1
May 29, 2018
Premier Explosives Ltd
India Research - Stock Broking
BUY
Recommendation (Rs.)
CMP (as on May 29, 2018) 315
Target Price 361
Previous Target Price 449
Upside (%) 15
Stock Information
Mkt Cap (Rs.bn/US$ bn) 3.352 / 0.05
52-wk High/Low (Rs.) 539 / 296
3M Avg. daily value (Rs. mn)
3.7
Beta (x) 1.2
Sensex/Nifty 34964 / 10633
O/S Shares(mn) 10.6
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 40.4
FIIs 0.7
DIIs 17.3
Others 41.6
Stock Performance (%)
1M 3M 6M 12M
Absolute (13) (19) (23) (31)
Relative to Sensex (13) (20) (26) (38)
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
De Arul Kaarthick
040 - 3321 6280
arul.kaarthick@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 1850 2303 2659 3018 3456
EBITDA 176 290 200 230 313
EBITDA Margin (%) 9.5 12.6 7.5 7.6 9.1
Net Prot 56 149 87 104 160
EPS (Rs.) 5.3 14.0 8.2 9.8 15.0
RoE (%) 8.9 15.8 5.4 5.1 7.5
PE (x)* 71.7 25.0 40.8 32.3 21.0
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
Rising Costs Dent Q4FY18 Profitability
Premier Explosives (PRE) Q4FY18 revenue grew by 15% to Rs. 833 mn on the
back of strong execution in the defence segment. Defence revenues grew by 57%
followed by commercial explosives at 8.5% in Q4FY18. However, multiple factors
like unfavourable pricing, higher Ammonium Nitrate (AN) prices and nance costs
contributed to fall in earning for the quarter by three-fourth to Rs. 2.4. However,
with quarterly price reset available in the explosives segment, we expect earnings
to normalize. In the next two years, we expect revenue to grow at 14% backed by
strong growth in defence segment (28%) and earnings to grow by 35% on the back
of margin expansion driven by moderating input prices. We continue to maintain
our ‘BUY’ rating on the stock by valuing it at 24x FY20E earnings for a target price
of Rs. 361.
Order backlog to improve: Order backlog for PRE to improve by 11% in next two
years to Rs. 3.7 bn by FY20E. PRE would maintain 1.1x of order backlog for next
two years and defence segment could form over a third of order book and the rest
would be from explosives segment.
Revenues and margins to pick-up: We expect revenues to grow in next two
years at 14% to Rs. 3.5 bn and defence segment revenue to reach Rs. 1.2 bn. Going
forward, we believe AN prices to normalize since crude prices could moderate and
aid margin improvement. We estimate earning to grow by 35% to Rs. 15 by FY20E.
However, the recent fund rising diluted return ratios signicantly which we believe
could start recovering towards FY17 levels from FY20-21E onwards.
Valuation and Risks
Premier over the years has carved a niche for itself in the defence segment and
going forward this segment could be a key beneciary of products that are expected
to enter into continuous production phase. We believe earnings to expand in next
two years and we continue to maintain ‘BUY’ rating on the stock valuing it at 24x
FY20E EPS of Rs.15 for a target price of Rs. 361. However, lower order booking in
the defence segment and adverse movement in AN prices could impact margins.
Earnings Revision (%)
YE Mar FY19E FY20E
Sales (%) (0.5) 0.8
EBITDA (%) (29.4) (20.8)
PAT (%) (32.6) (19.7)
Source: Karvy Research
L
L
L
L
L
L
Results Review
Materials - Explosive Chemicals
Premier Explosives Ltd
Bloomberg Code: PRE IN
60
80
100
120
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Mar -18
Apr-18
May-18
Jun-18
Premier Explosives Ltd
Sensex
2
May 29, 2018
Premier Explosives Ltd
Key takeaways from quarterly earnings
IND AS impact: IGAAP PAT for FY18 stood at Rs. 139.4 mn whereas PAT based on
IND AS dropped to Rs. 80 mn in FY18.
Commercial explosives: Coal India contracts are linked to AN prices and are
reset on a quarterly basis. In general, ~2 months of time lag is there for price reset.
Crude Oil & Gas prices are indicators for AN prices.
Propellant and warhead opportunity: PRE has already supplied 1000 booster
grains for Akash missile and has recently received additional order for 240 grains
which other competitor could not full. Management has indicated medium term
opportunity for Akash propellant at ~2000 nos. There are inquiries for propellants
for BrahMos, LRSAM (500 nos expected), Astra missiles and Pinaka rocket. PRE
is working to develop capabilities in warhead llings opportunity in India and
international markets.
Countermeasures opportunity:
Chas & Flares orders: PRE is the only Indian company to manufacture Chas
and PRE has executed Air Force order for Chas worth Rs. 240 mn. Management
is hopeful of new order from Navy and Army for Chas. Going forward, PRE expects
to secure large orders with meaningful protability. For ‘Flares’ NEXTER is helping
with composition and PRE expects to commence production soon. Cha & Flares
are part of Air Force’s indigenisation plan.
Air Target Imitator: ATI for Army’s air defence has been cleared by QA agencies
and expects some orders in FY19.
Solid fuel opportunity:
PRE’s PSOM-XL has cleared tests successfully and expects to begin discussion
with VSCC for continuous production.
Product additions:
PRE has secured order from TBRL for Ammonium Perchlorate (AP) and has
received inquiries from ISRO, HMRL, BDL and is also pursuing international
markets. This apart, PRE has received approval for ablative material (EPDM) used
in missile applications.
Make in India - Ammunition opportunity:
BMCS opportunity: BMCS is a Rs. 6 bn opportunity for which PRE has formed a JV
with Nexter of France. In PELNEXT, PRE shall hold 51% and rest by Nexter, France.
PELNEXT shall compete with one other player in BMCS. Annual requirement is
~25k of low zone and ~75k of high zone ammunition.
30mm & 40mm opportunity: PRE is working with Nexter for NATO grade 30mm
(5 lakh annual requirement) grenades and is exploring to form a JV with Yugoimport,
Serbia through Paramahansa Technologies for manufacturing of Russian grade
40mm (3 lakh annual requirements) grenades under Make in India and is competing
with 2 other players.
Finance cost and working capital intensity: PRE indicated that receivables
could remain high for defence orders. PRE has issued BG for Rs. 60 mn towards
BMCS for which the related costs are shown under nance costs.
Update on CapEx: PRE has envisioned a CapEx of Rs. 500 mn for propellant &
ammunition facility of which it has spent about Rs. 190 mn so far and expects to
spend the rest in FY19E. Total CapEx for FY18 stood at Rs. 240 mn.
New product lines open up
signicant opportunity for
Premier Explosives.
3
May 29, 2018
Premier Explosives Ltd
AN prices impacted
Q4FY18 protability
Order backlog covers 1.1x
of ttm revenues
Defence segment growth
to out pace Explosives
segment growth
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 833 675 23.4 724 15.0
Expenditure 775 636 21.7 584 32.6
EBITDA 58 38 51.5 140 (58.4)
Depreciation 9 9 (0.5) 9 2.4
EBIT 49 29 67.6 131 (62.5)
Interest 16 11 NA 15 NA
PBT 34 18 81.7 116 (71.2)
Other Income 7 6 26.0 3 181.3
Ta x 16 8 97.3 38 (57.0)
PAT 25 16 53.4 81 (69.7)
EBITDA Margin (%) 7.0 5.7 130 bps 19.4 (1236) bps
EBIT Margin (%) 5.9 4.4 156 bps 18.1 (1223) bps
Net Prot Margin (%) 2.9 2.4 58 bps 11.2 (824) bps
Source: Company, Karvy Research
Exhibit 3: Quarterly Revenue trend
Source: Company, Karvy Research
Exhibit 4: Quarterly Order Backlog trend
Source: Company, Karvy Research
265
291
323
428
354
358
399
494
396
341
432
536
71
71
117
113
73
142
114
152
107
190
187
238
39
45
40
44
45
45
46
79
69
48
56
58
0
200
400
600
800
1000
Q1'16
Q2'16
Q3'16
Q4'16
Q1'17
Q2'17
Q3'17
Q4'17
Q1'18
Q2'18
Q3'18
Q4'18
Explosives
Defence
Services
840
2160
1920
1590
1160
1090
1080
1081
60
310
360
305
0
1000
2000
3000
4000
Q1'18
Q2'18
Q3'18
Q4'18
Explosives
Defence
Services
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May 29, 2018
Premier Explosives Ltd
Exhibit 6: Premier Explosives - PE Valuation
Source: Bloomberg, Karvy Research
Exhibit 5: Change in Earnings Estimates
YE Mar - Standalone (Rs. Mn)
FY19E FY20E
Old New % Change Old New % Change
Net Sales 3033 3018 (0.5) 3427 3456 0.8
EBITDA 326 230 (29.4) 395 313 (20.8)
EBITDA Margin (%) 10.7 7.6 (312) bps 11.5 9.1 (247) bps
Adj. PAT 154 104 (32.6) 199 160 (19.7)
EPS (Rs.) 14.4 10 (32.3) 18.7 15.0 (19.6)
Source: Karvy Research
Exhibit 7: S&P BSE Capital Goods Index - 10 yr PE Valuation
Source: Bloomberg, Karvy Research
19
24
29
34
39
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
S&P BSE Capital Goods Index
Average
+1SD
-1SD
0
10
20
30
40
50
60
70
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1 Yr Fwd PE
Average PE
+1SD
-1SD
5
May 29, 2018
Premier Explosives Ltd
Financials
Exhibit 8: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenues 1850 2303 2659 3018 3456
Growth (%) 23.7 24.5 15.5 13.5 14.5
Operating Expenses 1674 2013 2459 2788 3143
EBITDA 176 290 200 230 313
Growth (%) 40.4 64.6 (30.9) 15.0 35.9
Depreciation & Amortization 33 33 36 42 45
EBIT 143 256 164 188 268
Other Income 5 7 22 10 10
Interest Expenses 37 43 51 42 38
PBT 83 220 134 156 240
Tax 27 71 47 52 81
Adjusted PAT 56 149 87 104 160
Growth (%) 7.9 164.0 (41.4) 18.8 54.1
Source: Company, Karvy Research
Exhibit 9: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & Inventories 66 53 388 196 88
Sundry Debtors 424 558 972 852 947
Inventory 223 335 357 404 465
Loans & Advances 89 0 0 0 0
Investments 53 53 53 53 53
Gross Block 636 1253 1419 286 1158
Net Block 395 990 999 1207 1272
CWIP 24 37 158 158 158
Miscellaneous 24 152 135 135 135
Total Assets 1297 2177 3062 3004 3118
Current Liabilities & Provisions 568 697 835 710 703
Debt 3 65 78 74 67
Other Liabilities 41 142 135 135 135
Total Liabilities 612 904 1048 919 905
Shareholders Equity 89 89 106 106 106
Reserves & Surplus 566 1149 1876 1948 2076
Miscellaneous 31 36 31 31 31
Total Networth 655 1237 1983 2054 2182
Total Networth & Liabilities 1297 2177 3062 3004 3118
Source: Company, Karvy Research
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May 29, 2018
Premier Explosives Ltd
Exhibit 10: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
PBT 83 220 134 156 240
Depreciation 33 33 36 42 45
Interest 37 43 51 42 38
Tax Paid (34) (54) (47) (52) (81)
Inc/dec in Net WC 9 (282) (315) 17 (135)
Other Income 0 0 0 0 0
Others (31) (31) (34) (10) (10)
Cash ow from operating activities 98 (70) (174) 195 97
Inc/dec in capital expenditure (51) (116) (196) (250) (110)
Inc/dec in investments (4) (10) (1) 0 0
Others 14 29 22 10 10
Cash ow from investing activities (41) (97) (175) (240) (100)
Inc/dec in borrowings 36 165 48 (74) (35)
Issuance of equity 0 0 712 0 0
Dividend paid (42) (1) (38) (32) (32)
Interest paid (22) (23) (51) (42) (38)
Others 0 0 14 0 0
Cash ow from nancing activities (27) 141 684 (148) (105)
Net change in cash 30 (26) 335 (192) (107)
Source: Company, Karvy Research
Exhibit 11: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 9.5 12.6 7.5 7.6 9.1
EBIT Margin (%) 7.7 11.1 6.2 6.2 7.7
Net Prot Margin (%) 3.1 6.5 3.3 3.4 4.6
Dividend Payout Ratio (%) 74.0 0.6 36.5 30.8 20.0
Net Debt/Equity (x) 0.24 0.27 0.02 0.08 0.11
RoE (%) 8.9 15.8 5.4 5.1 7.5
RoCE (%) 17.0 20.6 8.1 7.8 10.9
Source: Company, Karvy Research
Exhibit 12: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 5.3 14.0 8.2 9.8 15.0
DPS (Rs.) 3.9 0.1 3.0 3.0 3.0
BVPS (Rs.) 61.5 116.3 186.4 193.1 205.2
PE (x)* 71.7 25.0 40.8 32.3 21.0
P/BV (x)* 6.2 3.0 1.8 1.6 1.5
EV/EBITDA (x)* 20.0 11.8 18.0 15.3 11.5
EV/Sales (x)* 1.9 1.5 1.4 1.2 1.0
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
7
May 29, 2018
Premier Explosives Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
Connect & Discuss More at
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