Paras Defence IPO off to flying start as retail investors lead the rush

The initial public offering (IPO) of Paras Defence and Space Technologies Ltd made a strong start on Tuesday with the issue getting subscribed more than eight times within the first three hours.

The offering of 71.4 lakh shares, excluding anchor allotment, was covered 16.6 times after receiving bids for 11.8 crore shares at the end of the first day.

Retail investors led the bidding. Their quota of 35.86 lakh shares was covered 31.36 times after getting bids for 11.24 crore shares. The non-institutional investors’ quota was subscribed 3.77 times while institutional investors mostly stayed on the sidelines.

The defence engineering company’s IPO began today as it seeks to benefit from bullish sentiment that has pushed stock markets to record highs. The IPO will close on Thursday. It has set a price band of Rs 165-175 a share for the IPO.

Ahead of the IPO, the company raised Rs 51 crore from anchor investors including existing investor Abakkus. It had also mopped up Rs 34 crore through a pre-IPO sale.

Paras is the 42nd company to float an IPO in 2021, underlining the rush among Indian firms to launch share sales this year. In addition, an equal number of companies have filed their draft red herring prospectuses (DRHPs) and are awaiting approval from the Securities and Exchange Board of India.

This IPO rush comes even as benchmark indices continue to touch new highs. The 30-stock BSE Sensex, for instance, hit another record on Friday, going past 59,700 before cooling off. On Tuesday, the Sensex was trading around the 58,600 level.

The Paras IPO comprises a fresh issue of shares worth Rs 140.6 crore and an offer for sale of up to 17.24 lakh shares by its existing shareholders including the promoters Sharad Virji Shah, Munjal Sharad Shah and Ami Munjal Shah.

The founders—chairman Sharad Virji Shah and managing director Munjal Sharad Shah—hold a 59.53% stake in Paras Defence. The total promoter and promoter group stake in the company is 79.4%.

The company plans to use the money raised from the fresh issue to buy machinery and equipment. It also plans to fund working capital requirements, repay debts and use the money for general corporate purposes.

Paras Defence’s business

The company designs, develops, manufactures and tests a range of defence and space engineering products. It caters to four major segments—defence and space optics, defence electronics, electro-magnetic pulse (EMP) protection solutions, and heavy engineering.

It is also the sole Indian supplier of critical imaging components such as large-sized optics for space applications. It has two manufacturing facilities in Maharashtra, located at Nerul in Navi Mumbai and Ambernath in Thane.

The Nerul plan is an advanced nano-technology machining centre to produce high-quality optics and ultra -precision components. The Ambernath facility makes heavy engineering products such as flow-formed motor tubes, vacuum brazed cold plates, titanium structures and assemblies. The company is expanding the Nerul facility.

Paras gets most of its revenue from defence public-sector undertakings and government organisations involved in space research. Its customers include Bharat Electronics Ltd, Hindustan Aeronautics Ltd, Bharat Dynamics Ltd, Hindustan Shipyard Ltd, Electronic Corporation of India Ltd, Tata Consultancy Services Ltd and Solar Industries India Ltd. Its foreign customers include Advanced Mechanical and Optical Systems of Belgium and Tae Young Optics Company of South Korea.

Paras Defence’s financials

The company’s top line hasn’t grown in the last two years and its profit has fallen.

Its consolidated total income was Rs 144.6 crore for the year ended March 31, 2021, down from Rs 149 crore and Rs 1,57.17 crore for the previous two years.

Its consolidated profit after tax fell to Rs 15.78 crore in 2020-21 from Rs 19.66 crore the year before and Rs 18.97 crore in 2018-19.

The company had an order book of Rs 305 crore as of June 30, 2021.