ICRA has upgraded the rating assigned to the Rs. 9.85 crore fund-based limits of Premier Explosives Limited (“PEL”/”the company”) to LBBB+ (pronounced L triple B plus) from LBBB (pronounced L triple B)v. ICRA has assigned an LBBB+ (pronounced L triple B plus) rating to the Rs 12.0 crore term loans of PEL. The outlook on the long term rating is „stable‟. ICRA has also upgraded the rating assigned to the Rs 23.0 crore (enhanced from Rs. 19.0 crore) non fund-based limits of PEL to A2 (pronounced A two) from A3+ (pronounced A three plus). ICRA withdraws the LBBB (pronounced as L triple B) rating outstanding on the Rs 1.47 crore term loans and A3+ (pronounced as A three plus) rating outstanding on the Rs 2 crore short term loans of PEL as the same have been fully repaid by the company.

The rating upgrade reflects the improvement in financial risk profile of PEL supported by steady growth in revenues,healthy profit margins and conservative capital structure. The same have been driven by the consistent performance of the company‟s core businesses – Detonators and Industrial Explosives and steady revenues from the defence segment where PEL primarily manufactures propellants for DRDO (Defence Research and Development Organisation) and from operation and maintenance (O&M) contract with SHAR (Sriharikota range) and Semi Fuel Complex (Jagdalpur) where the margins are relatively high. Going forward, growth in operating income is expected with increasing revenues from new clientele like Neyveli Lignite Corporation (NLC) and from DRDO where PEL has envisaged capacity expansion for manufacturing propellants for tactical missiles. The rating also factors in the rich experience of the promoters in the industry and established presence of PEL in the explosives market which coupled with long standing relationship with reputed clientele results in recurring source of revenues. The demand outlook is supported by major investments expected in the power sector which is likely to boost the demand for explosives from the coal mining industry. However, the ratings are constrained by the small scale of operations of the company impacting scale economics, high competitive pressures in the detonators segment limiting pricing flexibility, high customer concentration and its vulnerability to volatility in prices of ammonium nitrate, the key raw material which constitutes about 70% of the total raw material costs of the company.