ICRA revises long-term rating outlook of Paras Defence to 'positive'

The agency has reaffirmed the company?s long-term and short-term rating at '[ICRA] A-? and '[ICRA] A2+?, respectively.

ICRA stated that the revision in outlook to 'positive? on the long-term rating of Paras Defence & Space Technologies (PDSTL) takes into account the expectation that the company will be able to sustain the increase in its operating margins to 26.7% in FY2025 from 21.2% in FY2024, driven by the rising share of the margin-accretive 'optics and optronics? segment, and an improvement in working capital intensity on the back of reduction in inventory days due to quicker delivery of periscopes and faster realisation of payments.

This, coupled with the robust topline growth of 44% to Rs. 364.7 crore and a healthy order book position of Rs 928 crore as on 31 March 2025 (translating to a book-bill ratio of 2.5 times of FY2025 OI) resulted in a substantial improvement in its financial profile.

The ratings continue to favourably factor in the extensive experience of the management team with more than three decades of experience in designing, developing and manufacturing a wide range of engineering products and solutions for the defence and space sector in optics, heavy engineering and electronics.

PDSTL?s long presence in the sector has allowed it to establish strong relationships with its customers.

The ratings, however, are constrained by the working capital-intensive nature of operations, which despite posting an improvement in FY2025, continues to remain high on an absolute basis on account of long receivables cycle and high inventory holding period.

This is attributable to the need to maintain adequate stocking of raw materials to ensure uninterrupted production and avoid any disruptions in delivery schedules.

The ratings are also constrained by the moderate scale of operations, coupled with client concentration risk with the top 5 clients accounting for nearly 76% of the pending order book as on 31 March 2025 and approximately 69% of revenues in FY2025.

Going forward, PDSTL?s ability to prudently manage its working capital intensity, while scaling up its revenues, with sustenance of its healthy operating margins and liquidity, will be a key rating monitorable.

Paras Defence & Space Technologies 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.

The scrip shed 0.23% to currently trade at Rs 1629 on the BSE.

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