Case Name :      Premier Explosives: Finance for Organic Growth

Authors :           Maram Srikanth, Palanisamy Saravanan

Source :              Ivey Publishing

Case ID :           9B16N001 / W16078

Discipline :        Finance

Case Length :    13 pages

Plagiarism : NO (100% Original work)

In February 2015, Premier Explosives Limited (PEL) was preparing for a sudden expansion. The Indian company was the sixth-largest manufacturer of explosives in the country and also made defence products such as solid propellants and pyrogen igniters. PEL had many prominent customers in the mining industry and defence business, and exported bulk explosives to a number of countries. PEL signed a joint venture agreement with the well-regarded Kalyani Group, to manufacture additional defence products. To fund the expansion, PEL approached the Commercial Bank of India for a preferential allotment of equity shares to mobilize ₹510 million and an enhancement of working capital limits from ₹460 million to ₹740 million. The Central Bank of India’s president of the investment banking group perused the proposal, but was presented with a dilemma due to the recent slowdown in the mining and infrastructure sectors — the main industries that used PEL’s products. Given the decline and the associated risks, should the banker reject the funding proposal for PEL to expand?