Paras Defence IPO GMP, Subscription, Company Strengths, Key Risks. Should you Invest?

Paras Defence and Space Technologies went had opened up its initial public offering (IPO) on Tuesday. The company saw robust participation from investors upon the completion of day one of its issue as the Paras Defence IPO had investors subscribe to the issue around 16.57 times. The public issue received bids for 11.82 crore equity shares against an offer size of 71.40 lakh equity shares according to data from the exchanges. The offer size had been reduced to around 71.40 lakh equity shares from the initial 97.58 lakh equity shares after the company managed to mobilise Rs 51.23 crore from its anchor investors a day prior to the issue opening, which was on September 20.

The IPO carried an issue size of Rs 170.78 crore that consisted of a fresh issue as well as an offer for sale (OFS). The fresh issue aggregated up to Rs 140.60 crore, while the OFS came up to Rs 30.18 crore with a total of 1,724,490 equity shares. The public issue had a face value of Rs 10 per equity share and a price band of Rs 165 to Rs 175 per equity share.

The grey market premium (GMP) for the Paras Defence IPO stood at Rs 190 at the time of this article as per information on IPO Watch. This indicated that the issue was trading at a premium of Rs 355 to Rs 365 per equity share on the unlisted grey market.

“Priced at 31x P/E (FY21) on upper price band, we believe a strong order book, robust order pipeline, higher exports and higher contribution from better margin businesses like defence optics would auger well for PDS in the long term. In terms of valuation, it is priced at ~31x P/E on FY21 EPS (Rs 5.6/share) at the upper price band i.e. Rs 175,” said ICICI direct.

In terms of the subscription by the respective Investor categories, the qualified institutional buyers (QIBs) had subscribed to the issue around 0.01 times. The non-institutional investors (NIIs) had subscribed to the issue around 3.77 times. The retail individual investors, on the other hand, were subscribed the most to the IPO at a massive 31.36 times against their reserved portion.

The aim of the Paras Defence IPO is to use the proceeds from the issue to fund capital expenditure requirements as well as incremental working capital requirements. A certain portion of the funds will also go towards the repayments and pre-payments of all or a portion of certain borrowings and outstanding loan facilities availed by the company. The remainder of the funds will be used for general corporate purposes. The promoters for the issue are Sharad Virji Shah and Munjal Sharad Shah.

Speaking on the company’s presence in India and its market standing, ProfitMart Securities Private Limited said, “The company has 2 manufacturing plants in Maharashtra and is in the process of expanding its current manufacturing facility at Nerul in Navi Mumbai. The Company has wide range of products and solutions offerings for defence and space applications. It is 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.”

However, on the financial front, the company has not had the best track record and leaves something to be desired. Elaborating on this, Choice Broking said, “On financial performance front, the performance of the company is not encouraging. Over FY18-21, it has reported a 14.4% CAGR fall in earnings on 1.3% CAGR lower top-line. EBITDA margin during the period remained in the range of 26- 30%. PDSTL reported a negative operating cash flow in two out of four reported fiscals. Financial liabilities increased by 15.6% CAGR, however, debt-to-equity ratio declined from 0.6x in FY18 to 0.5x in FY21. Average RoIC and RoE stood at 10.6% and 12.9%, respectively, over FY18-21.”

“The Company has strong R&D capabilities with a focus on innovation and strong customer relationship with government arms and government organizations. In addition to all the above-mentioned points; the Company has strong experienced management. In view of all these competitive strengths; investors may consider applying to this IPO with a long-term investment view,” added ProfitMart

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