While the government's initiatives will benefit Paras Defence, the company’s strength lies in its R&D and relationship with diverse customers. The financials of Paras Defence though have not been very encouraging over the past few years.
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Paras Defence & Space Technologies Limited, an Indian private sector company, has launched its initial public offering on Tuesday. Four major segments the company caters to include defence and space optics, defence electronics, electro-magnetic pulse, protection solution and heavy engineering.
Defence has remained a focus area for the government and Indian companies are seen as key beneficiaries of the Centre's schemes such as Atmanirbhar Bharat and Make in India. While the same will benefit Paras Defence, the company’s strength lies in its R&D and relationship with diverse customers.
The financials of Paras Defence though have not been very encouraging over the past few years. Revenue from operations at ₹143 crore during FY21 were almost flat compared to ₹147 crore in FY20. Profit before tax at ₹22.6 crore in FY21 was only slightly better than ₹21.7 crore in FY20.
Looking at the financials and valuations of the IPO, analysts are not very excited. Though the company says that there are no comparable peers for its business, analysts at Reliance Securities Ltd feel other defence companies like Hindustan Aeronautics and Bharat Dynamics are trading at discounts despite generation of healthy cash flows and enjoying healthy free cash flow yields. Hence, the IPO valued at 43 times its FY21 earnings does not look appealing, as per Reliance Securities.
Paras Defence will use the proceeds of the issue for the purchase of machinery and equipment, and funding of additional working capital requirements. It also intends to utilise some of the proceeds for repayment or pre-payment of all or a portion of certain borrowings/outstanding loan facilities availed by the company.
The company is engaged in designing, developing, manufacturing and testing of a wide range of defence and space engineering products and solutions. It is also the sole Indian supplier of critical imaging components such as large size optics and diffractive gratings for space applications in India, as per analysts.
The company’s two facilities are located in Maharashtra's Navi Mumbai and Thane. Its R&D capabilities include product design, product engineering, product simulation, prototyping and testing. The company’s revenues stream is dependent on contracts from government arms and associated entities, including defence public sector undertakings and government organizations involved in space research.
The factors that remain favourable for the company’s growth include governments initiatives like Atmanirbhar Bharat. A few of the company’s products come under the list of items for which there would be an embargo on imports. This should see improved order flows, feel analysts.
The company had an order book of ₹305 crore, which is around 2.1 times the FY21 business. Analysts at Choice Broking estimate a 13.6% CAGR rise in top-line over FY21-24 while earnings before interest, taxes, depreciation, and amortization (Ebitda) and net profit are expected to increase by 12.1% and 29% CAGR.
Analysts at Motial Oswal Financial Services Ltd ‘like’ the company given its complex and wide product portfolio, presence in niche defence space, strong client relationship and high entry barriers.
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