In the primary market, Paras Defence and Space Technologies is quoting at a premium of ₹105 over the IPO issue price. Should you bid?
Paras Defence and Space Technologies, a defence engineering company, has decided to open its initial public offering (IPO) for subscription on 21 September 2021.
The company hopes to capitalise on investor interest in new share sales and become the 42nd company in 2021 to raise capital through the stock market.
The price band of Paras Defence and Space Technologies has been fixed at ₹165-175 per share. The Mumbai-based defence company is eyeing to raise about ₹1.7 bn through its primary offering.
Paras Defence is a critical player in India’s defence and space research segment. They are engaged in designing, developing, manufacturing, and testing various mission-critical defence and space engineering products and solutions.
Anand Rathi Advisors is the book running lead manager to the issue. The equity shares of the company would be listed on BSE and NSE. The registrar to the issue is Link Intime India.
The issue comprises a fresh issuance of equity shares worth ₹1.4 bn and an offer of sale (OFS) of up to 1.72 m equity stocks by promoters and existing shareholders.
The OFS consists of upto 1.25 m by Sharad Virji Shah, upto 50,000 shares by Munjal Sharad Shah, upto 3 lakh shares by Ami Munjal Shah, and upto 62,245 shares each by Shilpa Amit Mahajan and Amit Navin Mahajan.
Paras Defence had raised ₹344 m through a pre-IPO placement of 2.5 m equity shares.
Category-wise reserved portion
As far as investor portions go, the IPO has given qualified institutional buyers (QIBs) a reservation of 50%.
The non-institutional investors (NIIs) have a reservation of 15%. Retail investors will have 35% of the issue size ear-marked for them.
The company has planned to utilise the net proceeds towards funding capital expenditure requirements worth ₹312 m, and funding incremental working capital requirements to the tune of ₹500 m.
The company will also use the net proceeds for repayment or prepayment of certain borrowings/outstanding loan facilities of ₹100 m availed by the company and for general corporate purposes.
About Paras Defence and Space Technologies
Paras Defence and Space Technologies is a private Indian company that designs, develops, manufactures, and tests a complete range of defence and space engineering products and systems.
They are a prominent ‘Indigenously Designed, Developed, and Manufactured’ private sector business in India, serving four key areas of the Indian defence sector: military & space optics, defence electronics, electro-magnetic pulse protection solutions, and heavy engineering.
They are also the only Indian provider of essential imaging components for space applications, such as large scale lenses and diffractive gratings.
Paras Defence has partnered with some of the leading technology companies around the world to indigenise advanced technologies in the defence and space sectors for the Indian market.
Their ambition is to become one of the world’s top companies in the field of optics for the defence and space sectors.
The company has a state-of-the-art manufacturing setup with a workforce of over 400 and has the ability to offer turnkey solutions ranging from design to commissioning of small to large systems.
Their focus on technology development and research and development (R&D) distinguishes them as a true IDDM company in the Indian defence industry.
They have a vibrant team to develop future technologies and provide state-of-the-art solutions for their customers.
The company has 2 manufacturing plants in Maharashtra and is in the process of expanding its current manufacturing facility at Nerul in Navi Mumbai.
Company’s 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.
- Paras Defence does not have any listed industry peers in India.
Financial snapshot of the company
For the Fiscals ended 2021, 2020, and 2019, the company derived revenue of ₹728.6 m, ₹422.7 m, and ₹549.9 m, respectively, from sales made to the government of India (GoI) entities, which is equivalent to 50.8%, 28.8%, and 35.6% of the total consolidated sales for the respective fiscals.
Further, as on 30 June 2021, Paras defence's orderbook from the GoI entities, was ₹1.3 bn.
The company expects to derive most of their revenues through contracts signed with the GoI entities. Contracts depend upon the continuing availability of budgets extended to the ministry of defence (MoD).
Product offerings & clients
They provide a diverse variety of products and services for both defence and space applications. They have a variety of 33 different product and solution segments as of 31 December 2020, with many variants in each segment.
They think that their capacity to offer a diverse variety of goods and solutions is bolstered by high-quality products and operational performance focused on continuous improvement.
Paras Defence customer list has big names like ISRO, Defence R&D Organization, Bharat Electronics, Cochin Shipyard, Hindustan Aeronautics, Bharat Dynamics and has supplied products and solutions to private entities including Tata Power, Tata Consultancy Services (TCS), and Alpha Design Technologies.
Few risk factors
- They require a large amount of working cash. Insufficient cash flows from their operations to fulfil their working capital requirements might have a substantial and negative impact on their business.
- A large percentage of their business is based on a small number of clients. The loss of any of their key clients as a result of a negative development or a major drop in business from their major client might have a negative impact on the company and financial situation.
- They are subject to government restrictions, and if they do not receive, hold, or renew the necessary statutory and regulatory licences, permits, and certifications for their company, their results of businesses and cash flows might suffer.
- Contracts with the Indian government and associated organisations, such as military public sector undertakings and state space research institutes, are also important to their business. A reduction in orders or a reduction in the Indian defence or space budget could also affect their business.
What's the ideal IPO strategy to follow?
In the past few months, a large number of corporate houses have submitted proposals for floating IPO. A number of IPOs are also expected to hit the market soon.
As companies line up to raise funds from the market amid high valuations, investors need to consider numerous factors before investing their money in an IPO.
If you are investing in an IPO, weigh in all the positive and negative factors affecting the company.
Take a close look at the company's financials and valuations. It would give you a clear picture of what's brewing.