Paras Defence and Space Technologies has received a ‘subscribe’ rating for its initial public offering from a majority of based on its wide range of products and solutions for defence and space applications, research & development capabilities, government support, increasing private sector investment and a healthy orderbook.
The Rs 170.77 crore issue is open from September 21 to September 23. The offer comprises a fresh issue of shares for Rs 140.6 crore by the company and an offer for sale of shares for Rs 30.17 crore by existing shareholders.
The price band has been fixed at Rs 165-175 per equity share. The company mopped up Rs 51.23 crore from five anchor investors on September 20.
Net proceeds of the fresh issue will be used for purchase of machinery and equipment, incremental working capital requirements, and repaying debt, besides general corporate purposes.
“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,” KRChoksey Shares And Securities said, recommending a ‘subscribe’ rating for the Paras Defence IPO. “Additionally, increased customer demand for the company’s space optics products would boost revenue and profitability.”
Choice Broking assigned a ‘subscribe’ rating for the issue, considering its niche product profile and technology, dominant market positioning and vast growth potential.
“Considering the product profile, Paras Defence doesn’t have any peers in the listed space,” Choice Broking said.
Paras Defence is a private company that 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 only Indian supplier of critical imaging components such as large size optics and diffractive gratings for space applications in the country. It is the only Indian company to have the design capability for space optics and opto-mechanical assemblies.
The company’s financial performance has been volatile, with operating revenue falling in FY20 and FY21 due to Covid-19. In FY21, Paras Defence clocked revenue growth at a CAGR of 1.3 percent to Rs 143.3 crore during FY18-FY21 and profit grew at a CAGR of 14.4 percent to Rs 15.7 crore. Earnings before interest, tax, depreciation and amortisation increased at a CAGR of 1.8 percent to Rs 43.4 crore during FY18-FY21.
“However, the company is currently operating at 90 percent of its capacity and has built up inventories to cater to future demand and act as a hedge against the impact of any unforeseeable disruption. The company’s debt protection matrix seems adequate, with debt/equity at 0.6x at the end of FY21 and the company’s intent to bring it further down and move towards a more debt-light balance sheet,” said KRChoksey.
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Given that most of the company’s orders are executable within the next 12-18 months, its orderbook of Rs 305 crore provides solid revenue visibility, KRChoksey said.
Marwadi Financial Services assigned a ‘subscribe’ rating to the IPO, saying the company offers a wide range of products and solutions for defence and space applications and is well-positioned to benefit from the government’s Aatmanirbhar Bharat and Make in India initiatives.
“Considering the FY21 adjusted earnings per share of Rs 4.05 on a post-issue basis, the company is going to list at a price-to-earnings of 43.23 with a market cap of Rs 682.5 crore,” said Marwadi Financial.
Hem Securities recommended a ‘subscribe’ for listing gains and the long term.
Paras Defence has a diversified customer base that ranges from government arms and organisations involved in defence and space research to public sector undertakings such as Bharat Dynamics, Bharat Electronics and Hindustan Aeronautics and private entities such as Tata Consultancy Services, Astra-Rafael Comsys, Solar Industries India and Alpha Design Technologies.
The company’s international customers include Advanced Mechanical and Optical Systems of Belgium, Chaban (Israel), Tae Young Optics Company (South Korea) and Green Optics (South Korea).
Currently, it operates two manufacturing facilities in Maharashtra, located at Nerul (Navi Mumbai) and Ambernath (in Thane).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.