IPO analysis: Paras Defence And Space Technologies Limited

IPO Rating: Invest for long-term

About the issue:

Paras Defence and Space Technologies Ltd. is one of India’s leading company catering to various segments of the Indian defence sector. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The issue size of the company is Rs 170.78 crore, with a fresh issue comprising Rs 140.6 crore while the remaining include the sale of shares worth Rs 30.18 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 165 to Rs 175 per equity share. The IPO opening date is September 21, 2021, while it will close on September 23, 2021. It will be listed on the Exchanges on October 1, 2021. The IPO market lot size is 85 shares. A retail-individual investor can apply up to a maximum of 13 lots (1105 shares or Rs 1,93,375). The net proceeds generated from the IPO will be utilized towards the funding of capital expenditure requirements, funding incremental working capital requirements, repayment or prepayment of all or a portion of certain borrowings/ outstanding loan facilities availed by the company and general corporate purposes.

Paras Defence and Space Technologies IPO Details:

About the company:

The company is primarily engaged in the designing, developing, manufacturing, and testing of a variety of defence and space engineering products and solutions. The company has five major product category offerings - Defence & Space Optics, Defence Electronics, Heavy Engineering, Electromagnetic Pulse Protection Solutions, and Niche Technologies. It is the only Indian company with the design capability for space-optics and optomechanical assemblies and is one of the leading providers of optics for various Indian defence and space programs. The company also delivers customized turnkey projects in the defence segment. The company has partnered with some of the leading technology companies around the world to indigenize advanced technologies in the defence and space sectors for the Indian market.

The company has two manufacturing plants in Maharashtra and is in the process of expanding its current manufacturing facility at Nerul in Navi Mumbai.

Competitive Strengths:

Wide range of products and solutions offerings for defence and space applications.

One of the few manufacturers of optics for space and defence application in India.

Companies offerings are aligned with the “Atmanirbhar Bharat” and “Make in India” initiatives by the government.

Strong R&D capabilities with a focus on innovation.

Strong customer relationship with government arms and government organizations.

Strong experienced management.

Company Financials:

Due to the adverse effects of Covid-19, the revenues decline by nearly 4 per cent in two years. The profit after tax too suffered a decline of 8.77 over the previous two fiscals. (Amount in Rs Crore)

Recommendation:

The company is also the sole Indian supplier of critical imaging components such as large size optics and diffractive gratings for space applications in India. It specializes in high-end manufacturing for defence and space applications and has been providing customized and exclusive mechanical products since its inception. Most of the revenues are generated through Government contracts and other contracts from entities such as defence public sector undertaking and government organizations involved in space research. Its client base consists of notable enterprises with the likes of ISRO, Bharat Electronics Ltd, Hindustan Aeronautics Ltd., TCS, etc.

Indian Government has been coming up with initiatives to boost the defence sector. The focus is on indigenous production and turning India into a global manufacturing hub of weapons and military platforms. As of September 30, 2020, the defence and space optics segment contributed nearly 53 per cent to revenues, followed by defence electronics 22 per cent and the remaining 25 per cent by heavy engineering. It is also planning to augment the existing production facilities and purchase new equipment by spending Rs 34.66 crore to cater for the rising demand from its customer.

The financial position of the company is not reassuring. The pandemic has hit the company hard resulting in low capacity utilization and an unattractive top line. However, with the recovery in the business operations, and with the IPO fund, the company is expected to perform well in the coming years. Considering all such factors, we recommend investing for the long-term in this company.