Premier Explosives Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Revenue fell 27% YoY as defence billing stalled: Q3 FY23 revenue dropped to INR 37 Crores from INR 50.8 Crores, entirely because defence deliveries did not happen in the quarter.
• Inventory build signals a Q4 surge, not lost demand: Over INR 50 Crores of finished defence inventory is ready and waiting on customer clearances and shipping, pointing to a sharp Q4 billing recovery.
• Akash tapering leaves a gap other programs have not yet filled: The Akash missile program is winding down, while Astra is still in initial production stages and MRSAM/LRSAM volumes are steady but capped.
• Order book visibility is maintained at INR 650–700 Crores: Management expects to hold this level through FY24, with an additional INR 100–150 Crores in new orders from the pipeline.
• What to watch next quarter: Whether the INR 50+ Crores of defence inventory actually converts to billed revenue in Q4, and whether the Israeli production order sees its first shipment.

The Q3 Defence Billing Gap

• Zero defence revenue in Q3: No defence deliveries were completed because clearances and permissions are still pending; cargo is mostly ready and waiting to be dispatched.
• Export logistics are a bottleneck: For export orders, availability of ships and containers certified to carry explosives is a constraint outside the company's control.
• Inventory tells the story: Finished goods inventory worth more than INR 50 Crores has been built up and is ready to ship the moment clearances come through.
• Israeli order still at zero: Inventories for the Israeli production order are produced and built up, but nothing has been supplied yet because transportation is in the customer's scope, not Premier's.

T V Chowdary: "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."

Program Transitions: Akash Fading, Astra Not Yet Filling

• Akash program tapering: The Akash missile program, which had been running in large volumes, is now tapering down and quantities have reduced; other programs to take over may take time.
• Akash Prime is early-stage: Akash Prime is only in initial stages and not yet at full production scale; any export orders for Akash would depend on BDL or other agencies securing them.
• Astra still ramping: A production order for Astra has been received, but execution depends on FIMs hardware to be supplied by the customer; BDL is still in initial stages for Astra.
• MRSAM/LRSAM steady but capped: These programs are being regularly produced and delivered at around 25 units per month, but management does not think volumes will go beyond that level.
• SGRAM potential unknown: Full-scale production potential for SGRAM and other programs is not yet known.

T V Chowdary: "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."

Order Book & Pipeline

• Order book maintained at INR 650–700 Crores: Management expects to hold this level continuously through FY23 and FY24, even as execution draws it down.
• Additional INR 100–150 Crores in new orders expected: Based on various RFPs in the pipeline, at least this much additional inflow should materialize.
• MoU with HAL signed: The MoU covers manufacturing, assembly, testing, storage and transportation of explosives for bombs and missiles; management expects MoUs to convert into orders because many RFPs are in the pipeline at different stages of maturity.
• DRDO technologies productionized: Some DRDO-developed technologies transferred to the company have been productionized, and production orders have been received from BDL as the lead integrator.
• Export development orders converting: Out of several design and development orders for export, four have received supply orders and productionization has started; deliveries expected in Q4 FY23.
• Ammunition RFP bid: The company has bid for all four variants of the 40 mm ammunition RFP in partnership with a foreign OEM; technical trials are delayed by international conditions and may run to end of calendar year 2023, with commercial bids opening only after that.

T V Chowdary: "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."

Commercial Explosives: A Deliberate Pullback, Now Reversing

• Past strategy was defensive: Two years ago, based on prevailing raw material prices and margins, the company chose not to be aggressive in the fuel explosives area; this contained negative growth in profit during that period.
• Coal India absence helped: The company is not present in Coal India for bulk explosives, which turned out to be beneficial when raw material costs were high; concentration was kept on defence rather than straining resources.
• Strategy now shifting to offence: With changed conditions, participation in explosives tenders will be more aggressive; Coal India is coming with new tenders in June, and if the company secures good terms, volumes may go up.

Segment Reporting & Tie-Ups

• Segment reporting simplified: From this quarter onward, the company will report only commercial and non-commercial segments, discontinuing the previous practice of separately breaking out defence and space services for information purposes.
• Partner ecosystem expanding: The company has several tie-ups and MoUs with other Indian industry agencies where Premier provides energetic materials, components and assembly, while partners provide hardware and other elements; no tie-up exists with Munitions India.
• Other paramilitary and police orders: Other paramilitary forces and police departments are voting and presenting queries; orders from these agencies are expected to come earlier than the Army's ammunition order, which may arrive only by end of FY24.

Guidance & Commitments

Key Metrics