Paras Defence And Space Technologies Ltd: (May Subscribe)

Paras Defence And Space Technologies Ltd (PARAS), incorporated in 2009, is engaged in the designing, developing, manufacturing, and testing of a variety of defence and space engineering products and solutions. The company has three major product categories – Defence & Space Optics (FY21 revenue contribution 26.4%), Defence Electronics and (FY21 revenue contribution 45.3%), Heavy Engineering (FY21 revenue contribution 28.3%). PARAS has 2 manufacturing plants at Nerul (Navi Mumbai) and Ambernath (Thane) in Maharashtra. The company is in the process of expanding both facilities in FY22 at an estimated capex of Rs 48 cr.

Investment Arguments

• With a range of 34 different categories of products and solutions in defence and space segments, PARAS is a leading IDDM (Indigenously Designed Developed Manufacturer) category company in India.
• It has established strategic tie-ups with global defence electronics and optics companies to enhance its product qualities to global standards, which could help the company to expand its presence in the export market. Currently, the domestic business contributes 80-85% of the revenue, while the remaining 15- 20% comes from exports. The company has an order book of Rs 3.05 bn, executable in 2 years.
• Optics is the major focus area for PARAS with revenue from this segment having increased from 30% in FY19 to 45% in FY21. It is the only Indian company with the design capability for space optics and opto-mechanical assemblies. It constitutes ~67% of the order book (OB; Rs 3 bn) and would be key focus area along with drones.
• On the performance front, the company’s revenue from operations decreased by 2.53% to Rs 1,433.30 mn for FY21 compared to Rs 1,470.43 mn for FY20. This decrease in revenue from operations was primarily due to disruption in supply chain and slowdown in India due to the Covid-19 pandemic. The company’s profit for the year decreased by 19.69% to Rs 157.86 mn for FY21 compared to Rs 196.57 mn for FY20.
• It intends to further diversify its products and solutions portfolio through R&D and partnering with overseas technology companies with specialized technologies in the field of defence and space sector. It also intends to enter into partnership agreements with experienced agents to explore business opportunities in new international markets.

Key Risks

• Depends on contracts from GoI and associated entities
• Depends on limited number of customers for significant portion of revenue:
• Significant working capital requirement
• Operate in competitive business environment

Valuation

At the upper band of Rs 175 and post the fresh issue the asking P/E is ~43x. The company is the sole Indian supplier of critical imaging components including large size optics and diffractive gratings for space applications. GOI focus on Make in India products, higher budgetary allocation for defense sector, liberalized policies and PLI scheme for drones, Atmanirbhar Bharat auger well for the Company. However, based on its financial data the issue is fully priced discounting near term prospects. Considering its small issue size of, its initial listing will take place in T 2 T group limiting speculative movements. Only cash surplus investors may Subscribe from a longer term perspective.

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