ICRA reaffirms ratings of Premier Explosives with 'stable' outlook

The agency has also affirmed the company’s short term rating at “[ICRA] A2”.

ICRA stated that the reaffirmation of the ratings takes into account a healthy order book position of Premier Explosives (PEL) as on 30 June 2024, providing near to medium-term revenue visibility. The company had an outstanding order book of Rs 899 crore as on 30 June 2024. Further, majority of this order book (nearly 85%) is from the margin-accretive defence segment.

There has been a significant improvement in PEL’s operating profit in FY2024, driven by increasing revenue contribution from the high-margin defence segment.The robust order book and a favourable demand outlook for the defence segment is expected to result in a healthy growth in the company’s scale of operations in the near to medium term.

The Atmanirbhar Bharat Abhiyan of the Government of India (GoI), which is aimed at curtailing import dependence and increasing the sourcing of indigenous defence products, presents large growth opportunities for the company.

The company’s marquee clientele, comprising Singareni Collieries Company Limited (SCCL), Bharat Dynamics Limited (BDL) and Indian Space Research Organisation (ISRO), and the repeat orders from many customers also provide comfort.

The ratings are constrained by the high working capital intensity owing to the long receivable cycle of the defence segment, which can stretch up to three to six months. The ratings also consider the vulnerability of the commercial explosive segment’s profitability to the volatility in raw material prices as the pass-through may be with a lag amid intense pricing competition.

Further, the customer concentration remains high for PEL.

ICRA also notes the highly regulated nature of the explosives manufacturing industry with the need for licensing for various products. Therefore, the company’s operations remain vulnerable to any changes in the regulatory framework.

Premier Explosives is primarily involved in the manufacturing and sale of high-energy materials. The bulk explosives, packaged explosives and initiating systems manufactured by PEL find application in the mining, infrastructure and construction industries. The company also diversified into the manufacturing of propellants for missiles and rockets and also strap-on motors for satellite launch vehicles.

The scrip rose 0.69% to currently trade at Rs 615 on the BSE.