Paras Defence IPO Analysis

Paras Defence IPO subscribed 16.6 times 1st day of bidding The company is engaged in manufacturing and testing of defence and space engineering products and solutions. The initial public offer (IPO) of Paras Defence and Space Technologies generated strong investor attention on the first day of bidding and was oversubscribed within a few minutes. The company plans to raise a total Rs 170.78 crore from the market. The company has already allotted 29,27,485 equity shares to anchor investors at Rs 175 apiece, valuing the transaction at Rs 51.23 crore Ashoka India Equity Investment Trust Plc, Abakkus Emerging Opportunities Fund-1, Saint Capital Fund, Nippon India Mutual Fund and HDFC Mutual Fund participated in the anchor book, it showed. One major reason behind the exuberance may be the massive demand for shares in the grey market. The company has fixed the price band at Rs 165-175 apiece for the issue, whereas the shares are trading a hefty premium of Rs 195-200 in the official market, which is about 120 per cent over its issue price. However, brokerage firm Reliance Securities has a word of caution for the investors, which has not given any rating to the issue. It finds the issue richly valued, which diminishes the expectations of listing gains for the investors. “While the company states there are no comparable peers for it, other defence companies like Hindustan Aeronautics and Bharat Dynamics are trading at discounts despite generating healthy cash flows and enjoying healthy FCF yield,” it said. For the year ended March 2021, Paras Defence had clocked net profit of Rs 16 crore on revenues of Rs 143 crore. “The IPO is valued at 43 times FY21 earnings, which does not look to be appealing. While the company states there are no comparable peers for it, other defence companies like Hindustan Aeronautics and Bharat Dynamics are trading at discounts despite generating healthy cash flows and enjoying healthy free cash flow yield,” said a note by Reliance Securities titled ‘healthy outlook, weak financials.” “The order book as on June stood at Rs 305 crore, which is 2.13 times FY21 revenue and offers decent revenue visibility,” the note added.
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