As the IPO mood has again being brightened with the robust listing of Ami Organics, there is again another IPO that is opened up from the defence space by Paras Defence. Here is a look at various aspects of the IPO and whether or not you should subscribe to it:
1) Issue details:
IPO offer period- September 21-23
Price band for the offer is decided at Rs. 65-75 per share. The offer includes an issue of shares totaling to Rs. 140.6 crore as well as an offer for sale of up to 1.72 million shares by promoters Sharad Virji Shah and Munjal Sharad Shah, and individual selling shareholders Ami Munjal Shah, Shilpa Amit Mahajan and Amit Navin Mahajan. Post the IPO, promoter holding in the company shall get reduced to 59 percent from the current 79 percent.
Minimum bid size-85 shares and thereafter, multiples of 85 shares per lot.
Issue objective: the company intends to use the proceeds from the issue for purchasing machinery and equipment, incremental working capital requirements, repaying certain borrowings, and general corporate purposes.
Paras defence company and its financials:
Based out of Mumbai, Paras Defence and Space Technologies is engaged in designing, developing, manufacturing and testing products linked to defence and space engineering. Typically, the company is into manufacturing of critical-imaging systems in India
As per the company's annual report, profit before tax for the firm for the year ended March 2020 stood at Rs. 2179 lakh, which increased from the year ago period of Rs. 2681 lakh.In the year 2021 profit narrowed down to Rs. 15.79 crores against Rs.19.66 crore in 2020. Over the future course also company's performance has to remain stable.
Grey market premium:
The grey market premium is the premium or higher price that the stock commands in the unlisted market before the IPO and it as on Monday (September 20, 2021) stood at Rs. 190, a price almost 111 percent higher than the issue price.
What brokerages say on Paras Defence IPO?
KR Choksey has a 'subscribe' rating on Paras Defence. "The company's revenue from operations declined in FY20 and FY21 compared to FY19, mainly due to the impact of Covid-19. However, the company is currently operating at 90% of its capacity and has built up inventories to cater to future demand and act as a hedge against the impact of any unforeseeable disruption. The company's debt protection matrix seems adequate, with D/E at 0.6x at the end of FY21 and company's intent to bring it further down and move towards a more debt light balance sheet. As a result, the company plans to utilize INR 12 Cr of the net proceeds from the IPO to pay down a portion of its debt. Given that most of the company's orders are executable within the next 12-18 months, the company's order book of INR 305 Cr provides solid revenue visibility."
"The company's working capital is stretched at over 211 days, mainly driven by a debtor of 245 days, but it is expected to improve as a large chunk of receivables incurred in Q4FY21 are to be paid in Q1FY22. Additionally, the firm requires extra working capital to fund its incremental working capital requirements in FY2022 and FY2023, a portion of which will be funded using proceeds from the IPO. The funding of the incremental working capital requirements will lead to a consequent increase in profitability. Paras Defence IPO size is INR 171 Cr, including a fresh issue of INR 140 Cr and an offer for sale (OFS) of INR 31 Cr. The price band of the issue is INR 165- INR175. On the upper price band of INR 175 and EPS of INR 5.55 for FY21, the P/E ratio works out to be 31.5x", adds the brokerage.