Premier Explosives

Brief Profile:
Premier Explosives Ltd was founded in 1980, by Dr. A.N. Gupta, a Gold Medalist in Mining Engineering and a first-generation founder.
The business has 2 major divisions:

• Detonator, cartridge explosives, detonator fuse, Non-Mining – Cloud harvesting, Riot Control devices; used in Civil applications
• Propellant, Pyros, Explosives, rocket motors- Defense and Space

Milestones

• 1st in India to manufacture Explosives and Detonating fuse with indigenous technology.
• 1st in the world to produce Safer and Greener NHN detonators on commercial scale.
• 1st Private Company to manufacture Solid Propellants to India’s missile programs.

The solid propellants used in renowned Indian defense missiles like Akash, Astra, LRSAM, etc. PEL has seven modern production facilities spread across Telangana, Madhya Pradesh, Maharashtra, and Tamil Nadu. Its products are used in the mining, cement, infrastructure, defense, and aerospace industries. The company has employee strength of over 800 out of which 100 are engineers and & scientists.

Few Marquee Clients

• MOIL
• Coal India
• L&T
• BEL
• ISRO
• BDL

Explosives market is categorized in 2 categories:

• Industrial Explosives [growing cagr@5.4%]
• Defense and Aerospace Explosives [growing cagr@5.3%]

The future prospect of Indian explosive industry looks brighter since government is pushing procuring defense items from domestic suppliers only under ‘Atmanirbhar Bharat’. Central government earmarked Rs 5.94 lac crore in the budget (i.e. 13.18% of total budget) to meet India’s defense requirements.

We have seen volatility in the margins in 2019-2020 and 2020-2021, however post that the company has witnessing an improvement in the order book and margins. In Feb’23 all defense stocks are in a limelight due to filthy allocation by Central Government in Federal Budget.

Triggers/ Future Plan:

• The company has a current order book of Rs 1,108cr (i.e. 5.48x) as on Jul’23; which has to be executed in next 18 months. As per recent con-call, the company is expecting to report a minimum topline of Rs 500cr in the current fiscal. [Strong revenue visibility]
• PEL acquired the majority of orders worth Rs 725cr during the H1CY23 period, indicating that many more opportunities in the remaining 3 quarters of FY23
• The company is executing a greenfield expansion in Katepally for Solid Propellant Plant. This will enable Company to manufacture Solid Propellant of larger size for ISRO & DRDO. The management is actively working towards expanding its product portfolio for warheads, rocket motor hardware, thermal insulations, and more.

Now, as per the current PE of 91+ the stock prima facie looks expensive. However, considering the large order book we can expecting a significant improvement in financial metrics of the company since operating leverage will start kick in from Q2 onwards.

Going forward; we have to closely track quarterly revenue and profit figures to make sure the company is delivering well on the projects.

Warning: The stock has already rallied 170% in last 2 months.
Disclaimer: Biased/ Invested from lower levels…No transactions since last 60 days. No buy/sell recommendation by any means.