Monday, February 23, 2009

Investment Call: Premier Explosives Ltd.

Premier Explosives Ltd.: For the medium-term

Premier Explosives Ltd. (PEL), a 29-year old Secunderabad based company, was established in 1980 as a private limited company and later got converted into a public limited company in 1987. It manufactures small/large diameter explosives, bulk explosives and detonators. Its plants are located at Nalgonda and Khammam in Andhra Pradesh, at Chandrapur in Maharashtra and at Waidhan in Sidhi District of Madhya Pradesh. Mr. A.N. Gupta is the chairman & managing director of the company. PEL started out as an ancillary to Singareni Collieries and now supplies to Coal India Ltd. and Neyveli Lignite Corporation and has set up two plants for bulk explosives in Madhya Pradesh and Maharashtra. It also manufactures many diverse products for defence requirements and also operates and maintains a state-of-the-art chemical manufacturing facility for the Indian Space Research Organisation (ISRO). The company has diversified into the manufacture of detonating fuses (4 MTPA) and penta erythritol tetra nitrate (PETN: 100 TPA). It also manufactures site-mixed slurry (SMS), bulk explosives and detonators. The plants for PETN and detonating fuses went onstream in 1994-95. Its manufacturing unit is located close to the Singareni Colleries and has the advantage of being close to its customers. PEL has started a division at Singrauli for manufacture of SMS explosives. It has also entered into Rock Blasting & Drilling contracts and its explosives, detonators and detonating divisions have been accredited ISO 9002 certification. PEL's R&D facility is recognized by the Centre for Scientific and Industrial Research (CSIR), Government of India, as an established research centre. In May 2008, it received the Defence Technology Absorption Award 2007 by Defence Research Development Organisation (DRDO), Ministry of Defence. The company is constantly innovating and upgrading its products and technology to offer state-of-the-art products to its customers both in India and abroad.
Joint Ventures: The company has two joint ventures abroad - one in Ankara (Turkey) and the other in Tbilisi (Georgia, a CIS country), for manufacture of explosives & accessories.
Diversification: PEL has diversified into the production of white button mushrooms for exports and will avail of tax advantage by setting up a 100% EOU in Medak, Andhra Pradesh with an installed capacity 3000 TPA. It has entered into an agreement with Tray Master, UK, for technical know-how and for critical equipment. A marketing agreement has also
been signed with Metro Trade, USA, to market 70% of its production. The other 30% will be marketed directly.
Performance: The company reported encouraging FY08 results registering net sales income of Rs.57.27 cr. with net profit of Rs.5.83 cr. netting an EPS of Rs.7.17.
Latest Results: Net profit of PEL rose 123.38% to Rs.1.72 cr. In the Q3FY09 as against Rs.0.77 cr. in Q3FY08. Sales rose 34.84% to Rs.20.01 cr. in Q3FY09 as against Rs.14.84 cr. in Q3FY08. It reported a basic/diluted EPS of Rs.2.12 and the annualized basic/diluted EPS works out to Rs.8.48.
Financials: The company has an equity base of Rs.8.13 cr. With a book value of Rs.27.44. Its debt-equity ratio is 1.10, RoCE is 17.62% and RoNW is 18.51%. Share Profile: The PEL share with a face value of Rs.10 is listed on the BSE under the B group. Its share price touched a 52- week high/low of Rs.42.50/Rs.16.65. At its current market price of Rs.18.55, it has a market capitalisation of Rs.15.45 cr. Dividends: The company has been consistently paying dividends since 2004.
Shareholding Pattern: The promoter holding in the company is 37.92% and the balance 62.08% is held by non-corporate promoters, institutions and the Indian public.
Prospects: PEL has started production of various Pyrogen Igniters and Solid Propellants motors for the defense sector, which were successfully flight tested. The company also expects good contribution from its overseas joint ventures. As the sale of its special products is increasing and joint ventures are becoming viable, the future of the company is expected to be better. The total explosives market had been increasing steadily due to infrastructure development and more demand of key minerals and power.
Conclusion: PEL is an existing, profit-making, dividend paying company with a good track record. It is one of the few companies manufacturing the entire range of explosives and accessories for civil requirements which has plants close to the end users. At its current market price of Rs.18.55, the share price discounts its FY08 earnings by less than 3 times and the P/E ratio works out to just a tad above 2 on its estimated FY09 EPS of Rs.8.5. In view of its current working, consistent dividend paying track record and a book value of Rs.27.44, the PEL share can be considered for investment with a medium-to-long-term investment perspective.
Source: Internet (Moneytimes) By Devdas Mogili

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