Premier Explosives Limited (PREMEXPLN) Q1 FY23 Earnings Concall Transcript

Premier Explosives Limited (NSE:PREMEXPLN) Q1 FY23 Earnings Concall dated Aug. 04, 2022

Corporate Participants:

Vishal Mehta — Stellar Investor Relations

T.V. Chowdary — Managing Director

Srihari Pakalapati — Chief Financial Officer

Analysts:

Swechha Jain — ANS Wealth — Analyst

Abhishek Poddar — HDFC Mutual Fund — Analyst

Praful Siddharth — Shravas Capital — Analyst

Akshay Kothari — Envision Capital — Analyst

Milan Shah — Urmil Research Consultancy — Analyst

Prabir Adhikary — Ratnabali Group — Analyst

Rakesh Shah — Individual Investor — Analyst

Devang Shah — Invest Savvy — Analyst

Gursharan Singh Sethi — GMC Advisors — Analyst

Raghav — Individual Investor — Analyst

Divyam Gupta — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the FY ’23 Earnings Premier Explosives Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Vishal Mehta. Thank you, and over to you, sir.

Vishal Mehta — Stellar Investor Relations

Yes. Thank you. Good afternoon, everyone. I, on behalf of Stellar Investor Relations, welcome you all to Premier Explosives Limited Q1 FY ’23 Earnings Conference Call. We shall be sharing the key operating and financial highlights for the quarter ended June 30, 2022. We have with us today the senior management team of Premier Explosives Limited; Mr. T.V. Chowdary, Managing Director; and Mr. Srihari Pakalapati, Chief Financial Officer.

Before we begin, I would like to state that some of the statements made in today’s discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company’s financial performance have already been e-mailed to you.

Now, I invite Mr. Chowdary to share his initial remarks on the company’s performance for the quarter.

T.V. Chowdary — Managing Director

Thank you, Mr. Vishal, and good afternoon, everybody, and thank you for joining the call. We’ll begin the call with key industry updates, followed by an update on the company’s operational performance during the quarter.

Like we have been mentioning and like you may also be aware of, the opportunity in the defense sector is huge. The government of India has an ambitious defense production target of $25 billion by 2025, including $5 billion from exports by 2025.

Towards defense, the government’s impetus towards defense sector continues to be promising with India’s defense budget for the financial year ’22/’23 at INR5.52 lakh crores. A key component of this is the major push on procurement of weapons and military platforms from domestic producers. Key defense manufacturing players are focusing on supply chain management. And key defense manufacturing companies are currently also focusing on designing and developing various indigenous weapons and special products to boost domestic manufacturing capability and — aligned with the vision of Aatmanirbhar Bharat and reducing the country’s reliance on imports while promoting the same quality — the same high-quality equipment needed by our operations. This focus on becoming self-reliant becomes even more important as we see the overall geopolitical scenario impacting procurement.

To reiterate the numbers, 85,000 crores has been allocated towards domestic capital procurement with 310 defense items reserved for domestic manufacturing. 25% of this, 21,000 crores, has been allocated for procurement through private industry, MSMEs and the start-ups. And Premier being in a unique position of providing energetic materials is associating with all the companies, which are working in building the platforms and other capital equipment. And we look forward for a better and improved future in the coming years.

And coming specifically to recent updates on missiles. Now as we have mentioned earlier, the missiles which were under development by DRDO, that is LRSAM, MRSAM, Astra, NGRAM, QRSAM, all these have come for productionization and we are glad to inform you that Premier is the qualified vendor for the propellant casting of all these enlisted missiles.

Now coming to industrial explosives segment. Like we mentioned on the last call, too, things continued to improve in terms of raw material prices. Raw material price have skyrocketed up to almost 200% in the last one year, which was very difficult to survey when we maintain the supplies as per the commitment. But now things are changing and the prices are stabilizing, and also the supply for the whole sector, pricing of the supplies to whole sector policy and all those have changed. And that has brought a little relief to the industry.

And coming to our company’s performance, we continued to go on our growth track. During the quarter, we have generated healthy cash profit of INR4.1 crores, which are execution run rate improving. And given the nature of our cost structure, the operating leverage of our business will help us to generate better cash flow, which will be utilized towards strengthening our balance sheet.

The change in business mix with the increasing contribution of different segments will augur well for our overall margin. Further, with the pandemic-related disruptions hopefully firmly behind us, we have experienced strong momentum in our aggregation.

And let me take you through the new orders with you during the quarter. We signed an agreement with overseas entity for $13.13 million, which will be delivered within time frame of 18 months of contract date. Back orders from Singareni Collieries Company Limited was INR105 crores for supplying of different types of explosives and other accessories.

Signed deals with MoD army for delivering of NSM for a total worth of INR45 crores. Received order from MoD for manufacturing of 1,500 MTV flares was INR58 crores. These are some of our notable orders.

We are extremely pleased to report that our current outstanding order book as of June 30, 2022, stood at approximately INR446 crores — INR646 crores. It translates into 3.25x of our financial year ’22 revenues.

The dispatches for chaffs and flare were as per our expectations. The other areas where the new missile that is production of Pralay, BrahMos, we have already reached a stage of completing our ToT before entering into commercial bidding. Apart from this, supply towards MRSAM and Astra are progressing and these are dependent on the FIM to be received from customers. And customers have informed at the FIM status has improved, and they’ll be able to supply us for distribution to us, and we can meet the schedule.

And further quantities, which are going to be delivered in the financial year are expected to be 250 numbers of MRSAM and 150 numbers of Astra as per our vendor deal. They will be able to provide the FIM for this quantity. And as we are dependent on FIM only, the moment the FIMs are available, we will be able to execute the same quantities and supplies in the current year.

Now, I request our CFO to share the financial performance.

Srihari Pakalapati — Chief Financial Officer

Thank you, sir. Good afternoon, everyone. The result presentation for the quarter has been uploaded on the stock exchange and other company’s website. I believe you all may have gone through the same.

Now I would present the financial results for the quarter ended June 30, 2022. The revenue from operations for Q1 FY ’23 stands at INR51.8 crores as compared to INR32.8 crores in the corresponding period last year. Our operating profit for Q1 ’23 stands at INR5.81 crores as compared to INR5.98 crores in the corresponding period last year. In Q1 ’23, we reported a net profit of INR1.26 crores to INR1.27 crores in the previous year.

Now coming back to order book. The company’s current total order book stands at INR646 crores, out of which explosive business comprised of INR140 crores. The higher-margin defense segment is at INR365 crores, which is around 56% of our total order book. And the service segment is around INR141 crores. This order book referenced a strong growth over the previous period and is the highest ever level. We are confident that with our continued execution run rate, our forthcoming quarters will continue the growth trajectory.

With this, we now open the floor for questions and answers. Thank you very much.

Questions and Answers:

 

Operator

Thank you. [Operator Instructions] The first question is from the line of Swechha Jain from ANS Wealth. Please go ahead.

Swechha Jain — ANS Wealth — Analyst

Am I audible?

T.V. Chowdary — Managing Director

Yes.

Swechha Jain — ANS Wealth — Analyst

So my first question is, like you said, we have an order book of INR350 crores in the defense category. So I just want to know how much of this will be executed in FY ’23? And also our EBITDA margins have improved, but they are still around 11%. So do you think there is scope for further improving these margins?

And then my — another question was that we were executing the orders from a drag, right, which was mainly development and design. And they were expecting this to get converted into mass production orders. So by when this is possible and for which products and what could be the size? Also, what kind of new order inflow in defense we are expecting this year? And also in the explosives division, demand for INR42 crore order book that will be executed over how much time period, sir?

Srihari Pakalapati — Chief Financial Officer

First question, the total order of defense book is INR356 crores. Most of these will be executed in the next 18 months. So we are expecting about 50% to 55% in the current year itself. First question.

Second question, in the commercial explosives, so we have the order book of 140 crores out of which INR105 crores came from Singareni, which is to be executable in the next 24 months. So we started from the May. So I think it will be executed about 50 crores current year and balance will be next year. So the margins, as you have mentioned, I think there is some improvement. So we are expecting further improvements in the coming quarters.

Swechha Jain — ANS Wealth — Analyst

Okay, okay. Any guidance?

Srihari Pakalapati — Chief Financial Officer

The industrial explosives have depleted last year because of the high raw material costs. Now the raw material costs have stabilized and have come down. Now we are expecting a better margin from industrial explosives, in turn, overall margins.

Yes, the question about the Israeli design and development order, we are happy to inform you that four others we have executed, design and development orders, and two of them are already converted into production orders. And the third one is in the process, which is not included in the order book, but maybe soon we are hoping that they will be added.

Swechha Jain — ANS Wealth — Analyst

So total, there are seven, is it?

Srihari Pakalapati — Chief Financial Officer

Yes. Now it is eight.

Swechha Jain — ANS Wealth — Analyst

Now it is eight. So you said four are executed, two are converted. And then another two, sir?

Srihari Pakalapati — Chief Financial Officer

And the two, one is in the pipeline. Fourth one — fifth one we are expecting it — I think we’ll announce in due course the order.

Swechha Jain — ANS Wealth — Analyst

Okay, okay, okay. Sir, in defense, what kind of order inflow we are expecting this year?

Srihari Pakalapati — Chief Financial Officer

You mean domestic?

Swechha Jain — ANS Wealth — Analyst

Yes, sir.

Srihari Pakalapati — Chief Financial Officer

Yes. The first quarter already — like I have — just to inform others, which are already received. And further to that, yes, we have participated in various other things, which include some new areas like mines and new — the warheads and other new missile systems we have participated. And at this stage, I don’t know, I’ll not be able to specifically give you a figure. But yes, we are expecting the good inflow.

Swechha Jain — ANS Wealth — Analyst

Okay. Fair enough Sir. Thank you Sir. Thank you for answering my queries.

Operator

Thank you. [Operator Instructions] The next question is from the line of Abhishek Poddar from HDFC Mutual Fund. Please go ahead.

T.V. Chowdary — Managing Director

Yes, yes. Based on our activities, present activities, and then the orders and RFPs — RFIs and RFPs, we expect them to move in the same order coming at least two, three years also within the same — growth within the same area.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Right. So if I look at the order book growth, it’s more than like 50% from the last year. So any understanding, the same 50% growth would be maintained or any absolute number that you want to have?

T.V. Chowdary — Managing Director

It will be maintained.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Okay. So sir, by that logic, your order book could reach about INR1,000 crores next year. So that’s something, which is achievable? Or how are you thinking of that, sir?

T.V. Chowdary — Managing Director

It is achievable because we have geared up all our facilities and systems for that. So the past two or three years, we are working and building. One after one, they are coming in maturation. And we are hoping to include further because of the Atmanirbhar India and the negative list where the imports are going to be stopped and then totally it will be shifted to domestic manufacturer.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Right. And what will be our share of negative list items in terms of purchases by MoD?

T.V. Chowdary — Managing Director

Right now, I don’t have in front of me the list, but there are — I think as on that, we have six items, which we are producing or in the process of that in development and which fall under that negative list.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Okay. Understood. And sir, second question is regarding the margins. If I look at the volatility in margins, operating margins were 18% in 1Q ’22, came down to single digits and again we had. So how should we think about it on a steady-state basis? And if you could also give some color on the margins for three different segments, for defense, explosives and services.

T.V. Chowdary — Managing Director

First, I will talk about services. Service expenses, the margins will keep on depleting because it’s a long-term service contract of 10 years, even though there is a price escalation plus the increase in expenses towards salaries and wages of people where we keep on increasing. So as we reach the end of 10 years, there will be depletion in the margins there.

But coming to the defense sector, of course, you know that which is a high-margin area because of the nature of the business involved and the criticality and accuracies we need to follow, we expect better margins there. So these already we are experiencing.

The third area, which is really — which was giving us uncertainty and then problems goes with commercial explosives where the raw material prices were fluctuating. And in fact, not fluctuating, last year they have shot up like anything. It went up by 200%.

But now the matter was taken up with the government with the manufacturers’ consultation and the government also. I think whatever actions were taken by the government, but the prices have come under control because most of the manufacturers are public sector, the raw material suppliers.

So they have come, and then we are hoping that this will be maintained because it’s also very important for explosive industry to survey for the better outlay or output from the coal industry. So definitely, the interest of the nation is involved in it. And we hope that this will continue, what now is achieved. So with this hope, we are expecting better margins in the coming year compared to even better than that.

And also, you have seen that. Now we are shifting, our business share of defense is increasing and the commercial is — commercial will further increase. And automatically, proportionately the margins should go up.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Right. Understood. Sir, any guidance you want to give on the steady-state margins for all businesses combined or separately, either way?

T.V. Chowdary — Managing Director

I can be a little conservative only, I can be. But at least we should achieve a mark of 20%, which is a good figure for the industry.

Abhishek Poddar — HDFC Mutual Fund — Analyst

20% at EBITDA level, sir?

T.V. Chowdary — Managing Director

Yes.

Abhishek Poddar — HDFC Mutual Fund — Analyst

And sir, last question on the execution capability. Given we could see a 50% growth in revenues next year — this year, sorry, do we have the capacity? And if you can talk about the capex plan also?

T.V. Chowdary — Managing Director

Yes. The capex, you know that last year and before last year, we have taken up the investment in Katepally plant, which we will build for defense production. So most of it is invested. But still, there will be further balancing equipment and other things as we keep on getting the orders and then some serial production line equipment we have to build, not only for this, for the export market. Like I was mentioning about now converting into bulk production from design and development stage. That expenditure is there, and we are already incurring. We are on that job already.

And about our other capabilities, particularly human resources. This is required, yes. Definitely, the qualified people. Our recruitment has gone. We are already in the process of recruitment and we have recruited. It is going on further as the order book is building that what is going on. But definitely, it’s an area which we have to really work and see that the quality of work and manpower improves.

And production level manpower, you know one of the products which we produce — the industry is producing, electric detonators. Electric detonators is being phased out by government of India. So I think the manpower level, which is going to be — which is being used for electric detonator manufacturing upgrade, next year diverting to our activities of defense and other areas, which are coming up.

So the numbers, I think we have enough numbers as on date. We’ll be shifting from this operation to that operation. In fact, it would be good, then we know commercial explosives during the rainy season like this earlier, if you see the earlier reports, the turnover and the margins will be low in the rainy season and middle two quarters. But now that will not be there. There will be a consistent output for all these figures. I think we’ll be prepared for that.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Understood. So sir, if you look at the turnover, which is about INR200 crores in ’22, there is a potential for it to grow significantly by 50% or 100% in two to three years’ time. So our execution capability is sufficient for us to execute it.

T.V. Chowdary — Managing Director

Yes. In fact, we have much more capacity because you know that we have handled the service contracts that is the whole plant of Jagdalpur, where the whole plant is operated and run by us and the Sriharikota plant is being operated and run by us. These all contracts are given to us repeatedly based on our operational capability and execution capability only. Only difference is the plant is not owned by us, but the operations all are done by our people. And now we have this done from Jagdalpur service contract. So that trained workforce is available for us to execute and the facility we have built enough capacity to do that.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Thank you, sir and all the best.

Operator

Thank you. [Operator Instructions] Next question is from the line of Praful Siddharth from Shravas Capital. Please go ahead.

Praful Siddharth — Shravas Capital — Analyst

Am I audible?

Vishal Mehta — Stellar Investor Relations

Yes, sir.

Praful Siddharth — Shravas Capital — Analyst

So this may be a little repetitive, but I just wanted to clarify. So to you being confident of order book touching INR1,000 crores the next year, so is it fair to assume that the revenue would probably be doubling by financial year ’24 at bare minimum or would it be even higher?

Srihari Pakalapati — Chief Financial Officer

There is a probability so we can — we are hoping to reach that.

Praful Siddharth — Shravas Capital — Analyst

Got it. Okay. And would it be possible to provide us with EBITDA margins for individual segments, sir, so defense, your explosives and services?

Srihari Pakalapati — Chief Financial Officer

Our facilities are mostly combined facilities so it is different.

Operator

Thank you. Next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital — Analyst

Am I audible?

Srihari Pakalapati — Chief Financial Officer

A little bit louder now.

Akshay Kothari — Envision Capital — Analyst

Yes. So sir, I wanted to know what is the current capacity utilization?

T.V. Chowdary — Managing Director

Utilization of?

Akshay Kothari — Envision Capital — Analyst

Current capacity utilization in explosives?

T.V. Chowdary — Managing Director

We have various plans and various products. The capacity utilization changes from plan to plan.

Akshay Kothari — Envision Capital — Analyst

Okay. So to put it another way, what could be the peak revenue from the current capacities?

T.V. Chowdary — Managing Director

Now we are — on an average, we can say we are at 60% level of utilization. But it’s average, it’s the average of the plant. But if we go plant to plant and we go to the industrial explosives, detonating fuse, DF, we are almost at 100% utilization. And detonator — electric detonator and other areas, we are at 50% utilization. And commercial explosives, that is bulk explosives, we are at 50% utilization. And like that, it varies. Defense, we are at 40% utilization.

Akshay Kothari — Envision Capital — Analyst

Okay. So we won’t need any capex in the medium term to grow, right?

T.V. Chowdary — Managing Director

Yes. No, but see, the product to product, the defense products are different. They are — from product to product, they vary. So depending on that if we have to add, we need to add. For example, mainly, it comes from the testing equipment where it needs some special testing equipment, quality control and all those, the specific — particular product, we have to go for it.

Akshay Kothari — Envision Capital — Analyst

Okay, okay. Secondly, on the competitive intensity, sir, have you seen any competitive intensity rising in the bids which we are making?

T.V. Chowdary — Managing Director

Right now, we don’t see as on it, we don’t see. But we can never say that. There can be others who will try. But one advantage in this industry is gestation period or period for qualification is longer. So any new entrant has to go through the qualification cycle, which we have already passed through and then some. So that gives us a margin compared to them, we will be ahead of them to that extent. I think that is our advantage to us.

Akshay Kothari — Envision Capital — Analyst

Okay. And I understand it would be difficult to tell this, but for what would be our major raw materials for the products, which we are supplying on — major raw materials as per our order book.

T.V. Chowdary — Managing Director

Our major raw materials, ammonium perchlorate for missile products, propellants and all those; and ammonium nitrate for bulk explosives on select basis. These two are the major raw materials. Ammonium nitrate, we are totally dependent on the petrochemical industry and other fertilizer industry, which is now mainly under the government sector. And for ammonium perchlorate, we have our own manufacturing facility capacity and also we procure from external agencies for both. These two are the major raw materials for us.

Akshay Kothari — Envision Capital — Analyst

Okay. And that ammonium nitrate is different from TAN or technical ammonium nitrate somehow?

T.V. Chowdary — Managing Director

Ammonium nitrate, industrial grade ammonium nitrate. Technical grade, there’s– we don’t need technical grade. We need only industrial grade.

Operator

Thank you. [Operator Instructions] Next question is from the line of Milan Shah from Urmil Research Consultancy. Please go ahead.

Milan Shah — Urmil Research Consultancy — Analyst

Am I audible, sir?

T.V. Chowdary — Managing Director

Yes, yes.

Milan Shah — Urmil Research Consultancy — Analyst

Okay. Congratulations for excellent number. Only defense is going to slow in this quarter, but it’s going to revive, I think so. My question is we have a tie-up between three universities for high grade material is it only development in this figure?

T.V. Chowdary — Managing Director

Sorry. We are not able to hear you clearly. Can you please repeat slowly.

Milan Shah — Urmil Research Consultancy — Analyst

We have a tie-up between three universities for high grade material, is it only development in this figure?

T.V. Chowdary — Managing Director

Can you repeat, sir?

Milan Shah — Urmil Research Consultancy — Analyst

We have tie-up with three universities for high grade material, is it only development in this figure?

T.V. Chowdary — Managing Director

No. I think there’s nothing significant to mention about the development.

Milan Shah — Urmil Research Consultancy — Analyst

Okay. And sir, what is the import contained in our raw material or we are going to purchase all indigenous?

Srihari Pakalapati — Chief Financial Officer

No. We are importing at about 20% of the overall requirement as on today. It is not necessarily we have to import. The ammonium nitrate domestic sources are also available. So our dependence on imported raw materials is very, very limited.

Milan Shah — Urmil Research Consultancy — Analyst

Okay. And it is our raw material, as you say, correlated to effective if dollar coke price is increasing and our material price is also increasing…

Srihari Pakalapati — Chief Financial Officer

To dollar, yes, there is some pricing. But most of our imports came through euro. I mean, it has come from euro. The euro has not appreciated so much.

Milan Shah — Urmil Research Consultancy — Analyst

That’s fine. Sir, what is our total debt on this quarter end?

Srihari Pakalapati — Chief Financial Officer

We have a term debt that is INR12. crores, which will be repaid by December. There will be zero term debt. And there is a working capital cash — I mean working capital funds. I mean with regard to the fund limits, we have about INR50 crores. Nonfund limits, we have at INR145 crores, non-funded.

Milan Shah — Urmil Research Consultancy — Analyst

Okay. Sir, are you planning for going to any research and development for any particular segment?

T.V. Chowdary — Managing Director

Development?

Milan Shah — Urmil Research Consultancy — Analyst

Research and development.

T.V. Chowdary — Managing Director

Yes. Well, we have really a lot of work we are doing. Many of the products are in-house we develop there. For example, the countermeasures, which is a major source of revenue today for us, it’s completely developed indigenously in our R&D. And the R&D is continuing on that line further. Similarly, the areas — you know that we are doing a lot of design and development of rocket motors for export. That’s also part of our R&D work.

Milan Shah — Urmil Research Consultancy — Analyst

Sir what is the research expenditure ratio turnover regarding our…

Srihari Pakalapati — Chief Financial Officer

R&D percentage?

Milan Shah — Urmil Research Consultancy — Analyst

Yes. Regarding sales over.

T.V. Chowdary — Managing Director

If we go by the R&D percentage, it will be very, very limited because we are in a hierarchy material business like explosives. So even the R&D work on is developed — done in the pilot scale level in the plant, on the production plant, because the production plants are built to all the safety norms for operations during the development stage. So exactly earmarking and then discerning what is the R&D is a bit difficult other than what we had…

Milan Shah — Urmil Research Consultancy — Analyst

Thank you for taking questions. Thank you, sir.

Operator

Thank you. The next question is from the line of Prabir from Ratnabali. Please go ahead.

Prabir Adhikary — Ratnabali Group — Analyst

Sir, I have a couple of questions. First of all, if I see the contribution of defense to the total revenue, last year, it was roughly 55%. So I want to know like this defense contribution, what would be the defense contribution for FY ’23? And what is the target for you to bring it to? Is it like to take it to 70%? So this is my first question, then I’ll come with the follow-up questions.

Srihari Pakalapati — Chief Financial Officer

Sir, the defense contribution for last year was about 55% of the total turnover, which will be — I mean, it will be increased current year. But the kind of the volumes increase, there you can see the substantial improvement in the defense.

Prabir Adhikary — Ratnabali Group — Analyst

Okay, okay. Sir, in defense, can you please give us an idea about the — each segment, like how much is the contribution from propellants, how much is from chaffs and ammunitions? Can you just break it down for us?

Srihari Pakalapati — Chief Financial Officer

Product-wise, defense except is difficult to give.

Prabir Adhikary — Ratnabali Group — Analyst

Okay. So is it like propellants is the biggest contributor in defense?

T.V. Chowdary — Managing Director

So we have both, propellants and the countermeasures and there are pyro devices, pyrotechnic devices and all those are there. All are contributing.

Prabir Adhikary — Ratnabali Group — Analyst

Okay. So in propellants, there are two kind of propellants, solid and liquid. I guess you have a very high market share in solid. So the kind of missiles are developed by India. So what would be the scope of opportunity for solid propellants and for liquid? And what is your take on it? How much can boil down to this — to your company?

T.V. Chowdary — Managing Director

See, we are not into liquid propellants. We produce only solid propellants and composite propellants, it’s not double based. And about the opportunity, see the defense missiles and systems and all if you look at the recent developments, all are with composite propellant, where Premier is the source for propellant. So that’s the opportunity we have in front of. And liquids are used mainly in the stealth application and where liquid propellants cannot be loaded and kept waiting. They have to be loaded into the rocket before launching. In defense systems, you cannot wait and then launch when an enemy is trying to attack you. So all defenses are going to be composite propellants — solid propellants.

Prabir Adhikary — Ratnabali Group — Analyst

Sir, is it like this cruise missiles perhaps more liquid propellants or am I wrong?

T.V. Chowdary — Managing Director

Beg your pardon?

Prabir Adhikary — Ratnabali Group — Analyst

I’m saying these cruise missiles or these hypersonic missiles that is coming up, so what kind of propellant is being used here and there?

T.V. Chowdary — Managing Director

The same, composite propellants, solid composite propellants.

Prabir Adhikary — Ratnabali Group — Analyst

Okay. Sir, my last question is about your ongoing projects like your presentation is showing a lot of — in a lot of areas where you are developing like these anticline bombs and chaffs and flares and all. So can you please help us in understanding the kind of development projects are going on, which kind of being a large scope for your company going ahead?

T.V. Chowdary — Managing Director

It’s not understood clearly the question. Can you please repeat?

Prabir Adhikary — Ratnabali Group — Analyst

Yes. I’m saying that there are some projects which are being developed by your company. So among them, any — is there any highlight projects, which can bring a lot of opportunity for your company?

T.V. Chowdary — Managing Director

Yes, the present all are like that, whatever will be listed there? All are with opportunity only. You know that in the propellant area, we are already very well established right there. And then parallelly, the new areas which are coming on the mine and the warheads, bombs, these are the new areas which are growing. And we have also added HMX, RDX plants and HMX, RDX now because of the COVID and all those in between travel restrictions and all the expose work are deferred. So now it has become easier and then now we are booking orders for exports and all those. So whatever are listed and all those are high-growth areas.

Prabir Adhikary — Ratnabali Group — Analyst

Okay, sir. Thank you.

Operator

Thank you. Next question is from the line of Rakesh Shah, an Individual Investor. Please go ahead.

Rakesh Shah — Individual Investor — Analyst

So basically, I wanted to know in the explosives segment, revenue uptick has happened, right? So how much of it was from value growth and how much of it was from volume growth?

Srihari Pakalapati — Chief Financial Officer

Basically, the — I think value growth is significant comparatively. And of course, there is very some small volume growth also during the quarter.

Rakesh Shah — Individual Investor — Analyst

Okay. So just a follow-up on that. So what were the average realizations for this quarter compared to last quarter and compared to the same quarter in the last year?

Srihari Pakalapati — Chief Financial Officer

In one of the segments is commercial explosives, I mean the net relation has gone up by almost to 250%, 300%. That contributed significantly for the current year of that particular quarter.

Rakesh Shah — Individual Investor — Analyst

Okay. That is it from my side. Thank you.

Operator

Thank you. The next question is from the line of Abhishek Poddar from HDFC Mutual Fund. Please go ahead.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Sir, a couple of follow-up questions. Sir, if I look at the order book breakup and the time lines of execution that you mentioned of defense at 55% this year and explosives at about 50% this year and service being excluded at seven, eight years, I come up with — on a ballpark basis about INR280 crores to INR300 crores of turnover next year, 2023, I mean. Is that achievable or I’m wrong somewhere, sir?

Srihari Pakalapati — Chief Financial Officer

I think we are — I mean, we are trying to achieve better figure.

T.V. Chowdary — Managing Director

We are achieving.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Okay. Understood. And sir, this EBITDA margin improvement guidance towards, let’s say, high double digits, what will be the key drivers for this improvement?

Srihari Pakalapati — Chief Financial Officer

Basically, the laggards of the last year from the commercial explosives division, which most of the things have been sorted out. The raw material prices are coming down. And the revised contracts have been signed with revenue. So basically the laggards are more or less neutralized and the margins in defense will be continued so that we can have a good margin there definitely.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Sir, at explosives level, were we making EBITDA breakeven on losses last year in ’22?

Srihari Pakalapati — Chief Financial Officer

From ’22, yes. We have made losses because the raw material prices have gone above the selling price. Not only we, everybody suffered that entire explosives industry.

Abhishek Poddar — HDFC Mutual Fund — Analyst

And sir, given you said that defense margin is better than other segments and because your product mix will have a higher defense revenues in ’23, will that also support margins? And how much defense margin is better than other segment margins? Any indication there?

Srihari Pakalapati — Chief Financial Officer

So last year, it is not comparable with the last year, definitely, because last year there are some, I mean, midterm tailwinds in commercial explosives, which has taken some of the defense profits takes also. But that will not be the case in current year. And the profit — I mean, the margins will be much better or it definitely will be continued in defense segment in current year.

T.V. Chowdary — Managing Director

Essential input for you is in the commercial explosives, there are more than 40 manufacturers and competitors, whereas in the defense explosives, we are only one or two. That gives us a better footing.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Okay. Understood. And sir, just last question, some understanding on the space order inflows that we’re expecting.

T.V. Chowdary — Managing Director

Yes, we already got. In addition to that, as you are aware, MFIL, now they are privatizing the satellite launch vehicles and all those and rocket motors building. So we are already tied up with the larger agencies, which have bid for it and we are with them as a sub-vendor. so I think in the coming one or two months, that will be out.

Abhishek Poddar — HDFC Mutual Fund — Analyst

So what could be the opportunity for us in space?

T.V. Chowdary — Managing Director

Opportunities right now, you know the PSLV program. PSLV right now, everything is being done at ISRO. But PSLV program completely they want to outsource. So immediately now, RFPs and all those work for five launches per year.

Abhishek Poddar — HDFC Mutual Fund — Analyst

Understood, sir. Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital — Analyst

Sir, I guess, raw material — due to raw material price rises, there was an impact on margins. So is there any possibility we can — are we hedging somehow these prices? Or how do we go about it?

Srihari Pakalapati — Chief Financial Officer

No. Actually, last year, everybody knows the commodities and — I mean, chemical — I mean the prices have gone up. And this is the peak and now the current is coming down. And I think we should have the hedge on — as it’s current from now.

Akshay Kothari — Envision Capital — Analyst

So do we hedge the commodities, or no, we don’t hedge?

Srihari Pakalapati — Chief Financial Officer

No, we don’t hedge. We go as per the market and we buy whenever it is required.

Akshay Kothari — Envision Capital — Analyst

Okay. Because hedge is not that effective, that must be the reason?

Srihari Pakalapati — Chief Financial Officer

Sorry?

Akshay Kothari — Envision Capital — Analyst

Hedge is not that effective because there must be some difference in what the — how the prices are moving and the hedge we are making.

Srihari Pakalapati — Chief Financial Officer

We are aware that the movement of the commodity prices are very fast, and we don’t see any reason why we should pay — I mean in uncertainty’s time. We are more comfortable to buy in the market whenever it is required.

Akshay Kothari — Envision Capital — Analyst

And sir, on the Vision – 2025, which you have mentioned, you have mentioned that we are going to develop some missile integration. So could you just lay out…

T.V. Chowdary — Managing Director

A little louder, please.

Akshay Kothari — Envision Capital — Analyst

Sorry, sorry. In the vision 2025, which you have mentioned, you have given about missile integration. So who would be our competition? Would it be BDL? What is the opportunity size, if you can lay out something regarding that?

T.V. Chowdary — Managing Director

The missile integration is an activity, which has got two portions. One is the rocket motor assembly; and the second is the assembly of the electronics that is seekers, guidance system on both computers and all those things. So the facility, we’ll be using the facility, but we’ll be partnering with other agencies who are experts in electronics and guidance systems. So that will be the model we will be following in the future. And for that, yes, there are — the deal is also one of the agencies. Right now, we are supplying the rocket motor filling and all those to be in their assembly. But other agencies are also there who have come forward and we have signed MOUs with different agencies.

Akshay Kothari — Envision Capital — Analyst

Okay. And what could be the opportunity size, if you have a number, sir.

T.V. Chowdary — Managing Director

Opportunity size, right now, whatever is there, the developed are with BDL and the new systems and all those, which are coming, difficult to say that because the integration is a different area, which right now, we are not doing it, the different portion. We are doing the rare portion. That is all rocket motors, rear assembly, including the rocket motor hardware station, software initiatives, warheads and others.

Akshay Kothari — Envision Capital — Analyst

Okay, okay. And lastly, sir, you have mentioned that we are tying up with OEMs and not in advanced stages of negotiation to meet the defense offset obligation. So these defense offset obligations are not margin-dilutive assets, right?

T.V. Chowdary — Managing Director

Sorry. Can you repeat?

Akshay Kothari — Envision Capital — Analyst

Yes. So we are tying up with OEMs and are in advanced stages of negotiation to meet the defense offset obligations. So these are not margin-dilutive assets, right?

T.V. Chowdary — Managing Director

On our website, no, we were not mentioning all these things.

Akshay Kothari — Envision Capital — Analyst

No. This is mentioned in your investor presentation.

Srihari Pakalapati — Chief Financial Officer

You’re talking about the margin dilution?

Akshay Kothari — Envision Capital — Analyst

Yes, yes. So I’m just asking that in defense offset obligations, generally what has seen is it is generally margin-dilutive because they don’t give that much margin. So I’m just saying that. Are they not margin dilutive or how does it go in this?

Srihari Pakalapati — Chief Financial Officer

No, we don’t see any margin dilution in defense. As you are aware that we are almost the sole supplier or very few suppliers, but for most of our product. So we don’t — we normally don’t need to compromise on the pricing.

Akshay Kothari — Envision Capital — Analyst

Okay, that is it. Thank you.

Operator

Thank you. The next question is from the line of Devang Shah from Invest Savvy. Please go ahead.

Devang Shah — Invest Savvy — Analyst

Am I audible?

T.V. Chowdary — Managing Director

Yes, sir. Please.

Devang Shah — Invest Savvy — Analyst

Just I wanted to understand that the defense sector that you have mentioned is having a good outlook and the way you are having a very strong order book. But still, if I see your ROE that is not giving that much improvization. So can you throw some more light on that? And what is the outlook that you are expecting from your ROE in the coming years?

Srihari Pakalapati — Chief Financial Officer

Actually, most of the order book was built in past few months, if you see, out of INR350 crores, INR200 crores plus order book came in only in April. So we are in the stage of the execution of the order book. We can see a lot of improvement in coming days. You can see some good improvement in the ROE in the coming days.

Devang Shah — Invest Savvy — Analyst

Can you say any guidance about that based on your order book in the coming years or for FY ’23?

Srihari Pakalapati — Chief Financial Officer

Normally, we don’t give any specific guidance particularly in the margin front.

Devang Shah — Invest Savvy — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Gursharan Singh Sethi from GMC Advisors. Please go ahead.

Gursharan Singh Sethi — GMC Advisors — Analyst

Just wanted to understand regarding the BrahMos missiles, under ToT, we have got something. What is the current status of that?

T.V. Chowdary — Managing Director

Yes. ToT part, now we are at the level of casting the full scale from rocket motor and the static test. Once that is now completed, then we can say that we are ready for resuming the production orders. Otherwise, we are at the end of the ToT.

Gursharan Singh Sethi — GMC Advisors — Analyst

I see. So by when we will be participating or when will be getting orders in that? By when do we think we’ll be able to be ready for it?

T.V. Chowdary — Managing Director

It’s not actually our readiness. We are ready. Like I told you when we have to go for the full-scale motor casting and then firing, we need to get this hardware as refence from the project. They have some issues there, that’s why they are not able to provide. We are waiting every day, we are reminding them to give us. The moment they give us, then we can do it right then. So right now, we are — like I told you, we are at the last stage that is dependent on the project of issuing us the hardware, the PJ-10 it is called.

Gursharan Singh Sethi — GMC Advisors — Analyst

Appreciate that. Sir, in expectation, how big an opportunity is BrahMos opening for us?

T.V. Chowdary — Managing Director

Yes. The size of opportunity, that is available in Internet and all those, I can say you are more knowledgeable. But what problem comes with whatever appears in the Internet and all those, it is not the rocket motor. It is the entire missile system that has the value and all those things. Our part is only the rocket motor part, which is compared to really lower, much lower.

Gursharan Singh Sethi — GMC Advisors — Analyst

That is what I’m asking, sir. For us, how big opportunity it is for this business because this is one item, which is due for major exports.

T.V. Chowdary — Managing Director

We have other opportunities also equally big. I don’t think this is going to be some exceptionally large because today MRSAM, LRSAM, Astra what we are doing we are producing and the orders are in hundreds with us so that also you have a reference and even the Israeli orders what we are announcing and giving, they are also big. So opportunity wise, they are all equal.

Gursharan Singh Sethi — GMC Advisors — Analyst

There was one order from Israel, which was in the pipeline, which we had last time you had said. Has it gone through?

T.V. Chowdary — Managing Director

No. Still we are rectifying the agreement.

Gursharan Singh Sethi — GMC Advisors — Analyst

By when are we expecting it, sir, to happen?

T.V. Chowdary — Managing Director

This month itself it is — already it is overdue.

Gursharan Singh Sethi — GMC Advisors — Analyst

And how big is that opportunity, sir?

Srihari Pakalapati — Chief Financial Officer

Others will come in multiple phases. It’s not that it will be there single order for the large city. But it’s a regular order. It will come in much full time.

Gursharan Singh Sethi — GMC Advisors — Analyst

Right, sir. But how good opportunity would be for us? What sort of a business we can, over a period of time, have from that particular order, for that particular thing?

Srihari Pakalapati — Chief Financial Officer

Yes. Next 18 to 24 months, it will be about INR100 crores plan. I mean, it is a continuous order. But they may not be issuing the order in one chart.

Gursharan Singh Sethi — GMC Advisors — Analyst

Thank you very much.

Operator

Thank you. The next question is from the line of Raghav, an Individual Investor. Please go ahead.

Raghav — Individual Investor — Analyst

I joined in a bit late, so a couple of my questions might be repetitive and apologies for that. So I have a two-part question and maybe one feedback for the management. The first question is just around the operating expenses. We have seen during the quarter year-on-year, it’s grown by INR4 crores. Just wanted to understand what’s driving it and whether it’s going to sustain even in the future.

The second part of the question is more about the margins and what is our outlook for the next nine months given that we have a very — we’ve had a very significant drop this quarter. And just as a feedback. Over the last quarter, we have seen the order book grow by around INR200-plus crores. And we haven’t really seen anything from your end in terms of a notification on the stock exchanges. So I understand the threshold would grow — the threshold for disclosure would grow as our revenue grows, which is primarily driven by the explosives segment. But it will be great if you could still disclose significant orders, which might be below the threshold, but it will be great for investors like me.

Srihari Pakalapati — Chief Financial Officer

First, I would like to request your attention into the stock exchanges. We have given five notifications to the stock exchange regarding the order book updation. We have declared our significant orders during the month of April to April and May. Please reach — that is one part.

Second part, yes, the other expenses have gone up by INR4 crores comparatively. This is because of the two reasons. One, the volumes have gone up from INR32 crores to INR52 crores. That is one part. Second part, there were some exports during the current year — current quarter. The exports have grown by almost double for the export expenses like price and others have gone up significantly. These are the two reasons why the costs have gone up.

Raghav — Individual Investor — Analyst

And do we expect it to sustain over the rest of the year as well, sir?

Srihari Pakalapati — Chief Financial Officer

You’re talking about the other expense. Other expenses, no, depends on the volumes. Most of the things that will include the volumes and exports. So the regular fixed kind of things, fixed expenses, they are more or less fixed, yes. They have not gone up much.

Raghav — Individual Investor — Analyst

Understood, understood. This is clear. Sir then if it is variable cost. The next question that I had was around the margin commentary, say, for the next nine months because at the beginning of the year, I think we were projecting much healthier margins than we delivered in the first quarter. So are we going to still retain that commentary?

Srihari Pakalapati — Chief Financial Officer

Yes, the margins have improved. You can see the margins of the last quarter. I think March quarter was 8%, it has gone up. But still, we are hoping for the better margins in the coming days.

T.V. Chowdary — Managing Director

See, the exports, if you have to compare the businesses, commercial explosives business is like a commodity business. Continuously where we offtake, we keep on producing and supplying against the others.

Whereas the defense, still good production. You build it, build it, build it and then finally after every stage clearance, when you deliver, you build them. Then they appear in the income and then the margin will differ. Otherwise, until they are in the building stage, they don’t appear, neither in the turnovers or in the margin. So it will not be consistent quarter-to-quarter. Will be up and down. The first quarter has been down.

Raghav — Individual Investor — Analyst

Sure. But sir, at an overall level, let us say, at a year-on-year comparison level, do we say this financial year is going to be better than the last in margin terms?

T.V. Chowdary — Managing Director

Yes, definitely. In fact, in earlier, one of the questions I indicated something like we are looking forward for a 20% margin.

Raghav — Individual Investor — Analyst

Right, right. And that’s been our commentary all along.

Operator

Thank you. The next question is from the line of Divyam Gupta, an Individual Investor. Please go ahead.

Divyam Gupta — Individual Investor — Analyst

Am I audible?

Srihari Pakalapati — Chief Financial Officer

A little louder, please.

Divyam Gupta — Individual Investor — Analyst

Sir, can you hear me now?

T.V. Chowdary — Managing Director

Yes.

Divyam Gupta — Individual Investor — Analyst

I would just like to get your opinion on the growing popularity of liquid propellant such as kerosene-based rocket fuel or liquid hydrogen. Is this a threat for our business? Or does it not concern our stream of work?

T.V. Chowdary — Managing Director

It doesn’t concern us because the liquid propellants and kerosene, those are for space applications, not for the defense application. In the space application, already, those are liquid propellants and all those. We are producing the small satellite launch vehicles are the strap-on motors, which are again only solid propellant based. So this shift, what you mentioned, does not affect us.

Operator

Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. T.V. Chowdary for closing comments.

T.V. Chowdary — Managing Director

Yes. Thank you very much, sir, for the interest shown in the company and the concern shown about our business and all those. And it’s been quite informative and educative to us also about the thinking and then to guide us in our thinking process. And we look forward for a better future, and hope to show you off better results in the future. Thank you.

Operator

[Operator Closing Comments]