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Premier Explosives Ltd.

BSE: 526247 Sector: Industrials
NSE: PREMEXPLN ISIN Code: INE863B01011
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HIGH

63.90

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OPEN 62.15
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VOLUME 60
52-Week high 260.20
52-Week low 56.50
P/E
Mkt Cap.(Rs cr) 65
Buy Price 56.25
Buy Qty 20.00
Sell Price 62.40
Sell Qty 68.00
OPEN 62.15
CLOSE 62.30
VOLUME 60
52-Week high 260.20
52-Week low 56.50
P/E
Mkt Cap.(Rs cr) 65
Buy Price 56.25
Buy Qty 20.00
Sell Price 62.40
Sell Qty 68.00

Premier Explosives Ltd. (PREMEXPLN) - Director Report

Company director report

Dear Members

1. Your directors are pleased to present the 38th annual reportincluding the audited financial statements of your company for the year ended 31st March2018.

Standalone

Consolidated

2017-18

2016-17

2017-18

2016-17

Profit for the year
Operating revenue

26590.85

23029.76

27458.90

23778.44

Other income

220.49

66.82

222.52

69.50

Total revenue

26811.34

23096.58

27681.42

23847.94

EBIDTA from continuing operations

2001.64

2897.68

1955.89

2956.14

% to Operating revenue

7.53%

12.58%

7.12%

12.43%

Profit before tax from continuing operations

1343.94

2202.31

1264.12

2234.94

Profit from discontinued operations after tax

-

55.47

-

55.47

Profit after tax

873.41

1546.14

814.92

1576.43

% to Total revenue

3.26%

6.69%

2.94%

6.61%

EPS (`)

8.42

17.46

7.72

17.80

Appropriations
Retained earnings at beginning of the year

9303.39

7957.25

9425.40

7989.16

Profit for the year Adjustment on acquisition of

873.41

1546.14

814.92

1576.43

Premier Wire

-

-

-

59.81

Products Limited as on June 30 2016 Transfer to general reserve

-

(200.00)

-

(200.00)

Dividend and tax thereon

(384.08)

-

(384.08)

-

Retained earnings at end of the year

9792.72

9303.39

9856.24

9425.40

2. Indian Accounting Standards (Ind AS)

The financial statements of your company up to the year ended March31 2017 were prepared in accordance with Indian GAAP.

With effect from April 1 2017 your company has adopted Ind AS with thedate of transition as April 1 2016. Thus the financial statements for the year 2017-18(with comparative data for previous year 2016-17) have been prepared in accordance withnew accounting standards pursuant to the Ministry of Corporate Affairs notification datedFebruary 16 2015 notifying the Companies (Indian

Accounting Standard) Rules 2015.

3. State of affairs

During the year under review your company's operating revenuehas gone up by 15% to ` 26590.85 lakhs from ` 23029.76 lakhs during previous year. EBIDTAdecreased by 31% to ` 2001.64 lakhs from ` 2897.68 lakhs due to lower realisation fromfew of the explosive products in an unhealthy competitive market. Consequently profitafter tax declined by 44% to ` 873.41 lakhs from ` 1546.14 lakhs.

4. Operations

Production of explosives went up by 9% to 43397 tonnes fromprevious year's 39957 tonnes. Production of detonators increased to 49.79 millionpieces from 48.98 million pieces a year ago which is an increase of 2%. During the yearyour company has for the first time made

Chaffs and supplied to Indian Air Force while there has been a declinein off take of solid propellants for missiles. Operations & maintenance contracts atSriharikota and Jagdalpur have been satisfactory. In July 2018 your company has completedthe 11-year contract at Sriharikota and it is expected the contract would be extended foranother 10 years.

5. Capital expenditure

During the year the company incurred a capital expenditure of `471.95 lakhs for defence and non-defence products. There have been deductions from fixedassets for an amount of ` 30.57 lakhs. Capital work in progress has gone up by ` 1210.21lakhs.

6. Dividend

Your Board in their Board meeting held on May 23 2018 hasrecommended a dividend of ` 2.50 per share (25%) and this proposal is subject to yourapproval at the ensuing Annual General Meeting.

7. Share capital and reserves a) Share capital

During the year your company raised equity share capital by way ofqualified institutional placement (QIP) by issuing 1651000 equity shares of ` 10 each at` 400 per share including a premium of ` 390 per share.

Your company also made preferential allotment of 127564 equity sharesof ` 10 each at ` 408 per share including a premium of ` 398 per share to promoters(75020 shares) and others (52544 shares). Thus the equity share capital increased to `1063.71 lakhs as at 31.03.2018 from ` 885.86 lakhs as at 31.03.2017.

b) Share warrants

During the year your company made preferential allotment of135100 warrants each convertible into one equity share of ` 10 each at ` 408 per shareincluding a premium of ` 398 per share to promoters (100100 shares) and others (35000shares).

c) Fair value / Revaluation surplus As provided in ‘Ind AS101 First-time Adoption of

Indian Accounting Standards' your company as the first timeadopter of Ind AS has elected fair value of freehold land as its deemed cost as at thedate of transition to Ind AS i.e. April 1 2016. In view of this the amount ofrevaluation surplus arising upon revaluation of freehold land as at December 31 2016 hasbeen nullified during the year 2017-18.

8. Deposits

Your company has not accepted any deposits during the year andthere were no deposits outstanding as at end of the year.

9. Material changes and commitments after the reporting period

Participation in RFI

Your company has submitted two bids to Ministry of Defence formanufacture of ammunition under ‘Make in India' initiative. If successful theorder would be for a period of ten years and your company has made technology tie up withforeign original equipment manufacturers (OEMs).

10. Subsidiary companies Jointly controlled entity and consolidatedfinancial statements a) PELNEXT Defence Systems Private Limited a 100% subsidiary company

Incorporated on July 15 2016 PELNEXT is expected to be operated asa special purpose vehicle in defence explosives business. The company incurred a net lossof ` 0.45 lakh during 2017-18 (` 0.42 lakh during 2016-17). As on 31st March 2018Premier Explosives Limited held 10000 Equity shares in PELNEXT representing 100% ofequity share capital

. b) Premier Wire Products Limited (PWPL) an 80% subsidiary company

PWPL is engaged in manufacture of Galvanised Iron (GI) Wirecatering to the requirements of detonator-manufacturers including Premier ExplosivesLimited. The company's revenue for the year 2017-18 was

` 1035.66 lakhs and there was a loss of ` 68.33 lakhs (Revenue of `1154.11 lakhs and net profit of ` 17.94 lakhs during previous year).

As on 31st March 2018 Premier Explosives Limited held 5200000Equity shares in PWPL representing 80% of their equity share capital.

c) BF Premier Energy Systems Private Limited (BFPES) a 50% jointlycontrolled entity This joint venture is yet to commence commercial operations. Thecompany incurred a net loss of

` 0.72 lakh during 2017-18 (` 8.08 lakh during the year 2016-17). Yourcompany and Kalyani Strategic Systems Limited each hold 100000 equity shares in theshare capital of BFPES as on 31st March 2018.

d) Consolidated financial statements Your company has preparedconsolidated financial statements in accordance with section 129 (3) of the Companies Act2013.

Details of consolidated entities are given in the

Annexure 1 Form AOC-1: Statement containing salient features of thefinancial statements of subsidiaries / associate companies / joint ventures.

11. Future outlook

Recent release of Draft Defence Production Policy 2018 contains helpfulguidelines that promote indigenisation and private sector participation in buildingdefence ecosystem which augurs well for your company's business. After facing theteething troubles with GST and demonetisation the economy is expected to take growth pathagain in near future. Demand uptick for mining power and infrastructure is expected tooffer better opportunities for your company's explosive products.

12. Board matters

A. Directors' responsibility statement pursuant to section 134 ofthe Companies Act 2013 Your directors confirm that a) the applicable accounting standardshave been followed; b) the accounting policies selected were applied consistently and thejudgments and estimates made are reasonable and prudent so as to give a true and fair viewof the state of affairs of the company as at March 31 2018 and of the profit of thecompany for the year ended on that date; c) proper and sufficient care has been taken forthe maintenance of adequate accounting records in accordance with the provisions of theAct for safeguarding the assets of the company and for preventing and detecting fraud andother irregularities; d) the annual accounts have been prepared on a going concern basis;e) adequate internal financial controls have been laid down have been followed and havebeen operating effectively; f) proper systems have been devised to ensure compliance withthe provisions of all applicable laws and those systems have been adequate and operatingeffectively. B. Declaration of independent directors All the independent directorsconfirmed that they have met the criteria of independence as required u/s 149 of theCompanies Act 2013. C. Board meetings During the financial year 2017-18 there were 6Board meetings held on 14th April 2017 12th May 2017 27th May 2017 18th August 201729th November 2017 and 10thFebruary 2018.

D. Board evaluation

Criteria and other details of Board evaluation have been provided inthe Annexure -2 Report on Corporate Governance.

E. Change in directors a) Resignation of director

During the year Col Vikram Mahajan resigned as Director (Marketing). b)Rotation of director Mr. T.V.Chowdary Deputy Managing Director retires by rotation at theensuing Annual General Meeting and being eligible offers himself for reappointment. TheBoard recommends reappointing him as a Director. c) Reappointment of director Current Termof Dr.Amarnath Gupta as Chairman and Managing Director is expiring on February 13 2019.The Board recommends his reappointment as Chairman and Managing

Director with effect from February 14 2019 for a term of three years.

F. Company's policy on appointment and remuneration of directorsa) Criteria for appointment of directors Director must have relevant experience infinance law management sales marketing administration research corporategovernance technical operations or other disciplines related to company's business.

Director should possess the highest personal and professional ethicsintegrity and values. Director must be willing to devote sufficient time and energy incarrying out their duties and responsibilities.

Nomination and Remuneration Committee shall identify and ascertain theintegrity qualification expertise and experience of the person for appointment asdirector and recommend to the Board his / her appointment or re-appointment.

The committee has discretion to decide whether qualification expertiseand experience possessed by a person are sufficient or satisfactory for the concernedposition.

While appointing an independent director Nomination and RemunerationCommittee shall consider the ‘independence' of the person also in addition tothe above. b) Policy on directors' remuneration i. Policy The Company shallremunerate its directors key managerial personnel senior management other employees andworkers appropriately to retain and motivate them as well as to attract new talent whenrequired. ii. Components of remuneration Remuneration package shall include fixedcomponent for all employees and variable component to the extent desirable andpracticable. iii. Fixed remuneration

It shall be competitive and based on the individual's educationexperience responsibilities performance industry benchmark in the area etc.

Fixed remuneration shall comprise of basic salary and other allowanceslike house rent allowance conveyance allowance etc. which are calculated as certain %'s of basic salary.

iv. Variable remuneration

It is paid to encourage the employees to achieve set targets andvariable remuneration shall be determined on the following basis:

Category Nature Basis of variable remuneration
Whole time Directors Commission X% of Profit in a year during the contract period (% as recommended by Board and approved by Shareholders.)
Management Team Profit sharing bonus X% of Profit divided among them in proportion of their basic salary (% as decided by Committee of Whole time Directors)
(CFO President Vice President Company Secretary GM)
Officers (Below GM level) Profit sharing bonus X% of Profit divided among them in proportion of their basic salary.(Minimum period of services and other conditions for eligibility are decided by Committee of Whole time Directors)
Staff and Workers Production incentive Quantity of production as per the Wage Agreement revised every 3 years at Peddakandukuru (Those who are engaged in production and allied activities are eligible.)

v. Statutory benefits

Employee benefits like Contribution to Provident Fund Gratuity BonusEmployees State Insurance Workmen

Compensation etc. shall be provided to all eligible employees. vi.Perquisites and other benefits

Perquisite Amount
Reimbursement of medical expenses for self and family / Medical allowance Up to one month basic salary in a year to Whom ESI is not applicable
Mediclaim and personal accident insurance Leave travel allowance Reasonable coverage to whom ESI is not applicable Workers - as per wage agreement
Others - one month basic salary p.a.
Use of Company car with driver or reimbursement of driver salary fuel maintenance and insurance Telephone at home Club fee For Directors-as recommended by Board and approved by Shareholders
Gas electricity water servant security gardener and soft furnishing. (Up to 10% of basic salary) For Management team-as approved by Committee of Whole time Directors

vii. Increments

Increments are made taking into account the individual performanceinflation and company performance. Workers are given Variable Dearness Allowance as perConsumer Price Index semi-annually on 1st of April and 1st of October.

Wages of workers at Peddakandukuru are revised every 3 years as per theagreement between the management and unions.

Increments of other employees are made effective 1st April every yearas approved by Committee of Whole time Directors upon recommendation of heads ofdepartments.

Mid-year increments are given in exceptional cases as approved by CMDupon recommendation of concerned director and head of department. viii. Remuneration toindependent and non-whole time directors Remuneration consists of sitting fee in respectof the Board and Committee meetings attended at the rates approved by the Board andwithin the applicable provisions of the Companies Act 2013. ix. Service contracts noticeperiod and severance fees: Executive directors have entered into a service contracts withthe company. The tenure of the contract is three years. Reappointment is done by the Boardbased on the recommendation of the Nomination and Remuneration Committee. Notice period isas mutually agreed between the director and the Board.

None of the directors is eligible for severance pay.

G. Formal annual evaluation by the Board

The Board has evaluated its own performance and of individualdirectors. The details as required u/s 134(3) (p) of the Companies Act 2013 arementioned in the Annexure 2: Report on Corporate Governance.

13. Transfer of shares to IEPF

As required under Section 124 of the Companies Act 2013 46902equity shares in respect of which dividend has not been claimed by the members for sevenconsecutive years or more have been transferred by the Company to the Investor

Education and Protection Fund Authority (IEPF) during the

financial year 2017-18. Details of shares transferred have beenuploaded on the website of the Company.

14. Auditors a) Independent auditors

The Members at the 37th Annual General Meeting of the Company heldon September 27 2017 had appointed M/s. Majeti & Co. Chartered Accountants

(Firm Registration No. 015975S) as the Statutory

Auditors of the Company to hold office for a term of five years i.e.from the conclusion of the said Annual General Meeting until the conclusion of 42nd AnnualGeneral Meeting of the Company to be held in 2022 subject to ratification of theirappointment by the shareholders every year. The Ministry of Corporate Affairs vide itsNotification dated May 7 2018 has dispensed with the requirement of ratification ofAuditors' appointment by the shareholders every year. Hence from that date onwardsthere is no requirement of shareholders' resolution for ratification ofAuditors' appointment.

b) Internal auditors

M/s M. Venkata Ratnam & Associates Chartered Accountants were theinternal auditors for the year 2017-18 and they being eligible the Board has reappointedthem for the year 2018-19.

c) Cost auditors

M/s S. S. Zanwar & Associates Cost Accountants were costauditors for 2017-18 and they being eligible the Board has re-appointed them for the year2018-19 and their remuneration is subject to the ratification of shareholders in theensuing annual general meeting. The Board recommends ratification of their remuneration.

d) Secretarial auditor

Mr. K.V. Chalama Reddy a practicing company secretary was thesecretarial auditor for the financial year 2017-18 and he being eligible the Board hasreappointed him for the year 2018-19.

15. Independent auditors' report

There are no qualifications reservations or adverse remarks madeby the Independent auditors in their report.

16. Ratings

ICRA has reaffirmed the long-term credit rating at ‘[ICRA] A(Stable)' and short-term credit rating at ‘[ICRA] A1'. Dun & Bradstreetenhanced rating ‘5A2 Condition: Good'.

17. Management discussion and analysis

A report on management discussion and analysis is placed as aseparate section in the annual report.

18. Corporate governance

Pursuant to Schedule V of the Securities and Exchange Board ofIndia (Listing Obligations and Disclosure Requirements) Regulations 2015 a detailedreport is given at Annexure-2 along with the auditors' certificate in the Annexure-3and

CEO and CFO certificate in the Annexure-4.

19. Secretarial audit report

In accordance with section 204 of the Companies Act 2013 thesecretarial audit report is attached as Annexure-5 and there are no qualificationsreservations or adverse remarks made by the Independent auditors in their report.

20. Conservation of energy technology absorption and foreign exchangeearnings and outgo Information required under Section 134(3) (m) of the Companies Act2013 read with Rule 8 of the Companies (Accounts) Rules 2014 is given in Annexure- 6 tothis Report. 21. Particulars of loans guarantees or investments in terms of section186 of the Companies Act 2013

Your company a) has not given any loan to any person or other bodycorporate other than usual advances for supply of materials and services b) has not givenany guarantee or provide security in connection with a loan to any other body corporate orperson and c) has not acquired the securities of any other body corporate by way ofsubscription purchase or otherwise exceeding sixty percent of its paid-up sharecapital free reserve and securities premium account or one hundred percent of its freereserves and securities premium account whichever is more.

22. Particulars of contracts or arrangements with related parties Contractsor arrangements with related parties referred in section 188(1) of the Companies Act 2013have been at arm's length and the particulars are reported in the Annexure - 7.

23. Risk management policy

Your company recognizes Risk Management as a very important part ofbusiness and has kept in place necessary policies procedures and mechanisms. The companyproactively identifies monitors and takes precautionary and mitigation measures in respectof various risks that threaten the operations and resources of the company. The RiskManagement Policy of the company is available at the link http://www.pelgel.com/prm.htm.

24. Vigil mechanism policy

Pursuant to the provisions of Section 177 (9) and (10) of theCompanies Act 2013 a Whistle Blower policy has been established. The policy is availableat the website link http://www.pelgel.com/pwb.htm.

25. Corporate social responsibility (CSR) activities

During the year 2017-18 your company has spent an amount of ` 33.19lakhs (` 26.89 lakhs in previous year) on CSR activities against the minimum mandatoryamount of

` 33.13 lakhs being 2% of average profit for the last three years.

Details of CSR activities are given in Annexure - 8.

26. Disclosure under the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013 (Nirbhaya Act)

There are 95 women employees in your company as on 31st March 2018(100 a year ago) and your company has formulated an anti harassment policy to ensure safeworking environment. Your company also has set up an Internal Complaint Committee toredress complaints of women employees. Details of awareness programmes and complaints arelisted in Annexure - 9.

27. Disclosure of significant and material orders passed by regulatorsetc. under Rule 8(5)(vii) of the Companies (Accounts) Rules 2014

There were no significant and material orders passed by theregulators or courts or tribunals impacting the going concern status and company'soperations in future.

28. Disclosure of internal financial control systems and their adequacyRule 8(5)(viii) of the Companies (Accounts) Rules 2014

The company has in place adequate internal financial controls withreference to financial statements through - reviews of operations by Board and committees- vetting of various reports by management - periodical internal audits - setting andimplementing financial policies - checks and balances in the ERP system and othermeasures.

29. Extracts of annual return and other disclosures under the Companies(Appointment & Remuneration) Rules 2014

Extract of Annual Return in form no. MGT-9 as per Section 92(3) of theCompanies Act 2013 and Rule 12 (1) of the Company (Management & Administration)Rules

2014 is annexed hereto and forms part of this report as Annexure-10.

30. Remuneration of directors and employees and related disclosures

Remuneration is paid to directors and employees in accordance withthe remuneration policy of the company and applicable statutory provisions. Particularsrequired u/s 197(12) of the Act read with rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 are given as Annexure-11.

31. Listing on stock exchanges

Your Company's shares are listed on the Bombay Stock exchange(BSE) and National Stock Exchange (NSE). During the year under review your company'sshare price on BSE had moved between a maximum of ` 526.30 and a minimum of ` 317.85. Theprice closed at ` 335.00 on March 28 2018 a decrease of 4% over the price of ` 349.90 onMarch 31 2017.

On NSE your company's share price had moved between a maximum of` 526.40 and a minimum of ` 319.55. The price closed at ` 335.55 on March 28 2018 adecrease of 4% over the price of ` 350.05 on March 31 2017.

The strength of shareholders has increased from 9715 on 31.03.2017 to10258 on 31.03.2018.

32. Industrial relations

Your directors thank all the employees for their cooperation andthe contribution towards harmonious relationship and progress of the company.

33. Acknowledgements

Your directors place on record their appreciation of the continuedsupport and cooperation from all employees customers suppliers financial institutionsbanks regulatory authorities and other business associates.

Dr. A.N. Gupta

Chairman & Managing Director

Secunderabad
09.08.2018