Paras Defence is up 32% a year after listing: What should investors do?

In 2021, IPO Street was busy as a slew of companies made their stock market debuts, one of them being Paras Defence and Space Technologies.

This aerospace and defence company stood out amongst new-age tech companies. On 1 October 2021, it made a bumper debut on the bourses, listing at a 171 percent premium over its issue price. One year after its listing, the stock has advanced 32 percent. But in 2022 so far, the share has tumbled 12 percent.

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Incorporated in June 2009, Paras Defence is engaged in designing, developing, manufacturing and testing a variety of defence and space engineering products and solutions, offering five major categories – defence & space optics, heavy engineering, defence electronics, electro magnetic pulse protection solution, and niche technologies.

On the back of the government’s Aatmanirbhar (self-reliance) push, the company’s order book nearly doubled from Rs 156 crore at the end of FY20 to Rs 300 crore as of FY22-end. Profit after tax also went up from Rs 19.6 crore in FY20 to Rs 27 crore in FY22.

“Paras Defence is fundamentally a strong stock with a strong balance sheet, specifically its fairly high earnings growth number, which no doubt is backed by the company’s high earnings retention,” Mohit Nigam, head – PMS, Hem Securities, told Moneycontrol.

The company is also a key player in the drone manufacturing segment. According to analysts, this will be a major growth driver. The civil aviation ministry says the Indian drone industry will grow to $1.5-1.9 billion by 2026. And, Paras Defence is smartly capitalising on this opportunity.

About a month back, it entered into an exclusive teaming agreement with ‘ELDIS Pardubice’ of Czech Republic to provide turnkey anti-drone systems for civilian airports in India.

Vinit Bolinjkar, head of research, Ventura Securities, said, “Its IPO turned out to be the second most subscribed issue of 2021 (first being Latent View Analytics) and the stock is still trading at 3.8 times its IPO price. After listing, it was shortlisted for the PLI (production linked incentive) scheme for drone component manufacturers. Also the company entered into exclusive agreements and signed a letter of intent with New Space India.”

Going ahead, the global defence industry is likely to grow at a compound annual rate of 5.8 percent to be worth $604.8 billion by 2026. “We expect Paras Defence to be in focus given the approvals by Defence Acquisition Council and Aatmanirbhar Bharat campaign,” he added.

Nigam also believes that the long term story of the company is very strong. “Defence expenditure as a percentage of GDP is rising. Plus, the sector has witnessed sharp rerating over the past one year. So as of now, investors should hold this stock for long term gains,” he said.

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