Paras Defence IPO

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i. Paras Defence is an Indian private sector company engaged in designing, developing, manufacturing and testing a wide range of defence and space engineering products and solutions. It is one of the leading ‘Indigenously Designed Developed and Manufactured’ (“IDDM”) category private sector companies in India which caters to four major segments of the Indian defence sector i.e. defence and space optics, defence electronics, electro-magnetic pulse (“EMP”) protection solution and heavy engineering.

ii. They are also the sole Indian supplier of critical imaging components such as large size optics and diffractive gratings for space applications in India. They have five principal categories of product offerings: defence and space optics, defence electronics, EMP protection, heavy engineering for defence and niche technologies.

iii. Its defence and space optics operations include manufacturing high precision optics for defence and space applications such as thermal imaging and space imaging systems. They are one of the leading providers of optics for various Indian defence and space programmes, and the only Indian company with the design capability for space-optics and opto-mechanical assemblies. Our defence electronics operations include providing a wide array of high-performance computing and electronic systems for defence applications, including subsystems for border defence, missiles, tanks and naval applications.

iv. It has two manufacturing facilities in Maharashtra, located at Nerul in Navi Mumbai and Ambernath in Thane. Its Nerul facility is an advanced nanotechnology machining centre for producing high-quality optics and ultra-precision components.  Its Ambernath facility is engaged in the manufacturing of heavy engineering products such as flow-formed motor tubes, vacuum brazed cold plates, titanium structures and assemblies, large and heavy dynamic structures with built-in automation for strategic applications, indigenously designed and manufactured flow-forming machines and mechanical racks, cabinets and consoles for various defence applications.

Competitive strengths
Wide range of products and solutions
Strong R&D capabilities
Experienced management team

Objects of the Paras Defence IPO:

The Offer comprises of Fresh Issue and Offer for Sale. Offer for sale of up to 1,724,490 Equity shares aggregating up to ₹ 30.18 Cr. Net Proceeds from the Fresh Issue are proposed to be utilized in the following manner: 1. Purchase of machinery and equipment 2. Funding incremental working capital requirements of our Company 3. Repayment or prepayment of all or a portion of certain borrowings/outstanding loan facilities availed by our Company 4. General corporate purposes.

Paras Defence IPO Details:

Open Date: Sep 21 2021
Close Date: Sep 23 2021
Total Shares: 9714285
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 170.78 Cr.
Lot Size: 85 Shares
Issue Price: ₹ 165 - 175 Per Equity Share
Listing At: NSE,BSE
Listing Date: Oct 01 2021

Promoters And Management:

i. Sharad Virji Shah, is the Chairman and Non-Executive Director of the Company. Being the Promoter, he has been associated with the Company since the incorporation. He has completed his education up to secondary school certificate level. He had established the predecessor, M/s. Paras Engineering Co. concern in 1979. He has worked in different areas of engineering and manufacturing and has played a major role in leadership of the Company. ii. Shilpa Amit Mahajan, is the Whole-Time Director of the Company and has been on the Board since June 25, 2018. She has completed his education up to secondary school certificate level and holds a diploma in interior design from Shreemati Nathibai Damodar Thackersay Women’s University, Mumbai. Prior to joining the Company, she was associated with Concept Shapers and Electronics Private Limited as director. iii. Sunil Kumar Sharma, is an Independent Director of the Company and has been on the Board since January 8, 2019. He holds a degree of bachelor of engineering (electronics) from Bangalore University and a master’s degree in business administration in production management from Bangalore University. He has 38 years of experience of working with Bharat Electronics Limited and served as its managing director from January 1, 2014 to September 30, 2016. iv. Manmohan Handa, is an Independent Director of the Company and has been on the Board since January 8, 2019. He holds a bachelor of science in mechanical engineering degree from Kurukshetra University and completed a post graduate diploma in material management from Indian Institute of Material Management. He has 38 years of experience of working with Bharat Electronics Limited and served as a director of its Bangalore complex from July 31, 2014 to April 30, 2016.

Financials of Paras Defence IPO:

Particulars (in Millions) Mar-21 Mar 20 Mar 19 Mar 18
Revenue from operations 1433 1,470 1,543 1,492
Cost of material 732 739 955 948
Excise duty 0 4.31        - -
Changes in inventory -80 -15 -116 -164
Employee Benefit Expense 117 109 89 68
Excise Duty and Service Tax 0 - - 61
Other expenses 228 239 187 167
Operating Profit 436 392 428 411
OPM% 30% 26.71% 27.74% 27.59%
Other income 12 20 27 32
Finance costs 124 97 93 73
Depreciation and amortisation 96 97 94 66
Profit before tax 226 217 268 304
Total tax expenses 68 78 78 53
Profit for the year 157 196 189 250

Comparison With Peers:

There are no listed entities in India whose business portfolio is comparable with that of its business.

Recommendation on Paras Defence IPO:

Review and Recommendation of Paras Defence IPO by InvestorZone is 4/10 1. Paras Defence makes products for Defence, Naval, Space, etc. And, main clients are Indian government. 2. Indian government over the last few years have increased the budget for defence and Space and same would be beneficial for Paras defence. 3. There is no revenue and PAT growth in the last 3 years. 4. Very high receivables days of 238 will be problematic for the company. This shows that company is not able to get their money in time from government. 5. Asking P/E of 42 is very high considering there is no growth in the company.

Lead Manager of Paras Defence IPO:

  1. Anand Rathi Advisors Limited

Registrar of Paras Defence IPO:

  1. Link Intime India Private Limited

Company Address:

D-112, TTC Industrial Area, MIDC, Nerul, Navi Mumbai 400 706, Maharashtra, India; Tel: +91 9820 974 974

Discussion on Paras Defence IPO:


    C) Cash Flow Statements

    1. Company is not able to generate the positive cash flow from operations due to very high receivables ….
    2. They are not generating any Free-cash from operations.

    B) P&L Statements…

    1. There is hardly any growth in the top-line of the Paras defence in the last 3 years…
    2. Margins have improved from 27% in FY19 to 30% in FY21.
    3. PAT too has reduced in the last 3 years….
    4. Asking P/E of 42x looks very high considering there is no growth in the company.

    Let us understand the financial statements :

    A) Balance Sheet

    1. Property, Plant and Equipment in the last 3 years are almost constant….It means the company has done small Capex…. Total Capex done in the last 3 years is ~18 Crores….

    2. Trade Receivables increased to 94 Crores in FY21 rom 84 Crores in FY19….

    Trade Receivables days for FY21 Stands at 238 days….. It was at 192 days in FY19….This is very high…. It means the Paras Defence is not able to get money from government on time….

    3. Debt has increased from 76 Crores in FY19 to 92 Crores in FY21……D/E as on FY21 balance sheet is <1 which is a good sign....

    So, we can conclude from the balance sheet that, Paras Defence is facing issues in collecting their money from Government....

    It is a very small issue of 170 Crores……So, getting an allotment would be tough…

    Its main clients are government companies……

    And, we have seen in the last few years Government is focussing more and more on Defence and space programs….

    With Afghan Crisis looming security threats, more and more spending will be done in defence……

    Total Shares outstanding = 3.8 Crores
    PAT (FY21) = 15.7 Crores
    EPS = 4.1
    P/E = 175/4.1 = 42x…..

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