Paras Defence IPO Fundamental Analysis (Subscribe)

Key Business Highlights

Paras Defence is an Indian private sector company engaged in designing, developing, manufacturing and testing of a wide range of defence and space engineering products and solutions.
The company offers diversified product offerings which include defence and space optics, defence electronics, electro-magnetic pulse protection solutions and heavy engineering.
The company has partnered with some of the leading technology companies around the world in order to indigenous advanced technologies in the defence and space sectors for catering to the Indian market.
The Issuer’s customer base includes Government arms and notable Indian public and private sector companies like BEL, HAL, TCS to name a few among others.
The Issuer has two manufacturing facilities in Maharashtra, located at Nerul in Navi Mumbai and Ambernath in Thane.

Financial Review

The top line of the Issuer is showing a declining trend for the last two years. Total revenues were reduced by 3% for FY21 to Rs 144.61 crore from Rs 149.05 crore for FY20. The revenues were Rs 157.17 crore for FY19. The reason for the decline was a disruption in the supply chain of raw materials during the pandemic and thus lower revenue from operations. However, during the second half of Fiscal 2021, the operations have improved and the company was able to maintain its profitability as per the management. The profitability margins have remained quite stable in the last three fiscal years as can be seen in the table below.

Debt is 0.60 x of equity as on 31^st Mar 2021. Return on net worth is 9.12%, 14.17% and 15.93% for FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in INR Crore)
Particulars	FY21	FY20	FY19
Total Revenue	144.61	149.05	157.17
PAT	15.79	19.66	18.97
EBITDA	44.67	41.27	45.61
Total Assets	362.76	342.39	329.75
Cash generated from operations	4.29	(2.60)	(12.05)
EBITDA Margin	12.31%	12.05%	13.83%
Net Margin	4.31%	5.74%	5.75%

Valuation and peer comparison

With EPS of 5.55 as on 31^st Mar 2021, the Issue is priced at 31.53 at the upper price band of Rs 175 per share. P/BV is 3.17x at NAV of Rs 55.23 as on 31^st Mar 2021. The company does not have any listed peers as per the RHP. Though the company can be compared to Apollo Microsystems, its IPO was launched in the year 2018. Data Patterns, Mistral Solutions, CoreEL technologies are some of the unlisted companies engaged in the production of certain products that Paras Defence also sells.

Outlook and conclusion

Many initiatives are being taken by the Indian Department of Defence to promote ‘Make in India’ in the defence manufacturing sector. India is trying to develop its indigenous manufacturing capabilities and focusing on increasing the product range of the defence equipment that it can produce locally, thereby, reducing its dependency on the import of defence equipment. Hence, the sector is poised to grow in the near term.

The Issuer has a diversified product offering. Currently, the majority of the revenues come from defence but in the future, the company expects to derive revenues from space optics which includes revenues from in-house manufacture of drone cameras and space cameras thereby reducing dependence on government orders over the years.

The financials of the company seem to be volatile for the last two years and there is a concern over the negative cash flow from operating activities and higher working capital requirements of the company. However, the company’s outlook in the long term seems to be strong based on Government’s support and encouraging the private sector investments in defence production. Further, growing demand from the customers in the space optics product portfolio would increase the revenues and profitability of the Issuer. Hence considering all the factors, one may subscribe to the Issue.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 14th Sep 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.