| Paras Defence and Space Technologies Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has revised its outlook on the long-term bank facilities of Paras Defence and Space Technologies Limited (PDSTL; part of the Paras group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘Crisil A-’. The short-term rating has been reaffirmed at ‘Crisil A2+’.
The outlook revision reflects the improvement in the overall credit risk profile of the group driven by sustained increase in scale of operations. Business risk profile has been improving with healthy operating margin and increasing scale of operations. Revenue increased to Rs 365 crores in fiscal 2025 from Rs 254 crores in previous fiscal and is further expected to grow following healthy order book of above Rs 900 crores as of March 2025; with few additional orders also in the pipeline. Operating margins is expected to remain healthy in the range of 27-30% over the medium term, driven by better product mix and healthy order execution. Improvement in the scale of operations following timely execution of the order book, along with the continuous addition of new orders while maintaining a healthy operating margin, would remain monitorable over the medium term.
The financial risk profile remains strong with healthy capital structure as the company’s reliance on external debt and payables to support working capital requirement remains limited. Liquidity is expected to remain healthy with strong cash accruals and absence of any large debt funded capex
The ratings continue to reflect the extensive experience of the promoters of PDSTL and their technical expertise, diversified product portfolio, reputed clientele and strong financial risk profile. These strengths are partially offset by large working capital requirement and partial susceptibility of revenue and operating profitability to tender-based businesses. |
Analytical approach Crisil Ratings has combined the business and financial risk profiles of PDSTL and its subsidiaries. This is because all these entities, collectively referred to as the Paras group, operate in the same industry and have operational and financial linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position supported by the extensive experience of the promoters and technical expertise: The group benefits from the promoters’ experience of more than four decades and their strong understanding of market dynamics, which should continue to support business risk profile. Over the decades, the group has developed strong engineering and design capabilities, which has helped it to meet the changing demands of its customers. Furthermore, a strong focus on R&D (research and development) has helped it to develop a wide range of products and solutions in the defence and space sectors. With strong technical capabilities and continuous R&D, the Paras group has been improving its market position and is a sole manufacturer of many critical components in India as well as the entire Asia-Pacific regions for certain products. This is reflected in the continuous increase in revenue to around Rs 365 crore in fiscal 2025 from Rs 254 crore in fiscal 2024. Furthermore, with a strong market position the group has been able to establish a healthy order book of Rs. 929 crore as on March 31, 2025. This provides healthy revenue visibility over the medium term.
Diversified product portfolio and healthy customer profile: The group has a wide range of products that find application in diverse sectors such as defence and space optics (49% of revenue in fiscal 2025) and defence electronics (51%). Customer base ranges from government organisations involved in defence and space research to various defence public sector undertakings such as Defence Research and Development Organisation, Bharat Electronics Ltd, and Indian Space Research Organisation; as well as various private entities such as the Tata group, L&T, and Alpha Design Technologies Pvt Ltd. The group also exports to companies based in Israel, Singapore and the USA (accounts for ~12% of total sales). The diversified product portfolio and established relationship with key customers should help maintain scale over the medium term.
Strong financial risk profile: Adjusted networth improved to Rs 580-585 crore as on March 31, 2025, from Rs 340 crore as on March 31, 2024, on the back of QIP of Rs 135 crore. Overall capital structure also improved, with gearing and total outside liabilities to adjusted networth ratio of around 0.04-0.05 time and 0.3-0.35 time (from 0.16 time and 0.5 time, respectively, previous fiscal). Debt protection metrics were also strong, with interest coverage and net cash accrual to adjusted debt ratios of above 10 times and above 3 times, respectively, in fiscal 2025 (7.2 times and 0.7 time, respectively, in fiscal 2024). With healthy profitability, the metrics are expected to remain comfortable over the medium term.
Weaknesses: Working capital-intensive operations: Gross current assets were 500-520 days as on March 31, 2025, due to stretched receivables of 290-300 days and large inventory of 210-215 days (286 days and 274 days, respectively, as on March 31, 2024). The receivables level is high because customers include government bodies, and the group manufactures various products with long processing time; receivables also include retention money. With ramp up in operations, the incremental working capital requirement will be partly met by internal accrual and equity infusion. Efficient working capital management will remain monitorable over the medium term.
Susceptibility to tender-based business: While Paras has a well-diversified product profile with different products providing different profitability, its business performance is entirely dependent on the nature of tender received from its customers, owing to which both scale and profitability are expected to remain volatile. This is reflected in dip in margin to 22-22.5% in fiscal 2024 from 26.1% in fiscal 2023. Though the margin improved in fiscal 2025 to 28.5-29% owing to improved product mix, its sustenance will remain monitorable over the medium term. |
Liquidity: Strong Expected cash accrual of over Rs 95-115 crore per annum in fiscals 2026 and 2027 will be more than sufficient to meet yearly term debt obligation of Rs 0.5-0.6 crore. Fund-based limit was utilised 51% on average over the 12 months through January 2025. Of the total cash and bank balance of around Rs 110 crore as on March 31, 2025, Rs 85-90 crore is unencumbered. Strong gearing and moderate networth support financial flexibility and provide the financial cushion available in case of any adverse condition or downturn in the business. |
Outlook: Positive Crisil Ratings believes the group’s business performance is expected to improve over the medium term on account of a strong order book and healthy product mix, leading to stable operating efficiency. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the company Set up in 1979 by Mr Sharad Shah, PDSTL offers high-precision products and turnkey solutions to the defence and space sectors, operating in three main verticals – defence and space optics, defence electronics and heavy engineering. It is listed on the Bombay Stock Exchange and the National Stock Exchange. Operations are currently managed by Mr Munjal Shah (son of Mr Sharad Shah). The company has two manufacturing facilities in Thane and Navi Mumbai (both in Maharashtra). |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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