Paras Defence and Space Technologies Ltd. (PDSTL), which provides defence and space engineering products & solutions is coming up with an IPO to raise around Rs 170 crore, which opens on September 21 and closes on September 23, 2021. The price band is Rs 165 - 175 per share.
The shares of the family were trading at a premium of Rs 220 per share, up over 125 percent from the higher band of the price band of Rs 165-170 in the grey market. This equates to a potential listing price of Rs 391 per share, Moneycontrol said.
The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS part of the issue. Of the net proceeds from the fresh issue, Rs. 34.7 crore will be used for the purchase of machinery and equipments, Rs. 60 crore will be utilized to fund the working capital requirements and another Rs. 12 crore will be used to repay/pre-pay certain debt availed by the company.
50 percent of the net issue are reserved for qualified institutional buyers, while 15 percent and 35 percent of the net issue is reserved for non-institutional bidders and retail investors, respectively. Currently, the promoter currently holds 79.40 percent stake in the company and post-IPO this will come down to 58.94 percent. Public holding will increase from current 20.60 percent to 41.06 percent.
In the last 6-7 months, the company has undertaken the pre-IPO placement of total 0.255cr equity shares for cash consideration aggregating to Rs. 34.4cr. However, the size of the fresh issue has not been reduced by the company. The shares were offered in the range of Rs. 125 - 160 per share.
What does the company do
PDSTL is engaged in designing, developing, manufacturing and testing of a wide range of defence and space engineering products and solutions. 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 outlays by the Indian government on the above-mentioned four segments is expected to increase from around $3.2 billion in 2021 to over $14.5 billion by 2031, mainly due to extensive fleet recapitalization, C4ISR orientation and greater indigenous supply preferences. The cumulative market during the same time is anticipated to around $99.4 billion.
Under defence and space optics segment, the company manufactures high precision optics for defence and space applications such as thermal imaging and space imaging systems. Its defence electronics operations include providing a wide array of high performance computing & electronic systems for defence applications, including sub-systems for border defence, missiles, tanks and naval applications.
Under EMP protection solutions, the company is engaged in designing, developing, manufacturing and commissioning various solutions for EMP protection. Further, under heavy engineering, it provides heavy engineering products and solutions, such as components for rockets and missiles along with providing mechanical manufacturing support to other verticals.
As of June 30, 2021, PDSTL has a range of 34 different categories of high-quality products & solutions, which are manufactured from the two facilities located at Nerul and Ambernath in Maharashtra. Further, to meet to the growing demand of its customers and also to enhance its product portfolio the company is in the process of expanding the manufacturing facilities at Nerul and Ambernath.
Majority of biz from Defence, Space sector
The company derives majority of its business from government entities in the defence and space sector. As of FY21, government and private entities generated 50.8 percent and 32.3 percent to the top-line, while the rest was by the exports. Its customer base includes companies like Bharat Electronics Ltd., Hindustan Aeronautics Ltd., Bharat Dynamics Ltd., Hindustan Shipyard Ltd., Electronic Corporation of India Ltd., Tata Consultancy Services Ltd., among others.
PDSTL is expanding into new opportunistic areas like unmanned aircraft systems (drones). Through its subsidiary, it aims to offer UAV integration solutions and services for a wide range of applications such as agriculture, power transmission, oil and gas, mining and construction. Its flagship product will be a cloud-based NPNT solution (offered as software-as-aservice) and an indigenous multispectral camera. Through another subsidiary, the company will design sub-modules and will be involved in solution integration.
It also aims to become one of the first indigenous anti-drone technology development companies in India and is currently collaborating with leading UAV anti-drone technology firms from Israel and Italy. Due to elongated production cycles, the company operations are working capital intensive.
Key strengths
The company offers a wide range of products and solutions for both defence and space applications. It is one of the few players in high precision optics manufacturing for space and defence application in India It has strong R&D capabilities with a focus on innovation. It is well- positioned to benefit from the Government’s “Atmanirbhar Bharat” and “Make in India” initiatives. It has strong relationships with a diverse customer base and an experienced management team.
Risk and concerns
Unexpected change in government policies and regulations; revenue concentration risk. It is a working capital intensive business there is stiff competition.
Should you subcribe?
Choice Broking said, "Considering the product profile, PDSTL doesn’t have any peer in the listed space. At 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.
