This smallcap defense stock has rallied 55% in 3 days; zoomed 87% in 9 days

The stock of aerospace & defense company hit a new high of Rs 1,388.70 has locked in 20 per cent upper circuit of the second straight day.

Shares of Paras Defence and Space Technologies hit a new high of Rs 1,388.70, as they rallied 20 per cent on the BSE in Tuesday’s intra-day trade amid heavy volumes.

The average trading volumes on the counter more than doubled today. Till 12:23 pm, a combined 11.97 million equity shares representing 30.69 per cent of total outstanding shares of Paras Defence changed hands on the NSE and BSE.

The stock of aerospace & defense company has locked in 20 per cent upper circuit of the second straight day. In past three days, it  has surged 55 per cent. While, the stock zoomed 87 per cent in last nine trading days, from Rs 743 touched on June 4.

On resuming charge as the Defence Minister, Rajnath Singh, last week, set the government's defence export target at Rs 50,000 crore on an annual basis by FY29 (up from Rs 21,083 crore in FY24), with a focus on achieving self-reliance in defence manufacturing.

As per reports, several major military exports to nations like the Philippines, Vietnam and Armenia were in the pipeline, and could be inked in the coming months. The ministry is also planning to set up a new defence export promotion agency that will focus on arms sales abroad.

Paras Defence designs, develops and manufactures a wide range of engineering products and solutions for the defence and space sector in the domain of optics, heavy engineering and electronics. Reputed  government  organisations, namely Laboratory for Electro Optics Systems (a unit of ISRO), BEL, Instruments Research and Development Establishment (a unit of DRDO), and private companies like FFS Industries Private Limited and SEC Industries Private Limited, form a major part of the company’s clientele.

Last month, Paras Defence received a contract from Indian Farmers Fertiliser Cooperative Limited (IFFCO) worth approximately Rs 20 crore, for spraying of IFFCO Nano fertilisers, Sagarika, IFFCO MC Agro-Chemicals and other IFFCO & IFFCO JV’s Agri-products using drones in the fields of individual farmers, with the aim of enhancing agricultural productivity and efficiency.

The government policies like Aatmanirbhar Bharat and Make in India provide a favourable environment for growth to Indian companies in the defence and space sectors. With growing prominence of technology, the demand for defence electronics, defence optics, EMP protection and heavy engineering services are on the rise. The company’s stronghold in these areas provides good growth opportunities.

Defence manufacturing in India is witnessing substantial growth led by government’s push towards foreign trade and joint agreements with various countries. The company is in a sweet spot to participate in government’s future projects aided by the launch of the Indian Space Association, promoting the participation of private players, Paras Defence said.

The Government’s thrust on ‘Make in India’ in the defence sector and the strong credit profile of its principal customers augur well for Paras Defence. The company’s client profile mostly comprises Government organisations with sustained repeat orders, largely mitigating the counterparty credit risk.

Going forward, the company’s ability to alleviate its working capital intensity, while scaling up its revenues and improving its operating margins, will be the key rating monitorable, according to analysts.

Though the company reported a robust year-on-year (Y-o-Y) revenue growth of 21 per cent and 13.96 per cent in FY2023 and FY2024,  respectively,  supported  by  healthy  order  book  and  the  timely  execution  of orders,  the  scale of  operations still remains moderate.

Given the Government’s thrust on ‘Make in India’ in the defence sector, Paras Defence has been mainly catering to domestic demand (approximately 84 per cent of order inflow contributed by domestic orders in FY2023). Driven by the healthy order book status, ICRA expects the company to sustain its revenue growth in FY2025.