Paras Defence IPO opens tomorrow, grey market premium more than doubles; should you subscribe?

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September 20, 2021 11:57 AM

Paras Defence and Space Technologies Rs 170.77-crore IPO is scheduled to open for subscription on 21 September, at a price band of Rs 165-175 per share

IPO, Paras Defence and Space TechnologiesAnalysts say small issue size, reasonable valuations and focus on defense sector may generate huge fancy in IPO

Paras Defence and Space Technologies Rs 170.77-crore IPO is scheduled to open for subscription on 21 September, at a price band of Rs 165-175 per share of the face of Rs 10 each. In the primary market, the premium has more than doubled from the issue price. On Monday, Paras Defence and Space Technologies were trading at Rs 370, a premium of Rs 195 or 111 per cent, in the grey market, according to people who deal in unlisted shares of the company. The company does not have any listed industry peers in India.

Analysts say that defence and space-related manufacturer — Paras Defence and Space Technologies — has a strong order book of around Rs 305 crores as on June 30, 2021, with a well-diversified product portfolio in defense and space optics, defense electronics, heavy engineering and niche technologies. However, on the operational front, top and bottom-line growth seems to be muted. “At the upper band of Rs 175, post fresh issue the asking P/E comes around 43x. The government focus on ‘Make in India’ and higher budgetary allocation for defense sector may prove beneficial to such companies. Also, Liberalised policies and PLI scheme for drones will further benefit such companies,” Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares, told Financial Express Online.

Doshi also added that small issue size, reasonable valuations and focus on defense sector may generate huge fancy in IPO. Paras Defence and Space Technologies weighted average return on net worth for last three fiscals is 11.94 per cent. The Price/earnings ratio based on diluted EPS for FY21 for the company at the upper end of the price band is as high as 31.53.

The company is the sole Indian supplier of critical imaging components such as large size optics and diffractive gratings for space applications in India. It is also one of the leading “Indigenously Designed Developed and Manufactured” category private sector companies in India, which caters to the four major segments of Indian defence sector i.e. defence & space optics, defence electronics, electro-magnetic pulse (EMP) protection solution and heavy engineering. “The company has strong R&D capabilities with a focus on innovation. The company is well positioned to benefit from the government’s “Atmanirbhar Bharat” and “Make in India” initiatives. Strong relationships with a diverse customer base, analysts at JM Financial Services said.

Those at Choice Broking, have recommended to subscribe to the issue. “Considering the product profile, Paras Defence and Space Technologies doesn’t have any peer in the listed space. At higher price band of Rs. 175, the company is demanding a P/E multiple of 43.4x (to its FY21 EPS of Rs. 4). Considering its niche product profile & technology, dominant market positioning and vast growth potential, we assign a ‘subscribe’ rating for the issue,” they added.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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