Paras Defence and Space Technologies continued to see strong participation and demand from investors on its second day of trading during its initial public offering (IPO). The public issue had opened for subscriptions on Tuesday and even on day one, it saw healthy participation from investors. On the second day, the Paras Defence IPO saw investors oversubscribe to it by 40.57 times. Investors had put in bids for 28.96 crore equity shares against an IPO size of 71.40 lakh shares, according to the subscription data on the exchanges. The offer size had been taken down to 71.40 lakh shares from an initial 97.58 lakh equity shares after the company had mobilised around Rs 51.23 crore from its anchor investors on September 20, a day before the issue opened.
The Paras Defence IPO as an issue aggregated to around Rs 170.78 crore. It also consisted of a fresh issue and an offer for sale (OFS). The fresh issue came up to Rs 140.60 crore and the OFS aggregated up to Rs 30.18 crore with a total of 1,724,490 equity shares. The public issue carried a fixed price band of Rs 165 to Rs 175 per equity share, with a face value of Rs 10 per share.
In terms of the grey market premium (GMP) the IPO was noted to be carrying a GMP of Rs 230 at the time of this article, which indicated that this public issue was trading at a premium of Rs 395 to Rs 405 per equity share on the unlisted grey market.
The subscriptions by the investor groups on day two of the Paras Defence IPO saw the retail individual investors (RIIs) take the lead as they had subscribed around 68.57 times against their reserved portion. The non-institutional investors (NIIs) had subscribed around 26.32 times and the qualified institutional buyers had subscribed around 1.67 times against their reserved portion.
The company aims to use the net proceeds from the offer will be used for the purchase of equipment, meet working capital requirements, repay and pre-pay for the borrowings that the firm had undertaken as well as general corporate purposes. The promoters of the issue are Sharad Virji Shah and Munjal Sharad Shah.
As far as post-IPO dates are concerned, the company is looking to initiate the basis of allotment on September 28, 2021. The investors who are unable to get a share will see their money refunded on September 29 and the following day the successful investors who were lucky enough to snag some shares will see the accreditation happen to their Demat accounts. The listing is set to take place on October 1, however, that is yet to be confirmed.
Should you Subscribe?
With today being the last day of trading, the question lies as to whether or not you should subscribe. The company has its fair share of strengths and risks like any other. Considering the strong points, it has a wide range of products and solutions offerings in defence and space applications. It also has strong R&D capabilities as well as experienced management and it stands as one of the top few manufacturers of optics for space and defence applications in India. Having said that, the financial performance of the company is some cause for concern.
Speaking on Paras Defence and Space Technologies’ financial track record, Choice Broking said, “Net cost of material consumed declined by 5.9 per cent CAGR (a rate higher than the decline in top-line), thereby leading to a 6.4 per cent CAGR higher material margin over FY18-21. As a per cent of top-line, net cost of material consumed stood at 45.6 per cent in FY21 as compared to 52.5 per cent in FY18. However, with 19.6 per cent and 11 per cent CAGR higher expenses towards employee and other expenses led to a 1.8 per cent CAGR higher consolidated EBITDA, which stood at Rs. 43.4cr in FY21. EBITDA margin expanded by 269bps over FY18-21 to at 30.3 per cent in FY21.”
“Depreciation charge increased by 13.1 per cent CAGR, while higher financial liabilities led to a 19 per cent CAGR higher finance costs over FY18-21. As a result, reported PAT declined by 14.4 per cent CAGR to be at Rs. 15.7cr in FY21. PAT margin contracted by 583bps during the period. PDSTL reported a negative operating cash flow in two out of four reported fiscals. Financial liabilities increased by 15.6 per cent 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 per cent and 12.9 per cent, respectively, over FY18-21,” added Choice Broking.
Commenting on the subscription rationale, Ventura Broking said, “In our opinion, the IPO pricing of INR 175 per share (10.9X FY24 P/E) is not expensive and the upcoming expansion plan is expected to accelerate top-line performance in the coming years. However, the revenue estimates (based on the working capital guidance provided by the company on page 82 & 83 of RHP) are very aggressive in our opinion. We recommend SUBSCRIBE for listing gains.”
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