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Paras Defence And Space Technologies Limited IPO

Add to Calendar 2021-09-21 12:00 AM 2021-09-23 12:00 AM Asia/Kolkata Paras Defence And Space Technologies Limited IPO Paras Defence And Space Technologies Limited India

Paras Defence and Space Technologies Ltd – IPO

 

The secondary markets have been scaling new heights each week and the primary markets don’t want to be left behind. Another IPO will be hitting the markets this week. Paras Defence and Space Technologies Ltd (Paras Defence) is coming out with an IPO with an issue size of Rs. 171 crores which comprises of a fresh issue of Rs. 141 crores and an offer for sale of Rs. 30 crores.

 

Issue Details:

Ø  Dates: September 21, 2021 to September 23, 2021

Ø  Price Band: Rs. 165 to Rs. 175 per share

Ø  Minimum Lot: 85 shares

Ø  Minimum Application Amount: Rs. 14,875

 

Objects of the Issue

The proceeds of the fresh issue are expected to be utilized towards:

Ø  Purchase of machinery and equipment worth Rs. 35 crores in FY22

Ø  Funding the incremental working capital requirements of Rs. 24 crores in FY22 and Rs. 36 crores in FY23

Ø  Repayment or prepayment of all or a portion of certain liabilities up to Rs. 12 crores in FY22

Ø  General corporate purposes

 

Company Overview

Paras Defence, incorporated in 2009, is one of the leading ‘Indigenously Designed Developed and Manufactured’ (IDDM) category Indian company which caters to five major segments of the Indian defence sector - Defence and space optics (high precision optics for thermal and space imaging), Defence electronics (used for defence applications including sub systems for border defence, missiles, tanks, etc.), Electro-magnetic pulse (EMP) protection solution (EMP racks and filters for protection of data and power lines), Heavy engineering (components for rockets, missiles, etc.) and Niche technologies (partnered with global tech companies to indigenize advance technologies in defence and space). In terms of manufacturing capabilities, the company has two facilities in Maharashtra, located in Navi Mumbai and Thane.

 

Samco’s Analysis

Paras Defence stands out as the only Indian company with the design capability for space optics and optomechanical assemblies. It is also one of the few companies with specialized technology capabilities such as manufacturing EMP protection and is expected to be an integral stakeholder in a majority of future sourcing of defence & space optics and EMP protection solutions. Moreover, with the government’s Atmanirbhar Bharat and Make in India initiatives the firm is well poised to benefit. Thus, on paper, the company looks decent. However, a slightly different picture comes forth when the financials are considered.

 

Revenues from operations have been continuously declining over the past three years, from Rs. 154.40 crores in FY19 to Rs. 143.33 crores in FY21. However, the numbers for FY21 should be looked at keeping in mind the closure of operations for about 4-5 months due to the pandemic. In terms of profitability, the company saw a dip too. Net Profit at Rs. 15.79 crores in FY21 came in lower than Rs. 18.97 crores reported in FY19. Resultantly, the net profit margin slid to 11.02% in FY21 from 12.29% in FY19. Similarly, returns to shareholders also took a hit, with ROE almost halving to 9.12% in FY21 from 15.93% in FY19.

 

On the upside, Debt-to-Equity (D/E) has been on a downtrend despite the company taking on additional debt. It appears that the net worth has expanded at a faster pace than debt. The D/E ratio dropped to 0.62x in FY21 after briefly rising to 0.75x in FY20 from 0.71x in FY19. The cash generated from operations also showed a drastic improvement and turned positive in FY21 for the first time in three years. Expectedly, cash and cash equivalents reported on the balance sheet improved to Rs. 4.68 crores in FY21 from Rs. 0.18 crores in FY19.

 

The company has an order book of just over Rs. 300 crores, but a significant portion of revenue is derived from a limited number of customers. Loss of any major contract may materially affect financials. Moreover, the order book seems to be inclined towards government orders and timely cash recovery could be a challenge depending on their budget allocation towards Defence. However, the management did indicate that they expect to reduce dependence on government orders by increased contribution from space optics which includes in-house manufacture of drones & space cameras.

 

Samco’s Stance

While Paras Defence has a good presence in the space it operates, the financials are a tad bit worrisome. A continued dip in revenue going forward could hamper timely repayment of liabilities and interest. Concentration of government orders in its books also makes revenues susceptible to fluctuations in the budget allotted for defence and other government entities it caters to. Nevertheless, with the Atmanirbhar Bharat and Make in India initiatives, the tide has changed in its favor. It also plans to reduce dependence on government orders over the next few years.

 

With no listed competitor and limitations in relevant financial information of unlisted peers, it is not possible to make a fair assessment of its valuation on a comparative basis. Nonetheless, considering its small IPO size, Paras Defence may not take long to get fully subscribed and has a high possibility to get over-subscribed. Thus, only investors with a healthy risk appetite are recommended to SUBSCRIBE to the IPO from a listing gains perspective only.

 

 

 

 

Issue Detail

  • Issue Open: Sep 21, 2021
  • Issue Close: Sep 23, 2021
  • Issue Type: Book Built Issue IPO
  • Face Value: Rs. 10 per equity share
  • Price Band: Rs. 165 to Rs.175 per equity share
  • Bid Lot:1 Shares
  • Minimum Order Quantity:85 Shares
  • Listing At: BSE, NSE
  • Issue Size: Rs. 170.78 Cr

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