PREMIER EXPLOSIVES :DARK HORSE

(NSE CODE: PREMEXPLN, BSE Code: 526247) 

COMPANY PROFILE

Premier Explosives Ltd (PEL) manufactures the entire range of commercial explosives and accessories for civil requirement. It is a leading manufacturer of explosives for industrial and defence applications. Currently, it is the only Indian private entity that designs, develops and manufactures solid propellants for Indian missiles such as Akash, Astra, etc. It is also the first company in the world to produce safer and greener NHN (Nickel Hydrazine Nitrate) detonators on a commercial scale replacing ASA (Lead Azide, Lead Styphnate and Aluminum Powder) detonators.

PEL’s products and services include commercial explosives & accessories for mining and infrastructure; igniters and pyro devices; explosives for defence use – solid propellants, igniters and pyro devices; operations and maintenance services – on Government Owned Company Operated (GOCO) basis and Wind Power industry. It supplies its products to the government for defence, Coal India, Singareni Collieries, Neyveli Lignite, etc. It exports to Greece, Jordan, Egypt, Philippines, Thailand, etc. Exports constitute 8% of its revenues.

Recently it received new order From Coal India Is 20% Higher In Valuation As Compared To Last Years; Company has to Execute The CIL Order In Next 3 Years

PEL is the 6th largest manufacturer of explosives in India and caters to all mining sectors like coal, iron ore, limestone as well as the infrastructure sector. It also produces speciality products like Explosive Bolts, Pyro Actuators, Smoke Markers, Cable Cutters, Blazer Plates, etc. for the Indian defence services. It is the only private entity that produces oleoresin based tear gas grenades used for mob control by law enforcement departments. In the defence segment, it caters to the needs of tactical missiles like the Astra, Akash and LRSAM (Long-Range Surface-to-Air Missile).

Negotiations are almost over between BEL and IAI for LRSAM. BEL may obtain a huge order of ~Rs.12000 crore for LRSAM. PEL will be the major supplier for the LRSAM that BEL manufactures. Out of the total cost of any missile, the elements of propellant are approximately 2-5% or Rs.240-Rs 600 crore.

Its investments in knowledge and equipment with respect to solid propellants have yielded better results with volume growth in Akash missile systems. It is creating additional facilities for expansion and backward integration besides establishing an insulation plant. It has planned capex of ~Rs.30 crore, which includes a greenfield project at a new site and expansions at the current site. These projects are expected to be implemented over FY18 and will be funded by internal accruals and a term loan of Rs.23 crore, which has already been sanctioned.

Achievements:

• Successful test fire of the Long Range Surface to Air Missile (LRSAM) by the Indian Navy for which Premier Explosives Limited supplies the solid propellants.
• Delivery of the 100th Akash Missile Booster Grain to Bharat Dynamics Limited.
• Service contract with Solid Fuel Complex (SFC) of Advanced Systems Laboratory at Jagdalpur renewed for another five years from 2015-16.

PEL is focused on high energy materials for defence use. It has obtained Industrial Licenses for ammunition, warheads and other defence products. It is also negotiating with foreign defence companies for technology to manufacture ammunition including Bi-Modular Charge Systems (BMCS) and Armour-piercing fin-stabilized discarding-sabot (APFSDS). Its new subsidiary, Pelnext Defence Systems Pvt Ltd, may be converted as a special purpose vehicle (SPV) or as a joint venture (JV) depending on the outcome of the negotiations.

Expansion:

PEL has accepted APIIC’s (Andhra Pradesh Industrial Infrastructure Corporation) offer to establish a unit over a plot of 202 acre (provisionally offered by APIIC) to manufacture Solid Propellants. It is taking the necessary steps required for firm allotment of land and setting up the unit. It is expected to seek technical collaboration or JV for this new project.

Segments

Solid propellants

With investments in solid propellants, Premier has witnessed volume growth in Akash missile systems along with Sustainer grains for Akash missile systems. At a further advanced stage is the induction of Astra and other missiles range.

Ammunition

With the ammunition license in its kitty, Premier is looking to manufacture ammunition including Bi-Modular Charge Systems (BMCS) and Armour-piercing fin-stabilized discarding-sabot (APFSDS).

Offset Order

In relation to the DIPP regulations, Premier received its first offset order from a US-company. With successful designs and trials, Premier has been able to make the supplies in 2016-17.

Commercial Explosives

The bread butter business of Premier, explosives. This explosive market in India has been pegged at 800,000 tonnes. Including accessories, the total market size of explosives is expected at about Rs. 3,000 to Rs. 3,500 crores annually [Premier is the not the lone wolf in this business. Companies like GOCL and Solar Industries also share a part of the explosives and detonator market].

PEL has undertaken capex to enhance production capacities of bulk explosives and detonating fuses. During FY17, it obtained orders from Singareni Collieries and we expect further improvement in the performance assuming that the imported raw material continues to be favourable. Demand de-growth experienced during the last couple of years is now turning for the better. The Company has signed a MOU with Israel Aerospace Industries for exploring potential business opportunities. It has also signed a MOU with BITS Pilani for collaborative and joint R&D activities especially pertaining to high energy materials.

On 13 April 2017, the management confirmed that it had received the Management System Certificate from DNV GL Business Assurance, USA, after the Company was found to conform to the Quality Management System Standards – ISO 9001:2008 and AS 9100c. This certificate is valid for development, manufacture and supply of High Energy Materials (Propellants, Pyrotechnics, Special Devices and other Chemicals) for Aerospace and Defence applications.

Future:

With the Government’s initiative i.e. Ujwal DISCOM Assurance Yojana (UDAY) which will financial assist the turnaround of many electricity distribution companies, this will lead to a large demand-driven requirement for industrial explosives. This clubbed with the liberalization of the mining industry, the explosive market is looking at a big demand explosion.

INDUSTRY OUTLOOK

Macro factors will expedite Indian defence indigenisation and PEL will benefit from initiatives like the Revised Defence Procurement Policy 2016, liberal FDI in defence up to 100% and India's entry into the Missile Technology Control Regime.

The ~Rs.3000 crore Indian explosives industry is considered among the top five in the world. ~70% of the industry’s output is consumed by the coal mining sector which primarily consists of Coal India Ltd and its subsidiaries. Orders for explosives from coal companies have been higher than the previously executed amounts.

With the government targeting a production of 1.5 billion tonnes of coal by 2019-20 of which 1 billion tonnes will come from Coal India and 500 million tonnes from private sector coal miners, Premier is looking at a healthy order book for the next 3 years [Order book for Explosives stood at Rs. 90 crore at of March, 2017].

PEL has been receiving orders/enquiries for export of detonating fuse and other accessories. It expects the solid propellants opportunity to grow in view of the induction of various missiles into defence.

FINANCIAL SNAPSHOT

For FY17, PEL’s net profit rose 159.7% to Rs.14.75 crore on 25% higher sales of Rs.253.56 crore fetching an EPS of Rs.16.65 and a dividend of 30% was paid. It has  an equity capital of Rs.8.86 crore and reserves of Rs.128.39 crore, Net debt of Rs.38.21crore gives it a DER of 0.28:1.

The promoters hold 40.41% of the equity capital, Mutual Funds hold 18.46%, HNIs hold 5.57% and Corporates hold 5.21%, which leaves 30% stake with the investing public.

Company is available very cheap compared to peers as it is trading at PE of just 30.50 compared to Industry PE of 73.42

Note: This article is for education purpose only and all the information is taken from public domain and from company’s presentations.