Paras Defence IPO

About the Company

Paras Defence is India's sole Infrared Optics producer. It is a leading private sector company in India engaged in designing, manufacturing, developing, and testing 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.

The Tier 2 defence engineering firm is one of the most advanced and offers a large number of defence goods and solutions. They have an excellent client base with names such as ISRO, Bharat Dynamics, HAL, TCS, Tata Power and others.

About the IPO

The first public offering (SME IPO) for Paras Defense and Space Technologies will all begin next week from 21 September to 23 September. The IPO's size concerns Rs.170 crore including Rs.140 crore fresh and Offering for Sale (OFS) of Rs.30 crore.

Paras Defence IPO details

Subscription Dates21 – 23 September 2021Price BandINR165 – 175 per shareFresh issueINR140.6 croreOffer For Sale1,724,490 shares (INR28.45 – INR30.18 crore)Total IPO sizeINR169.05 – 170.78 croreMinimum bid (lot size)85 sharesFace Value INR10 per shareRetail Allocation35%Listing OnNSE, BSE

Objectives:

• Requirements for capital spending of the Fund.
• Incremental financing requirements for working capital.
• Corporate general objectives.
• Repayment or advance payment of all or part of some of the company's existing borrowing or loan arrangements.

Allocation

This SME IPO shows that the QIB part is 50 per cent reserved, while the Retail portion is reserved at 35 per cent. on the other hand, 15% of the NII component is retained.

IPO Strength

• They are one of the few players in high-quality optics for space and defence application manufacture in India.
• Strong innovation-oriented R&D capabilities
• They are in a good position to take advantage of "Atmanirbhar Bharat" and "Make in India" initiatives.
• Wide range of products and solutions for both defence applications

IPO Risk

• Due to loss, shutdown or slowdown in business activities, their firm and operating performance and financial performance may suffer substantially.
• A small number of customers make up a big amount of their company.
• Insufficient cash flows from their activities might have a significant and unfavorable influence on their operating capital needs.
• Their business is also dependent on contracts between the Government of India and related institutions such as government military enterprises and state research agencies. A reduction in orders, Indian defence and space budget

Financial Highlights:

For the six months ending on 30 September 2020, the firm has recorded overall revenues of Rs. 149.05 crore and Rs.37.94 crore. Consolidated PAT (profit after tax) in FY 2020 was Rs. 19.65 and for the six-month period ending 30 September 2020, it caused a loss in the amount of Rs. 14 lakh.

In 2021 the profit was Rs.15.79 crore compared with Rs.19.66 crore in 2020. In recent years the company has performed stably and will continue to do the same thing that will result in consistent business growth.

Recommendation

According to Swastika Investmart Analyst, eyeing the government's focus on the Space and Defense sector, it is expected that both the segments of the company are likely to be benefited. The "Make in India" campaign by the government to be self-reliant by 2027 will give a boost to the industry.

Since there are no listed players in the industry it is difficult to make an apple to apple comparison. The company is going to be listed in T2T-Segment.

The financials of the company has been mixed. However, in the long company may benefit from the initiatives by the government and is expected to perform well. The company has a strong order book and the IPO is priced at PE of 31x. Thus, we recommend a "Subscribe" rating to the IPO.