Paras Defence IPO sees robust response from retail investors; issue subscribed over 22x so far

Initial public offer by Paras Defence and Space Technologies subscribed over 22 times on the second day of offer till 11.30 am (IST). The public offer has received bids for 16,39,67,210 shares so far against 7140793 shares offered by the company. The portion reserved for retail investors was subscribed 68 times and the non-institutional investor portion was subscribed over 8 times. The quota reserved for the qualified institutional buyer category was subscribed 0.07 times.

The offer comprises of a fresh issuance of equity shares aggregating up to Rs 140.6 crore and an offer for sale of up to 17,24,490 equity shares by selling shareholders. The company raised Rs 51 crore through the anchor book from 5 investors. The company had allocated 29,27,485 equity shares at an upper band of Rs 175 per equity share on Monday, September 20, 2021 to anchor investors.

Marquee investors include Ashoka India Equity Investment Trust, Abakkus Emerging Opportunities Fund, Saint Capital Fund, Nippon Small Cap Fund and HDFC Focused 30 Fund.

Anand Rathi Advisors Limited is the book running lead manager to the Offer.

As per the “Defence and Space Industry Report” prepared by Frost & Sullivan (“F&S Report”), the Company, is amongst India’s leading private sector company catering to four major segments of Indian defence sector namely, defence optics, defence electronics, electro-magnetic pulse protection solution, and heavy engineering for defence and niche technologies. As per the F&S Report, it is the only Indian company to have the design capability for space-optics and opto-mechanical assemblies.

Should you invest?

Most of the brokerages have given subscribe ratings to the issue. Here’s what they have to say:

Aditya Birla Capital: Subscribe rating

The company has a strong order book of around Rs 305 crore as of June 2021, which is over 2x its existing revenue, providing good visibility. The order book mix stands as optics/Electronics/Heavy Eng at 67/23/10% respectively. Its clientele includes BEL, HAL, TCS, Solar Industries, Tae Young Optics, Astra Rafael and others. Paras Defence is present across segments, thus providing multiple product offerings to a single client. It competes with Mistral solutions, Ophir Optronics (Israel), ISP Optics (US), ETS-Lindgren (US) and others. For FY21, the company’s sales, EBITDA and PAT stood at Rs 145 crore, Rs 43 crore and Rs 16 crore respectively. On the balance sheet front, the debt stands at Rs 106 crore, with debt-to-equity at 0.6 times. The RoE and RoNW stands at 9% and
12% respectively.

“On the valuation front, the stock on a post-issue diluted basis, is available at P/E of 43 times its FY21 EPS of Rs 4. We believe governments focus on ‘Atmanirhbhar Bharat’ will result in localised sourcing of components and will benefit Paras Defence. Thus, we have ‘Subscribe’ recommendation to the issue,” Aditya Birla Capital said.

Choice Broking: Subscribe

Considering the product profile, Paras Defence (PDSTL) doesn’t have any peer in the listed space. At a higher price band of Rs. 175, PDSTL is demanding a P/E multiple of 43.4x (to its FY21 EPS of Rs. 4). Considering its niche product profile and technology, dominant market positioning and vast growth potential, we assign a “Subscribe” rating for the issue.

Hem Securities: Subscribe

The company is one of the few players in high precision optics manufacturing for space and defence applications in India has strong R&D capabilities with a focus on innovation and is well-positioned to benefit from the government’s “Atmanirbhar Bharat” and “Make in India” initiatives. Also, the company’s strong order book gives good revenue visibility going forward. The brokerage recommends “Subscribe” on the issue for listing gain as well as long term.