Premier Explosives Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Defence deferrals masked underlying build: Defence revenue was exceptionally low because export licenses and clearances pushed deliveries from Q3 into Q4 and beyond; the backlog is intact, not lost.
• Order book hit a record, but conversion needs watching: The defence order book stands at ₹304 Cr, yet past conversion ratios were depressed by two export orders withdrawn after the government denied export licenses.
• Rocket motor exports are now live and recurring: First consignment shipped in February 2023, and monthly deliveries of 100 units of one type and 50 of another are underway across four rocket types and warheads.
• Management is conservative on the upside: Internal defence revenue targets exist in the ₹700–800 Cr range, but the company will not commit publicly; EBITDA margin target is a grounded 15–20%, not the 25–30% some analysts model.
• What to watch next quarter: Whether the ₹304 Cr defence order book converts on plan in FY24, the outcome of ₹600 Cr in live tenders, and any emergency procurement order from MOD for countermeasures.

Defence Order Book: The Backlog That Did Not Convert

• Record defence backlog: Defence order book reached ₹304 Cr, with major orders booked around April and May of FY23.
• Conversion ratio distorted by two factors: Two large export orders for high explosives were withdrawn because the Government of India refused export licenses (Turkey, Ukraine), and a ₹127 Cr O&M contract executes at only ₹16–18 Cr per year, dragging down apparent conversion. Excluding these, the rest of the order book converts at a normal 55–60%.
• Execution timeline is tight: Most defence orders carry a 12-month execution window; management plans to execute the ₹304 Cr mostly in FY24, subject to reinspection, clearances and export licenses. With delays, execution can stretch to 15–18 months.
• No cancellations, only overflows: Orders that missed FY23 have overflowed into FY24; management sees this as a timing shift, not a loss, and states no customer has cancelled any order.

Chowdary: "It is not any cancellation of orders. It is our cancellation because the government of India did not give the license. That's what I told you. Two export orders for explosives that is high explosives, which we booked. Finally, we had to inform them that we cannot supply because the government of India did not give license for exports."

Rocket Motors & Missiles: The Recurring Revenue Engine

• Export rocket deliveries now monthly: Production orders received and production started; first consignment dispatched February 2023. Ongoing cadence: 100 units/month of one rocket type, 50 units/month of another, across four rocket types and warheads.
• MRSAM offtake steady: 20–25 units per month, expected to continue at this rate for the coming 4–5 years.
• Astra at inflection point: Currently only small quantities (20–25 numbers); a bigger bulk order is expected by end of FY24.
• QRSAM and NGARM in the pipeline: QRSAM development completed, commercial production expected in FY25. NGARM rocket motor development (Premier's part) is done, but full missile assembly is still ongoing; commercial production expected only in FY26.
• LRSAM and MRSAM both active: Company supplies both the naval version (LRSAM) and the army version (MRSAM).
• Akash opportunity: BDL signed an MOU for an ₹8,000 Cr order for Akash; Premier expects to receive some order from that, though it is not the sole supplier and procurement is via tender/L1.
• Countermeasures: sole qualified vendor: Premier is the only qualified Indian company for countermeasures and the only Indian company exporting fully assembled rocket motors; management expects to receive the entire quantity once the tender is finalized.

Chowdary: "we have already received production orders which now we already started production. Like you have mentioned in my -- the first consignment was dispatched in February. So now every month, we have to keep on delivering 1 type of rocket, 100 numbers per month and another type 50 numbers per month."

New Programmes: Mines, Ammunition, Space

• Mines production live: Production of mines against new orders is ongoing at the Katepally plant; expected to give a good boost to revenue in coming quarters and FY25.
• Medium caliber ammunition facility ready: Production facility is complete and expected to start generating revenue in FY24.
• Ammunition grenades awaiting user trials: Technology transfer from DRDO under the DCPP program is complete, the production facility is built, and the development order has been executed. User trials (paramilitary/CRPF/MOD) are expected in H1 FY24, with orders possible in H2 FY24.
• Artillery grenades further out: Four variants under development with ARDE/DRDO; two main variants developed and demonstrated, but facility inspection and product trial testing by the user are still pending. Regular procurement may take 6 months to 1 year to finalize.
• Space sector building slowly: Currently making PSOM-XL strap-on motors for PSLV, with orders for three more motors to be completed in the current year. Participating in SSLV via an ongoing service contract at Sriharikota, but SSLV production has not yet materialized. New satellite launch vehicles and private sector entry are expected to drive aerospace growth over the next 3–4 years.
• New-generation ATGMs and UAV warheads: Company is present in new-generation ATGMs (not in double-base propellant ones like Nag, Amogha, Helina), is a DCPP partner, holds MOUs with other productionizing agencies, and is expanding into warheads for UAVs and working on VSHORADS.

Explosives: Pricing-Led Growth, Not Volume

• Explosives revenue up 42% to ₹103 Cr, driven mainly by pricing; bulk explosives volumes doubled from ~4,000 tons in FY22 to ~8,000 tons in FY23.
• Coal sector tailwind: India intends to begin exporting dry fuel by FY24-25, moving from net importer to net exporter of non-coking coal, with the government preparing to gradually reduce thermal coal imports.
• No capacity expansion planned: Only storage capacity for imported ammonium nitrate will be increased; no plan to expand bulk explosives production capacity.
• Ammonium nitrate sourced from Eastern bloc: Imported because the imported price is lower than the domestic price.

Tender Pipeline & Order Wins

• ₹600 Cr in live tenders: Management is participating in almost ₹600 Cr worth of tenders currently in process, described as "much more than last year," though no comparative figure was provided for the prior year.
• Order win run-rate: Management expects a similar ₹300–400 Cr per annum order win pace to continue, with upside if big emergency procurement orders from MOD are finalized.
• Emergency procurement catalyst: Premier expects big orders in emergency procurement from MOD in areas like countermeasures, where it is the present existing Indian supplier; once finalized, this should add a big boost to the base.
• Tender split mechanics: Where 2–3 vendors exist, L1 and L2 generally both get awarded based on a 60:40 split. Where Premier is the single qualified vendor, it expects to receive the entire quantity.

Chowdary: "we are also expecting some big orders in emergency procurement from MOD in the areas like where we are the present existing Indian supplier, that is the Counter measures. I think that -- once that is finalized, and that should add a big boost to our base."

Financials & Capital Allocation

• Capex of ₹25–28 Cr planned for FY24, mainly for defence: strengthening existing facilities, adding production lines and storage facilities. Not for capacity increase but for balancing equipment and better utilization of present capacity.
• Operating leverage to drive debt reduction: Management noted the operating leverage of the business will help generate better cash flows, which will be utilized towards debt reduction.
• Dividend declared: ₹1.7 per share for FY23.
• Revenue mix to normalize: FY23 defence turnover was exceptionally low because defence revenue was deferred; composition is expected to revert to more in line with FY22.

Guidance & Commitments

Key Metrics