Paras Defence and Space Technologies' initial public offering (IPO) has seen an overwhelming response from investors on the first day of bidding itself -- on September 21.
It was oversubscribed 16.57 times, and received bids for 11.82 crore equity shares against the offer size of 71.40 lakh shares. The bids were worth more than Rs 2,000 crore -- much higher than the IPO size of Rs 170.77 crore.
The response from retail investors was quite strong as their reserved portion was subscribed 31.36 times, and that of non-institutional investors 3.77 times, while the part set aside for qualified institutional investors was subscribed 1 percent.
Paras Defence designs, develops, manufactures and tests a range of defence and space engineering products and solutions. The Navi Mumbai-based company caters to four major segments of India’s defence sector – defence and space optics, defence electronics, electromagnetic pulse (EMP) protection solutions and heavy engineering.
It is the sole Indian supplier of critical imaging components such as large size optics and diffractive gratings for space applications in India. It manufactures high-precision optics for defence and space applications such as thermal imaging and space-imaging systems. It is the only Indian company to have the design capability for space optics and opto-mechanical assemblies.
The company intends to use the net proceeds of the issue for purchasing machinery and equipment, incremental working capital requirements, repaying certain borrowings and general corporate purposes.
Among the several reasons that helped the issue receive a strong response from investors include the government's Atmanirbhar Bharat and Make-in-India initiatives, diversified products offering with a strong customer base, small issue size, attractive valuations for long- term investors, and a healthy order book.
Also read - Paras Defence IPO: 10 things to know before deciding to subscribe
Here are key reasons highlighted by experts
Akhil Rathi, Vice President, Advisory, Marwadi Shares and Finance
a) Due to the small issue size, a strong demand was seen on the first day.
b) The company offers a wide range of products and solutions for both defence and space applications and is well positioned to benefit from the Atmanirbhar Bharat and Make-in-India initiatives.
c) Considering the FY21 adjusted EPS of Rs 4.05, on a post-issue basis, the company is going to list at a price-to-earnings (P/E) of 43.23, with a market cap of Rs 682.5 crore, which is attractive for long-term investors.
d) The order book is Rs 304.99 crore, as on June 2021, which shows revenue visibility for the company.
e) Paras Defence has a diversified product offering. It has a strong product line and its clients are secure and stable.
Gaurav Garg, Head of Research, CapitalVia Global Research
a) It is well positioned to benefit from the Atmanirbhar Bharat and Make-in-India initiatives.
b) It is a key player in high-precision optics manufacturing for space and defence application in India.
c) It has a strong and diverse customer base.
d) The company expects to generate revenues from in-house drone and space camera manufacturing, thereby lowering reliance on government orders over time.
e) With India trying to reduce its dependency on the import of defence equipment, the firm is poised to grow in the near term.
“We believe the company's long-term prospects to be favourable, owing to the strong government support and increasing private sector investment in the defence sector. Therefore, investors can subscribe to the issue for the medium to long term," Garg said.
Astha Jain, Senior Research Analyst, Hem Securities
a) It is a defence sector company, which is currently looking very attractive. This sector has received strong traction from investors due to the government's increased focus on the sector.
b) The issue size is very small (approximately Rs 171 crore). Hence, the demand- supply play is on, and this makes the subscription figure looks very strong against this small-size issue.
c) No other IPO is open for subscription, which, in turn, leads to more fund diversion towards this.
d) In the past, though not strictly comparable, MTAR Technologies IPO has yielded very strong returns to investors. MTAR has given around 140 percent return from its issue price of Rs 575, which listed in March 2021.
Paras Defence customers include Bharat Electronics, Hindustan Aeronautics, Bharat Dynamics, Hindustan Shipyard, Electronic Corporation of India, Tata Consultancy Services, Solar Industries India, Alpha Design Technologies and Astra-Rafael Comsys.
Foreign customers include Advanced Mechanical and Optical Systems of Belgium, Tae Young Optics Company of South Korea, and Green Optics of South Korea.
The public issue will close on September 23. The price band has been fixed at Rs 165-175 per share.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.