Paras Defence & Space Tech IPO: Grey market is willing to pay twice the price

• Paras Defence and Space Technologies’ IPO is opening on September 21 and will close on September 23.
• The Mumbai-based defence company is looking to raise ₹170 crore through its IPO that opens next week.
• Analysts believe the IPO is a good bet for the long term considering it gets 50% of its revenue from government entities.

The initial public offering (IPO) of Paras Defence & Space Technologies may get huge demand from investors if its grey market premium is to be considered as an indicator. Shares of the Mumbai-based defence company were reportedly trading at a premium of ₹220 per share, up by over 125% from the price band of ₹165-170.

The IPO is opening on September 21 and will close on September 23.

The demand from investors is justified if we take into consideration the optimistic view by analysts. They have highlighted the company’s ability to benefit from the government’s ‘Make in India’ initiative along with its strong order book.

“Company has [a] wide range of products and solutions for both defence and space applications. Company being one of the few players in high precision optics manufacturing for space and defence application in India has strong R&D [research and development] capabilities with focus on innovation and is well positioned to benefit from the government’s “Atmanirbhar Bharat” and “Make in India” initiatives. Also, the company's strong order book gives good revenue visibility going forward,” said analysts at HEM Securities while recommending to subscribe to the IPO for long term.

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% and 32.3% revenue, while the rest was from exports.

It has a strong order book of ₹304 crore as of June 30, 2021.

“Paras Defence has a wide range of products and services with strong R&D capabilities. However, the company’s financials have been volatile over the past 3 years, which is a cause of concern. Outlook for Paras defence in the long term is encouraging based on positive sectoral outlook, government support and company’s expansion & diversification plans. Hence we give a “SUBSCRIBE” rating to this IPO for a long term horizon,” said analysts at BP Wealth Equities.

The company doesn’t have any peers in the listed space which analysts believe is an add-on. “Considering its niche product profile and technology, dominant market positioning and vast growth potential, we assign a “SUBSCRIBE” rating for the issue,” said a report by Choice Broking.

Here are some of the important dates related to the IPO:

The Mumbai-based defence company is primarily engaged in the designing, developing, manufacturing, and testing of a variety of defence and space engineering products and solutions.

The company intends to utilise the net proceeds of the issue to purchase machinery and equipment, funding incremental working capital requirements, repaying certain borrowings, and for general corporate purposes.

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