premier explosives ltd share price Management discussions


The global economys recovery from both the pandemic and then an economic downturn in the past two years has not been an easy ride. Businesses have endured reduced profitability and sustenance. The past year has got a glimpse of the ups and downs in the real sense. Global growth rate is expected to decline from 3.5% to 3.0% in 2023. This forecast is a slight upward revision from that of April 2023. Policy tightening measures for controlling high levels of inflation, weak financial systems, continued Russia Ukraine crisis and the geoeconomic fragmentation, fragility of developed economies and other headwinds faced by emerging markets have manifested in unexpected ways and inarguably influenced the direction and magnitude of growth. The world had slowed down to an extent that it was gravely close to entering into a recession – three years after emerging out from the pandemic of 2020. But these fears have been trimmed to some extent. In middle of FY2023, the economic aftermath of 2022 felt obsolete because the nations started interacting with a new concern – financial instability. Weakening investments, corporate defaults and decreased resilience of financial systems made the global scenario critical. Banking sector vulnerabilities had come into focus, with the bankruptcy of the regional banks in USA and the collapse of Credit Suisse, thereby foreboding the beginning of a global financial crisis. However, the recent resolution of the US debt ceiling standoff and the strong action by authorities to contain turbulence in US and Swiss banking reduced the immediate risks of the financial sector turmoil, thus moderating the intensity of risks. In Q2 FY2023, inflation reached multidecade highs in many economies, which led to swift rise in interest rates and corresponding slowing of economic activity. Towards Q3 and Q4 FY2023, continued stringent monetary policies and a decline in commodity prices as compared to the last fiscal guided the global inflation to decline. However, the inflation level is still well beyond central bank targets. This is due to underlying pricing pressures as well as supply shocks and in some countries due to large currency depreciations vis-?-vis the US dollar and tight labour market conditions. Global headline inflation is expected to decline to 6.8% in 2023 and 5.2% in 2024 from a massive 8.7% in 20221.

Global trade paced down in second half of FY2023 mirroring a slowdown in global industrial production whereas services continued to prosper. Though the balance of risk to global growth remains lopsided, countries remain resilient and policy makers are now expected to deal with not just sustained disinflation and growth, but also with financial instability.

1 Source: IMF World Economic Outlook, July 2023


India demonstrated resilience inspite of moderation in growth in the second half of FY2023. Notwithstanding significant global challenges, India remains one of the fastest growing economies in the world, and is also surpassing China as the ‘most populous nation. The rate of Indias economic growth averaged around 6.9% for the year2.

Growth was reinforced by robust investments which was boosted by governments capex and increasing private consumption. Inflation hovered around 7%, with current account deficit narrowing down in Q3 FY2023, because of flourishing service exports and marginal slowing down of global commodity prices. Merchandise exports rose in absolute terms but pace showed a slowdown. Electronics exports rose 57% as big players in the mobile equipment manufacturing segment are setting up production units in India, following the China+1 strategy.

Though India is one of the fastest growing countries, it has had its share of challenges. Elevated though now relatively easing global commodity prices, slackening of pent-up pandemic-era demand, continuing weakness in the manufacturing sector, the fading of the pandemics low base effect, tightening financial conditions across the world, increased volatility in financial markets, reversal of capital flows, currency depreciation and global trade slowdown are some of the headwinds causing shocks and uncertainty to Indian economy. However, it is buffeted from the external shocks because of strong macroeconomic fundamentals.

The first three quarters of FY2022 experienced sluggish private consumption growth due to slow income growth and increase in borrowing costs, as well as low-paced government consumption growth due to withdrawal of pandemic-related fiscal support measures, which, in Q4 FY2022 have been overtaken by increasing GDP growth and consumption and investment levels crossing the pre-pandemic levels. The country is expected to continue showing relatively better resilience to external shocks. Headline inflation is expected to dip from 7% to around 5.9% in FY2023. Along with reduction in government deficits, stabilization of debt-to-GDP ratio, further reduction in current account deficit from 3% to 2.1% and the banking sector remaining well-capitalized, the scenario inclines towards positive for the country. The growth rate for India has been forecast at around 6.1% for the coming fiscal, which is a slight upward revision from earlier forecast, owing to stronger-than-expected momentum in domestic investments. But uncertainties because of spill-overs from the US and European financial markets, actions of central banks across the world and oil price movements could be potential downside risks. If global shocks are taken care of, growth could surpass 7% in the FY2024 and 2025.

3 Source: Deloitte, July 2023


The world has been witnessing rising military spending owing to the continuing Russia Ukraine conflicts and tensions in East Asia. Military expenditure increased by 3.7% in FY2022 touching a new high of USD 2240 billion. Global spending grew by 19% over the decade 2013–22 and has risen every year since 2015. Military expenditure in Europe saw its steepest y-o-y increase in 30 years. The three largest spenders in 2022 were USA, China and Russia and they accounted for 56% of the world total.


The Indian defence sector has the second largest armed forces in the world and the defence and aerospace sector has become a focus area. It plans to spend USD 250 billion by 2025 on modernising its armed forces.

The Government of India has been taking strategic steps to reinforce the capability of the Armed Forces and enhance defence infrastructure since 1962, making India a crucial market for defence equipment. With an increase in the import expenditure, there was a need to reduce dependency on foreign suppliers. Policies like Atmanirbhar Bharat which encourage domestic manufacture of indigenous fighter aircraft, warships, missiles, tanks and submarines have been majorly responsible for an increase in foreign exchange reserves, which have grown from USD 9.22 billion in 1992 to around USD 600 billion and the GDP from USD 288 billion to almost USD 4 trillion in 2023. The global geopolitical tensions have induced India to become increasingly self-reliant and self-sufficient. Given the availability of ample funds and the implementation of various policies to modernize and upgrade the armed forces, the defence sector is poised for robust growth. The governments planned expenditure of USD 130 billion by FY2025 is just the initial step in its mission to modernize the armed forces further. This creates a favourable environment for domestic manufacturing, as evidenced by a surge in procurement levels from 54% in FY2019 to 68% in FY2022, presenting vast opportunities for domestic players. Further, with ongoing efforts to improve army, navy and air force capabilities and modernize the existing fleets of aircraft and warships, a substantial portion of capital expenditure is expected to materialize over the next 5-6 years. These segments will witness rapid indigenization adoption, leading to significant domestic manufacturing and export opportunities supported by favourable policies.

Indias defence budget in 2023, (excluding defence pensions), stood at USD 56.8 billion, an increase of 3.5% from the previous year. India is one of the fastest growing economies in Asia, and this economic growth has translated to increased defence spending. The budgetary allocation is expected to touch USD 67.5 billion in FY2024 and USD 89 billion in FY2028, marking a CAGR of 7.2%. The defence acquisition budget valued at USD 19.7 billion in 2023 is expected to increase to USD 27.4 billion by 2028, reflecting a CAGR of 5.9% over the period 2023-28.

Policies such as Defence Production and Export Promotion Policy, a favourable FDI climate, import embargo on military items and a high budgetary allocation to the defence sector, reduction in external dependency for defence procurement and need for competitive advantage over other neighbouring nations are the factors enabling a successful growth story for Indian defence. According to the global power index, the Indian defence sector ranks fourth in terms of firepower with a score of 0.0979. The Indian government has set the defence production target at USD 25 billion and export target at USD 5 billion by 2025. India is one of the worlds biggest defence spenders with a total outlay of USD 66 billion, accounting for 13.31% of the total budget. Defence exports grew by 334% in the last five years and India now exports to over 75 countries4. 4 Source: IBEF


The explosives refer to materials, mixtures and chemical compounds that are capable of exploding. High explosives (those that are used in defence and military applications) and low explosives (those that are used in industrial/civilian applications) are the two major types of explosives. The main types of explosives are C4, HMX, PETN, RDX, Dynamite, ANFO and others. The defence sector plays a crucial role in the demand for explosives. Increasing government expenditure is expected to boost the demand for explosives. Apart from the defence industry, the mining industry also determines the demand for explosives. The mining industry is at a pivotal point in the global economy because at a time when it has to consider minimal environmental harm to ensure a carbon-free future, it also bears the onus to hasten the production for global supply for businesses. The global explosives market is expected to grow from USD 44.09 billion in 2022 to USD 47.88 billion in 2023 at a CAGR of 8.6% and is forecast to grow to USD 61.83 billion in 2027 at a CAGR of 6.6%. Asia Pacific was the largest region in the explosives market in 2022 and western Europe is expected to be the fastest growing region till 20275.

Stringent regulations imposed by the government on the manufacturing and usage of explosives are expected to limit the growth of the explosives market.

Indian has one of the worlds fastest growing market for explosives. The total use of explosives in India is about 5,50,000 tonnes per annum and it is expected to reach USD 159.2 million by 2028. India is also the second largest producer of coal in the world.

Demand drivers for the explosives market

The demand for industrial explosives has a direct correlation with mining operations as well as a rise in construction activities in the nation. As the demand for power is expected to experience growth both in short term and long term, the demand for coal is seeing an upsurge. Coal mining constitutes the major determinant for explosives. Renewable energies are the obvious choice from an environmental point of view, but solar plants and windmills are not yet available at the required scale. Low-carbon natural gas is a competitor for coal, but the ongoing Russia-Ukraine conflict continues to threaten the supply of natural gas to Europe and they are considering the revival of thermal coal power plants for energy security. Growing population and rapid urbanisation require the construction of houses, commercial buildings, roads and factories and continuing industrialisation necessitates high-power supplies and raw materials resulting in increased coal mining and quarrying activities in the nation. The government has been encouraging the creation of infrastructure through various schemes like Sagar Mala, Housing for All and PM GatiShakti National Master Plan which will result in demand for cement and metals which require explosives for extracting minerals and metals.

The mining industry in India is one of the core industries of the economy. The supply demand gap is huge especially in the mining sector for commodities such as coal (for power generation), limestone (for cement production), iron ore (for steel production) and stone aggregates from stone quarries (for use in construction and infrastructure projects). The Ministry of Coal expects domestic coal production to rise to 1.2 billion MT in FY2023-24. Cement demand is expected to grow by 7-8% to 382 million MT in FY2023. Similarly, crude steel production is expected to increase by 7% from its current level of 120 million MT in FY2022. All such primary commodities can only be obtained efficiently through the use of industrial explosives for safe and efficient blasting to expose the underlying commodity for extraction and further processing.

Mining and infrastructure sectors are shifting their focus and prioritising innovations that are cost effective and respond to specific issues. Modern explosive concepts like controlled explosions are now becoming more common. The safety and environmental aspects of the explosives industry are becoming increasingly important. An organisation must comply and meet the requirement of The Explosives Act and Rules by the Government to ensure that all the stakeholders are protected and pave way for quick growth of the industry.

5 Source: Research and Markets


The Government Owned, Company Operated (GOCO) model is a management and operational model wherein private industries operate government assets, releasing them of the need to invest in land, machinery or other support systems. The ownership and responsibility for a government facility, infrastructure or operation remain with a government entity, but the day-to-day operations and management are contracted out to the private sector.

The Government identifies potential industry partners for its special facilities, infrastructure and related activities that can be operated by the industry partner, which helps the government organization outsource regular and mundane operations as well as specialised activities. This is a mutually benefitting collaboration, which increases the governments efficiency in research and development and imparts a favourable environment for the defence private sector with diverse experiences, expertise, efficiency and innovation. This type of public private partnership for various projects and programmes boosts competitiveness in the private sector, harnessing private sector capabilities without fully relinquishing control over essential functions.

The GOCO model is commonly used in sectors like defence, energy, research and development and critical infrastructure. Previously, Indias defence production was mainly controlled by the public sector, with limited participation from private players. However, in recent years, the Indian government has taken several steps to encourage private sector participation in the defence industry. Today the Private Sector plays a significant role in defence manufacturing through the GOCO model as well.

Business updates a) Update on your companys contribution to Indias missile programmes

Your company has been working with various defence entities towards indigenisation of national missile programs. Following table gives details of missiles for which PEL has been supplying solid propellants and other explosive components.




End user



Tactical, Surface to Air


Indian Air Force and Indian Army

Supplied 2200+ booster grains and 600+ Sustainer grains


Tactical, Surface to Air Development and Production Indian Navy Sole supplier of solid propellants


Tactical, Surface to Air

Development and Production

Indian Air Force and Indian Army

Sole supplier of solid propellants


Tactical, Surface to Air Development and Production Indian Army Sole supplier of Solid Propellant


Tactical, Air to Surface Anti Radiation

Development of Propellant and Assembly of rocket motors

Indian Air Force

Sole supplier of Solid Propellant


Tactical, Air to Air Development and Production Indian Air Force Sole supplier of solid propellants

Astra - II

Tactical, Air to Air Development and Production Indian Air Force Sole supplier of solid propellants


Cruise Anti-ship, Land attack


Indian Air Force, Indian Navy and Indian Army

Transfer of technology is under induction at Katepally plant


Tactical, Surface to Surface Production Indian Army Transfer of technology in progress

a) Update on PELs other defence and space products

In addition to missile area, PEL has been working towards the national indigenisation efforts in association with defence and space entities on the following products:




Strap on motor for satellite launcher (PSLV)

Solid propellant

Production of HS, MS and NS on-going at Katepally plant

Air Target Imitator

Dummy Rockets with IR Flares for Practice Firing

First such product to be designed, developed and manufactured in India

Pyrogen Igniters

Large Igniters for Initiation of Strategic Missiles propellant stages

Sole supplier of Pyrogen Igniters Supplied Igniters for various Strategic missiles like Agni and


Counter measure

Submarine launched missiles First indigenous supplier of the product Entered into Memorandum of Agreement with Indian Air Force for development and manufacture under ‘Make in India First indigenous supplier of the product under Make in

IR flare

Counter measure


Smoke flare

Signalling device

Pyro cartridges

Initiators for rockets, missiles and other projectiles Sole supplier

Water cannon disruptor

Neutralising IEDs

Mob control device

Tear gas grenades and shells

Fuze (filling and assembling)

Device that detonates a munitions explosive material Under user trials

Katepally project

Received Industrial license and PESO license for the manufacture of all types of Warheads and Fuses and these licenses are valid for the lifetime.

Increase in capacity of Shock Tube production

The Company has increased its production capacity of Shock tube which helps to increase the production volumes of NONEL. The company also received required licenses.

Major orders received

The company received significant orders in both defence and Bulk Explosives segment due to which the order book has gone up to Rs. 1,107.85 Crores. The defense segment orders contribute 82% , which is the highest in the History of Premier Explosives. Received multiple orders worth Rs. 533.08 crs (Excluding GST) for 50MM & 26MM FTV Flares & Chaffs from Ministry of defense. Received Order worth Rs. 36.66 Crs (Excl GST) from Bharat Dynamics Limited for the supply of P1 & P2 motors for MRSAM Received order worth Rs. 11.81 crs (Excluding GST) from Larson & Toubro.

The company has also received multiple export orders from overseas vendors for the supply of Rocket motors and War heads worth more than Rs. 120 crs.

Analysis of financial performance (Consolidated)

The analysis in this section relates to the consolidated financial results of the year ended March 31, 2023. The financial statements of the company and its joint venture are prepared as per the Indian Accounting Standards (referred to as ‘Ind AS) prescribed under section 133 of the Companies Act, 2013, read with the Companies (Indian Accounting Standards) Rules, as amended from time to time. Significant accounting policies used in the preparation of the financial statements are disclosed in the notes to the consolidated financial statements.

During FY23, the company achieved operating revenue of Rs.20,203.01 lakhs, which is 1.46% higher compared to Rs. 19,912.77 lakhs for FY22. Net profit was Rs. 696.52 lakhs compared to a net profit of Rs. 522.20 lakhs in the previous year. An analysis of revenue and expenditure is provided below.


(INR in lakhs)

FY23 FY22 Change
Operating revenue 20,203.01 19,912.77 1.46%
Other income 216.58 281.77 (23.14%)
Total revenue 20,419.59 20,194.54 1.11%

Higher operating revenue has been contributed by exports, especially defence products. Better pricing of explosives and accessories also helped in clocking increased revenue.

Geographical revenue

(INR in lakhs)

FY23 FY22 Change%
India 16,858.43 17,192.63 (1.94%)
Other countries 3,344.58 2,720.14 22.96%
Operating revenue 20,203.01 19,912.77 1.46%

During the year there is a significant increase in export revenue.

Cost of materials

(INR in lakhs)

FY23 FY22 Change
Cost of materials 10,766.97 9,374.31
Purchase of stock in trade 696.17 165.51
Changes in inventories (2769.10) 185.26
Total materials 8694.04 9,725.08 (10.6%)
Operating revenue 16,795.47 17,686.42 (5.04%)
Cost of materials /
52% 55%
Operating revenue

Marginal change in Cost of material ratio is due to the change in product mix.

Employee benefits

(INR in lakhs)

FY23 FY22 Change
Employee benefits 5,093.85 4,644.86 9.66%
% of Total Revenue 25.2% 23.3%

The increase in employee costs during FY23 is due to increase in increments of employees.

Finance costs

(INR in lakhs)

FY23 FY22 Change
Finance costs 891.90 725.67 22.91%
% of Revenue 4.4% 3.6%

Due to increase in Interest rates and higher utilization of working capital limits, finance costs see the increase.

Depreciation and Amortisation

(INR in lakhs)

FY23 FY22 Change
Depreciation and
982.25 950.4 3.35%
% of Revenue 4.9% 4.8%

Marginal increase in Depreciation is due to the further capex and amortization of intangible assets.

Other expenses

(INR in lakhs)

FY23 FY22 Change
Other expenses 3,781.57 3,388.80 11.59%
% of Revenue 18.7% 17%

The increase in other expenses by 11.59% is mainly on account of Export expenses , power and fuel, repairs & maintenance.

Balance sheet items (Assets)

Increase in property, plant & equipment from 17,202.83 lakhs to Rs. 18,154,96 lakhs represents the mainly construction of buildings towards storage etc. and also shock tube machinery and other equipment .

Other non-current assets decreased to 481.81 lakhs from Rs. 715.53 lakhs. The decrease is mainly on account of reduction in capital advances, deposits and prepaid expenses.

Receivables decreased from 7,155.10 lakhs to 5,366.64 lakhs.

Increase in Other current assets from 1,086.48 lakhs to 1,694.93 lakhs is mainly on account of higher balances with government authorities and increase in advance to suppliers.

Balance sheet items (Liabilities)

The non-current borrowing decreased from 508.00 lakhs to 228.93 lakhs due to repayment of term loans and shifting of current maturities of term loans to current borrowings.

Current borrowings increased to 8,071.44 lakhs from 7,282.20 lakhs was mainly due to the higher inventory holding period (due to the delay in dispatches in defense segment) etc. Trade payables decreased from Rs.2,118.31 lakhs to Rs. 1,580.02 lakhs due to payments to suppliers.

Other financial liabilities increased from 941.21 lakhs to 1,150.00 lakhs mainly due to the increase in capital creditors.

Other current liabilities increased from 823.12 lakhs to 3246.14 lakhs and the increase mainly represents the higher amount of advances received from customers.

Key financial ratios:




As at March 31, 2023 As at March 31, 2022 % Change in Ratio
a) Current ratio (in times) Current Assets Current Liabilities 1.12 1.12 0%

b) Debt-Equity ratio (in times)

Total debt Earnings available debt

Shareholders Equity

0.42 0.41 4%

c) Debt service coverage ratio (in times)

Service = Profit after tax+Non cash expenses + Interest + Others non cash adjustments

Debt Service = Interest payments + Principle payments

1.89 2.30 (18%)

d) Return on Equity ratio (in %)

Profit after tax

Average Shareholders funds

4% 3% 1%

e) Inventory turnover ratio (in times)

Sale of Products

Average Inventory

2.73 4.69 (42%)

f) Trade receivables turnover ratio (in times)

Revenue from operations

Average trade receivable

3.23 3.39 (5%)

g) Trade payables turnover ratio (in times)

Net Credit Purchases

Average Trade Payables

6.67 5.01 33%

h) Net capital turnover ratio (in times)

Revenue from Operations

Working Capital

11.74 14.66 (20%)

i) Net profit ratio (in %)

Profit after tax

Revenue from operations Capital employed = Net worth

3.45% 2.62% 0.83%

j) Return on capital employed (in %)

Earning before interest and taxes

+ Total debt+ Deferred tax liability

5.59% 4.15% 1.44%

Credit rating

ICRA Limited has reaffirmed the rating of [ICRA] BBB (Stable) for the long-term facilities and [ICRA] A2 (Stable) for the short-term facilities being availed by your company from various banks.