Paras Defence IPO Review -

Let's understand everything about the business and its IPO!

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#IPOwithJST #Defence

Issue Details

Dates - Sept 21 to 23
Price Band - Rs 165 - 175
Size - 171 Cr (30 cr ofs + 141 cr +34 cr Pre ipo already done)
Quotas – QIB 50% | NII 15% | RII 35%
MCap post listing – 683 Cr
(3.1 Cr existing shares + 80L new shares from fresh issue)

Pre IPO Information - (Img 1)

Objects of Issue - (Details in Img 2)

- Purchase of machinery and equipment
- Funding incremental working capital
- Repayment or prepayment of all or a portion of certain borrowings/outstanding loan facilities
- General corporate purposes

About the Company -

- Designing, developing, manufacturing and testing a wide range of defence and space engineering products and solutions. 5 categories: defence and space optics, defence electronics, EMP protection, heavy engineering for defence and niche technologies

- As of Q1FY22 - 34 categories of products/solutions, with multiple variations in each category
- Main vertical is optics – services military and Space. Management says “Company has a great capability here, and when it comes to optics everyone thinks about us first"

- In the future, they may think of venturing out into other sectors too
- Commercial optical started with 3 types of drones - agricultural, day and night surveillance, and day surveillance. Focussing on drone-based cameras as this is an open field with no competitors

- Currently working on a complete camera system for the defense sector that is going to be launched in orbit
- Working on niche areas where they will have no clash with their customers

Manufacturing -

- 2 manufacturing facilities in Maharashtra - Ambernath in Thane (heavy engineering products) & Nerul in Navi Mumbai (optics, manufacturing and integration of electronics and EMP protection products/solutions)

R&D -

- R&D Centres at Nerul in Navi Mumbai and Bengaluru, Karnataka

Note - Company enters into contracts with third parties in India and outside India for partnering in relation to the development of certain products or sourcing components

Order Book -

- Rs 305 Cr
- Mgmt said this will come in revenue in 12-18 months. FY22 mostly and FY23 start
- Very strong funnel of the order book, expecting good orders (Optical + EM)
- EMP solutions – new vertical has a good funnel for the local market, export as well

Customers -

- Work with almost all government defense and space organizations and most private defense firms too

Risks -

- Dependent on Govt. contracts – FY21, FY20, and FY19 had 50.84%, 28.75%, and 35.62% of total sales from GoI. They expect this to continue
- Revenue from Top 5 customers constituted 59.63%, 72.27%, and 58.65% of total sales in FY21, FY20, and FY19 respectively

Management Experience -

- Sharad Virji Shah, Chairman, and Munjal Sharad Shah, MD, have 41 years and 23 years of experience, respectively, in engineering products and solutions for defence application

Strategies Ahead -

- Expansion of production capacity
- Strengthen foothold in India’s expanding market
- Continue to focus on R&D
- Diversify products/solutions range, with focus on growth by expansion into opportunistic areas
- Increasing reach in international markets

Financials -

- P&L - No growth | EBITDA grew because of lower cost of materials this year (Img #2)
- Mgmt. guided for better cash flows and return ratios ahead and also said they were Earlier assembling company, now full-fledged product company that will help the financials

- Working capital – it was very high last year, going forward they are going to sell complete products, off the shelf, kind of more faster-moving, so here the turnaround time will be faster

Valuation & Conclusion -

FY21 EPS – 5.55
FY21 Book Value – 55.23
P/E – 31.5x
P/BV – 3.2x
P/S – 4.8x

Valuations seem expensive

Key monitorable - Execution and growth as they say that their financials will improve due to the pivot to a complete products company

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