PREMIER EXPLOSIVES LTD - BUY

Premier Explosives is a 30 year old Secunderabad based manufacturer of Explosives & Accessories.Company having three plants in Andhra Pradesh one each in Maharastra and  Madhya Pradesh.PEL is producing a wide range of explosives used in Mining and Defense.Over the past years company established as dominant player in this strictly controlled industry with indigenously developed technology and a well established marketing network.PEL producing various types of  electric & non-electric detonators , detonating cord & pentolite boosters, Smoke markers and other bulk explosives.Company having more than 90 explosives storing facilities across the country approved by the authorities and also possessing close to 125 explosive vans for the timely delivery of its products.In defense segment PEL having business alliances with Satish Dhawan Space Centre (SHAR) Sriharikota, SFC,Jagdalpur and  Armament Research & Development Establishment (ARDE )Pune for supplying missile fuel .Company also started export in recent times which shows a growth of 40% last year.A major portion of its revenue is generated from the mining sector .Even the mining activities are disrupted in many parts especially in Andra Pradesh ,company showing improvement in its operations.Now the restrictions on mining operations are expected to  lift at least partially in next few months which will help the company going forward.To minimize the effect of such restrictions company is now eying more exports and increasing its operation in defense sector.Government’s new policy to permit more participation for private players in defense sector is another positive for the company.Being an established player in a highly regulated industry company enjoying an early mover advantage.Due to the nature of this industry the entry barrier of new players is also very high.For the last financial year PEL posted a turnover of Rs.108 Cr ,a net profit of Rs.12 Cr  and an EPS of Rs.15/-. Company also declared a dividend of 25 %.At CMP of  Rs.73 it is trading at a P/E of below 5.Considering the entry barrier in this industry,its strong relations with government owned defense companies and the chances of some relaxation in mining activities – recommending a BUY only for  long term investors  at CMP of Rs.73/-.