Paras Defence and Space Technologies shares had a blockbuster debut on the bourses on October 1, rising 185 percent to Rs 498.75 from its issue price of Rs 175 on the BSE. Since it was a 5 percent rise from the opening price of Rs 475, the share got locked in upper circuit.
In the Trade-to-Trade (T2T) segment, the price movement is restricted to 5 percent upside or downside from the opening price as the IPO issue size is below Rs 250 crore. Paras Defence is listed in this segment.
Is it overpriced now?
“The bumper listing gains seem justified as Paras stands well as a dominant player, catering to the space and defence sectors and it will also get huge benefits from the central government's flagship programmes like Atmanirbhar Bharat and Make-in-India initiatives, which have a huge export potential," said Prashanth Tapse, VP, Research, Mehta Equities.
Considering the market momentum and demand for niche products of companies like Paras Defence, the listing valuation is justified, said Tapse. “We also assume that spending on the defence and aerospace segments by the government has been on the rise and this augurs well for this company for the long term, he said.
On the listing day itself, the stock generated good wealth for investors. Those who had invested Rs 14,875 for 85 shares (one lot) are now richer by Rs 42,393.75.
Experts largely advised to either go for partial profit booking or hold the remaining shares for the long term, or to hold all shares for the longer term, given the government focus on defence and space, the company's wide products portfolio, strong client relationship and high entry barriers in segments where it operates.
If we consider the listing data for the current decade (since 2011), Paras Defence leads the ‘stellar debut’ pack. It is followed by Salasar Techno Engineering, Astron Paper, Burger King India, IRCTC, Happiest Minds, Avenue Supermarts and Tatva Chintan Pharma Chem, all of which made their debut with more than 100 percent gains on listing day.
‘Hold listing day gains’
"Paras Defence caters to optics, electronics, EMP (electromagnetic pulse) protection solutions and heavy engineering segments in the defence and space sectors, where the government’s outlays are expected to increase at 16 percent CAGR to over $14.5 billion by 2031. Paras would be specially focusing on optics and drones, which now forms around 67 percent of the order book (Rs 305 crore)," said Hemang Jani, Head, Equity Strategy, Broking & Distribution, Motilal Oswal Financial Services.
The company is looking to tap import substitution opportunities under Atmanirbhar Bharat and ‘Make-In-India’ initiatives, he said.
"Hence, we like Paras, given its complex/wide product portfolio, presence in niche defence/space, strong client relationship and high entry barriers," he said.
Given the huge impetus to the defence sector by the government, the stock presents a good opportunity for investors to participate in this niche space, Jani feels.
Gaurav Garg, Head of Research, CapitalVia Global Research, also advised investors to hold their listing gains as the company is fundamentally strong.
“The company’s outlook looks strong on the government emphasis on defence and space technology. The company can get more orders from DRDO (Defence Research and Development Organisation), Bharat Electronics, BEML, ISRO (Indian Space Research Organisation) and Hindustan Aeronautics, which, in turn, will help it in the long term. Its promoters, Virji Shah and Munjal Sharad Shah, hail from a strong pedigree," Garg said.
The Rs 170.77 crore public issue had a record-breaking demand as the offer was subscribed 304.26 times, the highest subscription among IPOs launched at least since 2007.
‘Good revenue visibility ahead’
“We advise investors to partially book 50 percent profits, considering the bumper listing and hold the rest for the medium-term play as the market always rewards players which have high growth potential," said Tapse.
Astha Jain, Senior Research Analyst, Hem Securities, also advised investors to go for partial profit booking and keep partial allotment for the long term as the company has a wide range of products and solutions for both the defence and space applications.
“The company, being one of the few players in the high-precision optics manufacturing for space and defence application in India, has strong research & development capabilities, with a focus on innovation and is well-positioned to benefit from the Atmanirbhar Bharat and Make-in-India initiatives by the government. Also, the company's strong order book gives good revenue visibility, going forward," she said.Disclaimer: The views and investment tips by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.