Rationale

 The assigned rating of Paras Defence & Space Technologies Limited (PDSTL) continues to favourably factor in the healthy order book position at Rs.305 crore as on June 30, 2021, which translates to a comfortable OB/OI ratio of 2.1 times the operating income of FY2021, thereby providing medium term revenue visibility. The rating continues to favourably factor in the strengthening of the company's capital structure, liquidity position and coverage metrics post the equity infusion of Rs. 140 crore through the recent Initial Public Offering (IPO) in September 2021. Apart from part prepayment of the debt outstanding, the proceeds from the IPO are proposed to be used for funding incremental working capital requirements, capital expenditure, and for extending support to subsidiary companies. The rating also draws comfort from the extensive experience of management team with three decades of experience in designing, developing, and manufacturing of a wide range of engineering products and solutions for defence and space sector in the domain of optics, heavy engineering and electronics. PDSTL's long tenure presence in the defence and space sector has helped it to establish strong relationships with its customers as well as suppliers. The Company has developed a strong management and execution team comprising of several exemployees of Bharat Electronics Limited (BEL), The Defence Research and Development Organisation (DRDO) among others. The rating, however, continues to remain constrained by the working capital-intensive nature of operations of the company due to a high inventory holding and a long receivable cycle. The sharp increase in inventory levels as on March 31, 2021 is attributable to additional stocking of critical raw materials to avoid any disruption to the delivery schedules in the event of future lockdowns (if any). Consequently, this resulted in high NWC/OI of 115.6% in FY2021. ICRA expects the moderation in the working capital cycle. Going forward, the company's ability to alleviate its working capital intensity, while scaling up its revenues, will be a key rating monitorable. The rating is also constrained on account of the company's moderate scale of operations with Covid-19 pandemic further impacting the revenue in FY2021. However, the healthy order book status of the company provides adequate revenue visibility in the near to medium term. While the client concentration risk remains with top three clients contributing to 71% of the total order book as on March 31, 2021 and top five clients accounting for 63% of revenue in FY2021; thrust on make in India in defence augurs well for PDSTL. The client profile comprises of mostly government organizations with repeat orders received over the years, which mitigates the counter party credit risk to a large extent. The Stable outlook reflects ICRA's opinion that PDSTL will continue to benefit from the healthy order-book position which provides medium term revenue visibility, comfortable financial risk profile and the extensive experience of management team.