Friday, March 30, 2012

>Premier Explosives: For explosive gains

The share of Premier Explosives Ltd. (PEL) (Code 526247) (Rs.60.50) is being recommended for decent gains in the medium-to-long-term. 

PEL is one of the major companies manufacturing the entire range of explosives and accessories for the civil requirement. Two of its plants are located in a mining area (close to Singareni Collieries) in Andhra Pradesh and enjoy the benefit of being close to the end-users. Two other plants are located at Maharastra and Madhya Pradesh. Starting as a Small Scale unit in 1980, it was founded by Mr. A. N. Gupta, a Gold Medallist in Mining Engineering. 

The product range includes Pyro Cartridges, Special type squibs, Smoke markers, Mob Control devices, etc., and high energy materials like CL-20, CR Compound and HNS and bulk explosives. PEL also manufactures solid propellants and critical components that power missiles, including the recent Agni-IV and has expanded its production facilities. Its products go to the energy, mining, infrastructural development and defence & space sector. 

PEL's R&D facility is recognised by the Council for Scientific and Industrial Research (CSIR), Government of India, as an established research centre. It is also recognised as a research base for Ph.D. work by Osmania University, Andhra Pradesh. PEL has obtained accreditation from the National Accreditation Board for Testing and Calibration Laboratories (NABL) for its laboratory situated at Peddakandukur.

 PEL has ISO 9001: 2001 accreditation. Most of the products are ‘CE’ certified. PEL is in the process of implementing 6 Sigma & NABL accreditation. 

During FY11, net profit shot up by 69% to Rs.10 crore on 6% increased sales of Rs.95 crore. EPS stood at Rs.12.3 and a dividend of 20% was maintained. During Q3FY12, sales rose 35% to Rs.29 crore and net profit by 79% to Rs.3.3 crore. OPM and NPM vastly improved to 17.7% and 10.5% from 14.3% and 7.9% respectively in Q3FY11. The Q3FY12 EPS stood at Rs.4.1. 

During 9M FY12, sales moved up by 13% to Rs.76 crore, net profit also surged by 13% to Rs.7.8 crore. The 9M FY11 EPS works out to Rs.9.6. PEL’s equity capital is Rs.8.1 crore and with reserves of Rs.27.8 crore, the book value of its share works out to Rs.44. The value of the gross block is Rs.43 crore whereas the debt equity ratio is 0.13:1. The promoters hold 41.9% in the equity capital. With NRI holding of 6.1% and PCBs holding of 8.7% leaves 43.3% with the investing public. During FY10, an additional facility was commissioned at Neyveli, which started production from October 2009. It also established an 800 kW wind mill in Pushpathur village in Tamil Nadu. 

PEL recently completed a new expansion project at an investment of Rs.10 crore and added to its existing manufacturing unit at Peddakandukuru in Nalgonda district of Andhra Pradesh. It will cater to the needs of tactical missiles like the Nag, Astra, Akash, and Pinaka. The present facility for tactical missiles was an attempt to help the country reach self-reliance in defence supplies. The main users of explosives are sectors such as energy, mining, infrastructural development and defence & space. These sectors are growing at rapid pace as the country's GDP is growing at about 7% p.a. 75% of India’s power generation is coal based paving way for increased usage of explosives. Increased mining of coal for power generation and of iron ore, etc., for infrastructure development and higher allocations to defence and space sectors will certainly boost the prospects of the explosives industry.

PEL, which already caters to the defence & space sectors, foresees challenging technological opportunities in the coming years. It will work to enhance its presence in this sector and is poised to benefit from its core strength in this niche area.

PEL has demonstrated over time that it is a reliable private partner with its consistent quality of products and technical ability in various projects undertaken by the Advanced Systems Laboratory and the DRDO. PEL has already supplied critical components like the ‘smoke less' composition (which helps an aircraft avoid detection after the launch of the missile) for the Astra missile. PEL has been producing solid propellants since 2003. In the successful November 2011 launch of Agni-IV (beyond 3,500-km range intermediate range ballistic missile), Premier Explosives made the second of the two stage rocket motors along with the two igniters. 

The Igniters and Daisy-2 motor produced by PEL met all the quality parameters in static test as well as the flight test. PEL, the traditional private sector manufacturer of explosives for mining and commercial sectors, has specialised in meeting some of the niche demands of India's strategic sector — defence and space. For FY12, PEL is expected to post a net profit of Rs.11.5 crore on sales of Rs.110 crore. EPS would work out to Rs.14.2, which is expected to go up to Rs.16 in FY13. At the current market price of Rs.70.50, the share is traded at a P/E multiple of 4.9 on FY12 earnings and 4.4 times FY13 earnings. The share is recommended with a target price of Rs.90 in the medium-term. This will translate into a gain of over 28%.