question is from the line of Niraj Mansingka from White Pine Investment Management.

Just wanted to know LRSAM, MRSAM, and NGRAM orders...

Mr. Mansingka, please use the handset mode.

You can hear me better right now?

Sir, are you able to hear Mr. Mansingka?

Not clear. Your voice is very clear, but his voice is not so clear.

No, I'm totally on the handset mode only. So I don't know if -- should I connect again or should I wait?

I think maybe you can speak slowly. Probably, we will be able to...

Okay, I will tell you, I know that. So basically, we were expecting -- we have 100% suppliers for MRSAM and LRSAM Astra. And we are not seeing much scale up in your difference revenues? I know you said that Q4, you will be reporting the numbers. But can you say from an industry perspective, when do you expect a scale-up of MRSAM and LRSAM in the orders for your side?

See, the presenter indication, sir, around 25 numbers per month of MRSAM, LRSAM and Astra another 20 numbers per month. It is like that. LRSAM, MRSAM is already going on at that level right now, we are supplying. But Astra is yet to come to that level. And this is the -- these are the quantities which will continue. In earlier -- in Akash, the quantities were more. We're almost delivering 50 to 60 numbers in a month.

Okay. So do you expect more scale up for MRSAM, LRSAM because...

No. I don't think it will go more than that, but 25, 20 numbers, they will all remain. And about SGRAM and other things, we are yet to now about the actual potential when it comes to full scale production.

Okay. Got it. And so going forward in, say, next 2 years, which are the areas do you see a large growth in our reported revenues for your firm?

No, not these one. You have -- like our turnover and order book and all are dependent on many other things.

Yes, yes. Aware of that. So I just wanted to know from the current whatever understand you will have?

We have export orders for almost 120, 130 numbers per month, rockets alone, not just propellant casting, but full rocket motors. So that keeps us busy. In fact, that keeps us busy both of our plants, PDK and Katepally.

Okay. Okay. The second question was on the services, the revenues were not reported this quarter. Any reason why the services revenue has not come in?

Sorry, entity -- services?

Yes.

Not reported?

No, it was reported. Defense and space services. No, actually, whatever revenue is there, it came from the defense services only. The defense billing has not happened as [indiscernible].

Okay. So the defense billing was coming in a continuous range over the last...

Sorry, I didn't get.

The defense revenues are getting reported on a permanent range, but this quarter, it has been significantly low. So what has changed that the defense approvals are yet to come for acceptance of the orders?

Actually, as per the accounting and as per our this thing also, it is only our, we can see it only in one segment. That is high energy material. For the detail -- I mean, for the information purpose, we used to have the -- we used to differentiate between these two, but from now, we wanted to have the commercial and non-commercial only.

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

Sir, regarding the order inflows in defense and explosives, how should we see, sir, in '24 and '25 and even this year, if you can guide, how much order inflows are you expecting?

The new orders what we are expecting at least another increase of INR 100 crores in terms of this. This is based on the various RFPs we are participating and export and all those. That's what is conservative target.

Okay. This INR 100 crores is for this year -- additional INR 100 crores for this year only, sir '23?

No, '23, '24 additional turnover.

No, we will maintain about INR 650 crores to INR 700 crores order book continuously in '23, '24.

Okay. So you will get more orders and you will execute, but your order book will increase INR 650 crores to INR 700 crores?

In spite of the execution.

Sir, could you give a number of how much order inflow will be there in '24 and '25, some sense of it, sir? And if you can't give -- a broad range, if you can give, sir?

Yes, that's what -- it's difficult to say that because so many people are in pipeline. Now, how many will come in this year because see defense industry goes different way. It is not like a commodity industry where regularly every month, there is an offtake or something. So order placement depends on various things, which are very difficult to predict. But yes, like I told you, at least an additional INR 100 crores, INR 150 crores should come there.

Order book build will happen, sir? INR 100 crore, INR 150 crore.