About the company:
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.
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