Premier Explosives Ltd. share price target

Expanding capacities across defence segment with focus on increasing better-margin products: PEL is initiating a capital expenditure program to strengthen its defence and energetic materials portfolio. The Katepally facility, which focuses on RDX, HMX, and rocket integration, is set to increase production. A greenfield plant in Odisha is planned in three phases, (~Rs. 800 crores over ten years). Phase I, which includes production of ammunition, warheads, and HTPB raw materials, will require ~Rs 100 crore. To finance these initiatives, PEL aims to raise ~Rs. 300 crores through...

Premier Q4 Results Mixed: Premier Explosives (PEL) Q4 earnings were higher than our estimates for the quarter at Rs.2.62 (Vs. Est 2.43) on the back of improved EBITDA margin of 8.6% in Q4 (158 bps) and tax write backs (Rs. 77 Mn) despite ~ 30% fall in revenue (Rs. 586 Mn) booked during Q4.

Orders Dry-up; Revenue Visibility Turns Bleak: Revenue for Q2 declined by 8.1% YoY to Rs. 535 mn on account of lower explosivesales and EPS growth was flat on YoY basis in Q2 to reach Rs. 2.2. The decline in order backlog is a major disappointment and the current order book stands at Rs. 2,719 mn which is just 1x of FY18 revenues.

Rising Costs Dent Q1 Profitability: Premier Explosives' revenue grew by 4.5% in Q1 to Rs. 569 mn, however, due to rising cost pressures net income margin was down by 270 bps and reached a meagre 1.5% in Q1.

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 finance costscontributed to fall in earning for the quarter by three-fourth to Rs. 2.4.

Order Book Build-up Offers Revenue Visibility; Premier Explosives revenue grew by 21% in Q3FY18 on the back of strong execution; however, pricing pressure in the Coal India contract, delay in pass through of higher Ammonium Nitrate (AN) prices impacted profitability and earnings dropped by 37% YoY to Rs.1.5 in Q3FY18.

Picking Pace in Execution; Margins Expanding: Strong order book position - Premier explosives (Premier) order book by end of Q2FY17 reached to Rs.2370mn; of this, segmental orders for explosives reach to Rs.1610mn, defence to Rs.870mn and services to Rs.250mn.