Premier Explosives (PEL) has grabbed investors’ attention with its stock more than doubling in just one month. This meteoric rise lies in its recent triumph – the explosive maker clinched a couple of orders that triggered the stock's northward journey.
In the past month, the stock has shot up 128 percent and jumped about 200 percent in the last one year. In the past three years, the scrip has skyrocketed over 700 percent.
From Rs 129 in August 2020, the scrip has now crossed the Rs 1,000-mark.
Besides, buoyancy in the broader market has also added legs to the rally in share prices, some say. Going forward, market participants see explosive growth prospects for the detonator manufacturer.
Recent order wins – a major push
PEL recently received orders from the Ministry of Defence (Indian Air Force), Bharat Dynamics Ltd (BDL) and Larsen & Toubro (L&T).
On July 6, the company announced that it has bagged an order worth Rs 76.8 crore from the Defence Ministry for supply of flares, and a Rs 10-crore from BDL for supply of booster grains. PEL also won orders worth Rs 43.3 crore and Rs 13.9 crore from BDL and L&T, respectively, for supply of motors.
Order inflow year to date in FY24 (including the recent orders) stood at Rs 725 crore, to be executed over the next 12-24 months.
Besides, PEL is actively focusing on securing more orders, particularly in the defence and explosive segments, in order to further strengthen its position in the market, says Vinit Bolinjkar, Head of Research, Ventura Securities.
The stock currently has an order book of Rs 1,108 crore, which is 5.5 times the FY23 revenue.
The company’s order book provides strong revenue visibility for the foreseeable future, analysts believe.
Price to Earnings (PE) multiple of PEL is currently at around 80 compared with the industry PE of 27.9. Though, considering the strong order book and the timelines of execution, the company’s PE can be justified on the basis of its potential earnings growth, says Sanjay Moorjani, Research Analyst at SAMCO Securities.
Standalone revenue rose 20 percent YoY to Rs 61.95 crore during the June quarter whereas net profit jumped over six fold to Rs 8.21 crore.
EBITDA (Earnings Before Interest Tax Depreciation and Amortization) witnessed a growth of 187 percent to Rs 16.65 crore on year while operating margins expanded by 1,567 basis points to 26.9 percent, which was the highest ever, during the quarter under review.
More about PEL
PEL is a manufacturer of High Energy Materials which involves making explosives and detonating fuses using indigenous technology, producing greener NHN detonators on a commercial scale, and manufacturing solid propellants for India’s missile programmes.
It has three business divisions – explosives, that caters to mining and infrastructure companies, and defence and service that undertakes operations and maintenance services for government-owned solid propellant plants.
PEL has now been in the business for more than four decades, and has seven manufacturing facilities in Telangana, Madhya Pradesh, Maharashtra and Tamil Nadu.
PEL, a pioneer in supplying solid propellants for India's missile programmes, seems to be well-positioned and aims to expand its exports in this segment, market participants believe.
Explosives biz
In the light of geopolitical concerns, there has been a notable upswing in coal demand, consequently leading to an increased need for explosives. Analysts anticipate that the government's emphasis on infrastructure development will sustain the high demand for explosives. Plus, raw material prices are decreasing.
Ammonium nitrate and fuel oil are used as main raw materials for explosives. The company balances domestic and imported ammonium nitrate. In the past year, raw material prices surged dramatically, impacting the bulk explosives segment despite some price escalation clauses in supply contracts.
Raw material prices are now cooling off due to government intervention. The increased demand for coal has also played a role in stabilising prices. Additionally, the company has obtained licenses for bulk storage of ammonium nitrate at a specific location in Telangana. Furthermore, the prices of other raw materials used by the company, such as steel, aluminium, and magnesium, are also decreasing.
Besides, various government schemes like Sagar Mala, Housing for All, and PM GatiShakti National Master Plan that are promoting infrastructure development, are seen to be driving increased demand for cement and metals, necessitating the use of explosives for mineral and metal extraction.
Defence biz
The Government of India's Atmanirbhar Bharat Abhiyan, focused on reducing reliance on imports and promoting indigenous defence products, offers significant growth opportunities for the company.
ICRA predicts that PEL's margin will strengthen in the near to medium-term due to the execution of margin-accretive defence segment orders. Increasing the share of high margin defence orders provides strong revenue visibility, the rating agency adds.
PEL is one of the few private suppliers offering chemicals or explosives for defence. Additionally, the company has entered the Indian space programme as an approved supplier of PSOM XL Motor for use in the polar satellite launch vehicles to ISRO.
PEL has a dominant market share in India's defence explosives market, and is well-placed to benefit from the growing demand for defence products in India, according to Bolinjkar.
Moorjani says that the company is a part of the defence sector, which has been under the limelight as investors expect the space to grow by leaps and bounds.
Though ICRA also notes that the working capital intensity remains elevated owing to the long receivable cycle of the defence segment which can stretch to between three and six months.
Read more | Praj Industries: What's got the ball rolling?
Technical view
The stock is entering a consolidation phase after a strong set of rallies, says Moorjani. It might witness some profit-booking and may take cues from the next quarter result, he points out.
Kush Ghodasara, Independent Expert (CMT), agrees and says the stock was in a consolidation phase until June, but from July, it has shown significant movement. Considering this, the target price for the stock is set at Rs 1,250. Meanwhile, to protect against potential downside risk, a trailing stop loss strategy can be implemented, setting the stop loss at Rs 795, he adds.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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