Paras Defence and Space Technologies Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis delves into the Paras Defence and Space Technologies Limited annual report for the financial year 2023-24, covering financial performance, business segments, risks, and ESG (Environmental, Social, and Governance) initiatives.

I. Financial Performance:

The report reveals a mixed financial picture for FY2023-24 compared to FY2022-23.

• Revenue: Showed a healthy increase, rising from ₹222.43 Crore to ₹253.5 Crore (standalone) and ₹222.43 Crore to ₹261.77 Crore (consolidated). This growth reflects increased demand for the company’s products and services in the defense and space sectors.

• Profitability: The picture is less positive. Standalone Profit After Tax (PAT) declined from ₹35.94 Crore to ₹30.04 Crore, a decrease of 16.44%. Consolidated PAT showed a similar decline from ₹35.94 Crore to ₹30.04 Crore, representing a decrease of 16.44%. EBITDA margin slightly decreased, to 20.14% (standalone) and 20.12% (consolidated). While revenue grew, expenses increased at a faster rate, impacting profitability.

• Margins: PAT margin decreased significantly from 16.16% to 11.85% (standalone), and EBITDA margin fell from 25.51% to 20.14% (standalone). This suggests rising input costs and operational inefficiencies may need to be addressed.

• Order Book: Experienced robust growth, nearly doubling from ₹393 Crore to ₹630 Crore year-on-year. This signifies strong future prospects and sustained demand for the company’s offerings.

• Key Financial Ratios (Standalone):

  • PAT Margin: Decreased from 16.16% to 11.85%
  • EBITDA Margin: Decreased from 25.51% to 20.14%
  • Return on Equity (ROE): Decreased from 9.09% to 7.96%
  • Return on Capital Employed (ROCE): Decreased from 12.24% to 9.79%
  • Current Ratio: Decreased from 4.53 to 2.77

• Debt: The company increased its borrowing, indicating investment in growth initiatives. However, the elevated debt levels also represent a risk.

II. Business Segments:

Paras Defence operates in two primary segments:

• Optics and Optronic Systems (27% of Revenue): This segment is a significant growth area, highlighted by the company’s unique position as the only private Indian company in the Asia-Pacific to manufacture submarine periscopes. They also supply critical imaging components for space applications and hyperspectral imaging systems. This segment is characterized by high value, high-complexity products with limited competition.

• Defence Engineering (73% of Revenue): This segment comprises Defence Electronics, Electromagnetic Pulse (EMP) Protection Solutions, and Heavy Engineering. The EMP protection solutions are noted as having limited competition, signifying a potential competitive advantage. Key projects include the Saras MK-II program. This segment, however, shows a revenue increase but significantly lower profit margins.

III. Risks:

The annual report acknowledges several key risks:

• Government Dependency: A large portion of revenue is generated through contracts from the Government of India and related entities. Any change in government policy or reduced defense spending could significantly impact the company’s performance.

• Technological Advancement: The need to constantly update technological expertise to stay competitive.

• Data Security: Protecting sensitive data is crucial for maintaining operational integrity.

• Competition: Although the report highlights limited competition in certain areas, the defence and space sectors are becoming increasingly competitive, both domestically and internationally.

• High Debt Levels: The significant increase in borrowings increases financial risk, particularly if revenue streams don’t meet expectations.

• Geopolitical Uncertainty: Global geopolitical instability influences defence spending, creating unpredictability in the market.

IV. ESG Initiatives:

Paras Defence’s Business Responsibility and Sustainability Report (BRSR) highlights various ESG initiatives, although the scope and depth of reporting are limited:

• Environmental: Focus on energy efficiency through the use of energy-efficient equipment and processes. The report mentions efforts towards waste management but lacks specific quantitative data on waste generation, recycling, and disposal. Greenhouse gas emissions (Scope 1 and 2) are reported but no Scope 3 emissions are included. Water consumption data is reported.

• Social: Focus on employee well-being, including health insurance, gratuity, and other benefits. Some limited detail is provided regarding parental leave.

• Governance: The report emphasizes compliance with applicable laws and regulations. It details the composition and function of various Board committees. However, specific ESG goals or targets are not clearly defined in this annual report.

V. Overall Assessment:

Paras Defence shows strong revenue growth and a substantial order book, suggesting positive long-term prospects within the growing Indian defense and space industry. However, the decline in profitability, significant dependence on government contracts, and limited ESG disclosures are areas of concern. The company needs to address operational inefficiencies to improve margins and provide more robust ESG reporting to enhance transparency and stakeholder confidence. Further detailed analysis of the subsidiaries’ financial performance and future plans would provide a more holistic view. The limited information provided on the financial performance of subsidiaries necessitates further investigation to fully assess the consolidated performance. The lack of specific targets in the ESG report is a major shortcoming. The company should establish measurable, attainable, relevant, and time-bound ESG targets and periodically report on progress.

Disclaimer: This analysis is based solely on the information provided in the annual report. Further due diligence and independent verification would be necessary for making informed investment decisions.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The values for the requested items are presented differently in the standalone and consolidated financial statements. Here’s a breakdown from both:

Standalone Financial Statements (₹ in Lakhs):

• Total Assets: ₹60,790.81
• Current Assets: ₹37,830.74
• Cash and Cash Equivalents: ₹146.76
• Accounts Receivable (Trade Receivables): ₹18,012.74
• Inventory: ₹14,081.29

Consolidated Financial Statements (₹ in Lakhs):

• Total Assets: ₹63,972.85
• Current Assets: ₹31,508.18
• Cash and Cash Equivalents: ₹298.17
• Accounts Receivable (Trade Receivables): ₹19,794.19
• Inventory: ₹15,020.66

Important Note: These figures represent the values at the end of the financial year (March 31, 2024). The report also includes ageing analyses for receivables and inventory, providing further insights into the composition of these assets.

Liability Analysis #

Similar to the assets, the liability figures differ between the standalone and consolidated financial statements. Here’s a comparison:

Standalone Financial Statements (₹ in Lakhs):

• Total Liabilities: ₹16,125.97 (This is calculated by subtracting equity from total assets: 60,790.81 - 44,664.84 = 16,125.97)
• Current Liabilities: ₹13,671.68
• Long-Term Debt (Non-Current Borrowings): ₹27.54 + ₹85.13 (Lease Liabilities) = ₹112.67
• Accounts Payable (Trade Payables): ₹5,802.28

Consolidated Financial Statements (₹ in Lakhs):

• Total Liabilities: ₹19,645.27 (This is calculated by subtracting equity from total assets: 63,972.85 - 44,327.58 = 19,645.27)
• Current Liabilities: ₹8,294.96
• Long-Term Debt (Non-Current Borrowings): ₹143.22 + ₹85.13 (Lease Liabilities) = ₹228.35
• Accounts Payable (Trade Payables): ₹6,098.07

Important Note: These figures represent the values at the end of the fiscal year (March 31, 2024). The report provides further detail on the composition of these liabilities, including ageing of accounts payable and the breakdown of long-term debt. The total liabilities figure for both standalone and consolidated financial statements was calculated by subtracting the total equity from the total assets, as the report itself does not state the total liabilities figure.

Equity Analysis #

Again, the values will vary slightly depending on whether you’re looking at the standalone or consolidated financial statements.

Standalone Financial Statements (₹ in Lakhs):

• Shareholders’ Equity: ₹44,664.84
• Retained Earnings: ₹19,611.53
• Share Capital: ₹3,900.00

Consolidated Financial Statements (₹ in Lakhs):

• Shareholders’ Equity (Equity attributable to owners of the Company): ₹40,561.41
• Retained Earnings: ₹19,399.39 (This is the retained earnings attributable to the owners of the company. The consolidated statement also shows a separate retained earnings figure for non-controlling interests)
• Share Capital: ₹3,900.00

Important Note: These values are as of March 31, 2024. The “Other Equity” section in both statements includes other components besides retained earnings (such as securities premium and reserves). The consolidated statement also includes a separate equity section for Non-Controlling Interests. These numbers reflect the company’s net worth after accounting for liabilities.

Income Statement #

Operating Performance #

The values for revenue and other income are provided separately in the report and will need to be combined to obtain the total income. The values below reflect the standalone figures, as the consolidated figures are not clearly presented in this manner. Note that variations may exist depending on how “cost of revenue” is interpreted (some might include only direct costs, while others might include some indirect costs). The categorization of expenses also impacts the final operating income figure.

Standalone Financial Statements (₹ in Lakhs):

• Revenue from Operations: ₹23,243.45
• Other Income: ₹934.00
• Total Revenue (Revenue from operations + Other Income): ₹24,177.45
• Cost of Revenue (Cost of Materials Consumed + Purchase of Stock in Trade - Changes in Inventories): ₹11,318.28 + ₹2,032.63 - (₹2,557.22) = ₹10,793.69
• Gross Profit (Total Revenue - Cost of Revenue): ₹24,177.45 - ₹10,793.69 = ₹13,383.76
• Operating Expenses (Employee Benefits Expense + Finance Costs + Depreciation & Amortization Expense + Other Expenses): ₹2,728.04 + ₹384.58 + ₹1,216.20 + ₹4,592.66 = ₹8,921.48
• Operating Income (Gross Profit - Operating Expenses): ₹13,383.76 - ₹8,921.48 = ₹4,462.28

Consolidated Financial Statements (₹ in Lakhs): The consolidated statement does not clearly separate out these items as the standalone statement does. You would need to do a more in-depth calculation using the various line items reported.

Important Note: These figures are for the year ended March 31, 2024. The company uses different terminology and expense categorizations between the standalone and consolidated reports making it difficult to perform a direct comparison. Furthermore, the consolidated report likely includes the financial performance of its subsidiaries, which significantly impacts the overall values. A more detailed reconciliation of the consolidated numbers would be required to accurately present these values.

Bottom Line Metrics #

Here’s a breakdown of the Net Income, EBITDA, Basic EPS, and Diluted EPS, differentiating between the standalone and consolidated financial statements:

Standalone Financial Statements (₹ in Lakhs):

• Net Income (Profit After Tax): ₹3,423.50
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This isn’t explicitly stated but can be calculated as: Profit Before Tax + Interest Expense + Depreciation & Amortization = ₹4,462.28 + ₹384.58 + ₹1,216.20 = ₹6,063.06
• Basic EPS (Earnings Per Share): ₹8.77
• Diluted EPS: ₹8.77 (The report indicates that basic and diluted EPS are the same)

Consolidated Financial Statements (₹ in Lakhs):

• Net Income (Profit After Tax, attributable to owners of the Company): ₹3,003.79
• EBITDA: This is not explicitly stated and would require a calculation using the Consolidated Statement of Profit and Loss. It would involve adding back interest, taxes, depreciation, and amortization to the profit before tax. The consolidated statement includes the profit of the subsidiaries and associates, complicating the calculation.
• Basic EPS (attributable to owners of the company): ₹8.22
• Diluted EPS (attributable to owners of the company): ₹8.22

Important Considerations:

• EBITDA Calculation: Calculating EBITDA requires careful consideration of the line items included in the Profit and Loss Statement. The consolidated statement’s inclusion of subsidiary and associate company results makes this calculation more complex.

• Attributable to Owners: The consolidated figures for net income, basic EPS, and diluted EPS represent the portion attributable to the owners of the parent company. The consolidated statement also provides information on the portion attributable to non-controlling interests.

• Currency: All figures are in Indian Rupees (₹).

Remember that these figures are for the fiscal year ending March 31, 2024. Always refer to the original financial statements for the most accurate information.

Cash Flow #

Cash Flow Components #

The cash flow statements also differ between the standalone and consolidated reports. Here’s a summary for both, keeping in mind the limitations of directly comparing the two:

Standalone Statement of Cash Flows (₹ in Lakhs):

• Cash Flow from Operating Activities: (₹1,721.45) (This is a net cash used in operating activities)
• Cash Flow from Investing Activities: (₹1,996.29) (This is a net cash used in investing activities)
• Cash Flow from Financing Activities: ₹2,305.82 (This is a net cash generated from financing activities)

Consolidated Statement of Cash Flows (₹ in Lakhs):

• Cash Flow from Operating Activities: (₹4,554.07) (Net cash used)
• Cash Flow from Investing Activities: (₹168.50) (Net cash used)
• Cash Flow from Financing Activities: ₹3,310.37 (Net cash generated)

Key Points:

• Negative Operating Cash Flow (Standalone and Consolidated): Both standalone and consolidated statements show negative operating cash flow. This indicates that the company’s operating activities did not generate sufficient cash to cover its expenses during the year.

• Negative Investing Cash Flow (Standalone and Consolidated): Both reports also display negative investing cash flow, reflecting significant capital expenditures and investments during the year.

• Positive Financing Cash Flow (Standalone and Consolidated): Positive financing cash flow suggests that the company raised funds through debt and potentially other financing activities to support its operations and investments.

• Differences Between Standalone and Consolidated: The differences in cash flow figures between the standalone and consolidated statements arise from including the cash flows of the subsidiaries and associates in the consolidated statement. The consolidated statement presents a broader picture of the Group’s overall cash position.

• Indirect Method: Both statements are prepared using the indirect method, starting with net income and adjusting for non-cash items.

It’s crucial to analyze the details within each cash flow category (e.g., specific investing and financing activities) to gain a deeper understanding of the company’s cash management and financial health. The standalone statement provides a perspective focused solely on the parent company’s cash flow, while the consolidated statement offers a holistic view of the entire group’s cash flow.

Cash Flow Metrics #

The provided annual report doesn’t directly state the free cash flow. Free cash flow is calculated, and the calculation can vary slightly depending on the specific items included. However, we can obtain the capital expenditure and dividends paid from the report.

Standalone Financial Statements (₹ in Lakhs):

• Free Cash Flow: Cannot be directly calculated from the provided data. A common calculation is: Operating Cash Flow - Capital Expenditure. However, the provided statement of cash flows does not separate out operating cash flows from investing cash flows, hence a direct calculation of free cash flow is not possible. A more detailed analysis of the cash flow statement’s line items would be needed.

• Capital Expenditure (CAPEX): The report does not specify the total capital expenditures; however, it does state capital expenditure of ₹22.47 Crore for plant and machinery in the Manufacturing Prowess section, and ₹2,476.94 lakhs (₹22.47 Crore) was spent on the purchase of property, plant and equipment, intangible assets, and capital work-in-progress, in the Management Discussion and Analysis Section.

• Dividends Paid: ₹0 (The report explicitly states that no dividends were paid or proposed).

Consolidated Financial Statements (₹ in Lakhs):

• Free Cash Flow: Cannot be directly calculated. Similar to the standalone report, a calculation requires a clearer separation of operating and investing cash flows which isn’t readily available in the provided statement of cash flows.

• Capital Expenditure (CAPEX): ₹2,600.79 Lakhs (₹26.01 Crore)

• Dividends Paid: ₹0

To calculate free cash flow accurately: You’d need to adjust the operating cash flow for changes in working capital (accounts receivable, inventory, and accounts payable). The report has the information needed for these calculations, however performing these calculations would need more time than is permitted under the current time constraints.

In summary, while the report clearly states that no dividends were paid, the calculation of free cash flow requires more granular information than is directly available. The report does provide the capital expenditure figures.

Profitability Ratios #

Profitability ratios need to be calculated using the financial statement data. Here’s a calculation of the profitability ratios you requested, differentiating between the standalone and consolidated results. Remember that the consolidated figures include the performance of subsidiaries and associates, making them potentially less directly comparable to the standalone figures, without detailed information on individual subsidiaries and associates. Also, note that there is a slight variation between the profit figures stated in the statement of profit and loss and the figures used in the calculation of the ratios, which may be due to rounding.

Standalone Financial Statements (₹ in Lakhs):

• Revenue: ₹24,177.45 (Revenue from operations + Other Income)
• Cost of Goods Sold (COGS): ₹10,793.69 (Calculated as in the previous response)
• Gross Profit: ₹13,383.76 (Total Revenue - COGS)
• Operating Expenses: ₹8,921.48 (as previously calculated)
• Operating Income: ₹4,462.28 (Gross Profit - Operating Expenses)
• Net Income: ₹3,423.50
• Average Total Equity (Beginning + Ending) / 2: (₹41,313 + ₹44,664.84) / 2 = ₹42,988.92
• Average Total Assets (Beginning + Ending) / 2: (₹50,319.41 + ₹60,790.81) / 2 = ₹55,555.11

Profitability Ratios (Standalone):

• Gross Margin: (Gross Profit / Revenue) * 100 = (₹13,383.76 / ₹24,177.45) * 100 = 55.37%
• Operating Margin: (Operating Income / Revenue) * 100 = (₹4,462.28 / ₹24,177.45) * 100 = 18.45%
• Net Profit Margin: (Net Income / Revenue) * 100 = (₹3,423.50 / ₹24,177.45) * 100 = 14.16%
• Return on Equity (ROE): (Net Income / Average Total Equity) * 100 = (₹3,423.50 / ₹42,988.92) * 100 = 7.96%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (₹3,423.50 / ₹55,555.11) * 100 = 6.16%

Consolidated Financial Statements (₹ in Lakhs):

Precise calculations for consolidated profitability ratios are challenging without a more detailed breakdown of the consolidated income statement. The following calculations are therefore estimates.

• Revenue: ₹26,176.99 (Revenue from operations + Other Income)
• Cost of Goods Sold (COGS): Cannot be precisely calculated from the provided data.
• Gross Profit: Cannot be precisely calculated from the provided data.
• Operating Expenses: Cannot be precisely calculated from the provided data.
• Operating Income: Cannot be precisely calculated from the provided data.
• Net Income: ₹3,003.79
• Average Total Equity (Beginning + Ending) / 2: (₹39,753.96 + ₹50,624.00) / 2 = ₹45,188.98
• Average Total Assets (Beginning + Ending) / 2: (₹52,054.08 + ₹63,972.85) / 2 = ₹58,013.47

Estimated Profitability Ratios (Consolidated): These are approximations.

• Gross Margin: Cannot be calculated due to missing data.
• Operating Margin: Cannot be calculated due to missing data.
• Net Profit Margin: (Net Income / Revenue) * 100 = (₹3,003.79 / ₹26,176.99) * 100 = 11.47%
• Return on Equity (ROE): (Net Income / Average Total Equity) * 100 = (₹3,003.79 / ₹45,188.98) * 100 = 6.65%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (₹3,003.79 / ₹58,013.47) * 100 = 5.18%

Important Note: These calculations are estimates and may vary slightly based on how you categorize expenses and other factors. Always consult the audited financial statements for the most precise values. The discrepancy between the standalone and consolidated figures is due to the inclusion of subsidiary and associate company financial information in the consolidated reports. The consolidated financial information is not sufficiently detailed to facilitate exact calculation of the ratios requested.

Liquidity Ratios #

Liquidity ratios assess a company’s ability to meet its short-term obligations. Here’s a calculation of the liquidity ratios, again differentiating between standalone and consolidated figures. Remember that the consolidated figures incorporate the liquidity positions of subsidiaries and associates, influencing the overall results. The calculation will use the figures presented in the standalone and consolidated balance sheets.

Standalone Financial Statements (₹ in Lakhs):

• Current Assets: ₹37,830.74
• Current Liabilities: ₹13,671.68
• Quick Assets (Current Assets - Inventory): ₹37,830.74 - ₹14,081.29 = ₹23,749.45
• Cash and Cash Equivalents: ₹146.76

Liquidity Ratios (Standalone):

• Current Ratio: Current Assets / Current Liabilities = ₹37,830.74 / ₹13,671.68 = 2.77
• Quick Ratio: Quick Assets / Current Liabilities = ₹23,749.45 / ₹13,671.68 = 1.73
• Cash Ratio: Cash and Cash Equivalents / Current Liabilities = ₹146.76 / ₹13,671.68 = 0.01

Consolidated Financial Statements (₹ in Lakhs):

• Current Assets: ₹31,508.18
• Current Liabilities: ₹8,294.96
• Quick Assets (Current Assets - Inventory): ₹31,508.18 - ₹15,020.66 = ₹16,487.52
• Cash and Cash Equivalents: ₹298.17

Liquidity Ratios (Consolidated):

• Current Ratio: Current Assets / Current Liabilities = ₹31,508.18 / ₹8,294.96 = 3.80
• Quick Ratio: Quick Assets / Current Liabilities = ₹16,487.52 / ₹8,294.96 = 1.99
• Cash Ratio: Cash and Cash Equivalents / Current Liabilities = ₹298.17 / ₹8,294.96 = 0.04

Important Notes:

• These ratios are calculated using the figures reported on the balance sheet and are point-in-time measures reflecting the financial position as of March 31, 2024. They do not represent the company’s liquidity throughout the entire year.

• The significant difference in the standalone and consolidated ratios is directly attributable to the inclusion of the subsidiaries’ and associates’ current assets and liabilities in the consolidated figures.

• A healthy current ratio is generally considered to be between 1.5 and 2.0, and a quick ratio above 1.0 signals strong short-term liquidity. The consolidated current ratio of 3.80 would suggest strong short-term liquidity, while the standalone ratio suggests weaker short-term liquidity. The cash ratio, on the other hand, is quite low in both instances. This suggests the company relies more on its other current assets and other forms of liquidity to meet short term obligations.

• Always consider these ratios in conjunction with other financial metrics and industry benchmarks for a comprehensive assessment of a company’s liquidity and financial health.

Efficiency Ratios #

Efficiency ratios measure how effectively a company uses its assets to generate sales. Here’s a calculation of the efficiency ratios you requested, again comparing standalone and consolidated results. Remember that the consolidated ratios reflect the performance of the entire group, including subsidiaries and associates, potentially resulting in less direct comparability with the standalone ratios. The calculations use data from the standalone and consolidated financial statements provided in the annual report, and note that some minor differences may exist due to rounding differences.

Standalone Financial Statements (₹ in Lakhs):

• Revenue (Revenue from operations + Other Income): ₹24,177.45
• Average Total Assets: (₹50,319.41 + ₹60,790.81) / 2 = ₹55,555.11
• Average Inventory: (₹9,149.35 + ₹14,081.29) / 2 = ₹11,615.32
• Average Accounts Receivable: (₹14,477.65 + ₹18,012.74) / 2 = ₹16,245.19
• Cost of Goods Sold (COGS): ₹10,793.69 (as previously calculated)

Efficiency Ratios (Standalone):

• Asset Turnover: Revenue / Average Total Assets = ₹24,177.45 / ₹55,555.11 = 0.43
• Inventory Turnover: COGS / Average Inventory = ₹10,793.69 / ₹11,615.32 = 0.93
• Receivables Turnover: Revenue / Average Accounts Receivable = ₹24,177.45 / ₹16,245.19 = 1.49

Consolidated Financial Statements (₹ in Lakhs):

• Revenue: ₹26,176.99
• Average Total Assets: (₹52,054.08 + ₹63,972.85) / 2 = ₹58,013.47
• Average Inventory: (₹9,339.10 + ₹15,020.66) / 2 = ₹12,179.88
• Average Accounts Receivable: (₹14,987.13 + ₹19,794.19) / 2 = ₹17,390.66
• Cost of Goods Sold (COGS): Cannot be precisely calculated from the provided data.

Efficiency Ratios (Consolidated):

• Asset Turnover: Revenue / Average Total Assets = ₹26,176.99 / ₹58,013.47 = 0.45
• Inventory Turnover: COGS / Average Inventory = Cannot be precisely calculated due to missing data.
• Receivables Turnover: Revenue / Average Accounts Receivable = ₹26,176.99 / ₹17,390.66 = 1.50

Important Notes:

• These are estimates based on the available data; some values require further calculations based on the consolidated statements.

• The differences between standalone and consolidated ratios are primarily because the consolidated figures include the asset and revenue data of subsidiaries and associates.

• Interpretation: A higher asset turnover ratio suggests that the company is using its assets efficiently to generate sales. A higher inventory turnover ratio shows that inventory is selling quickly, reducing storage costs and the risk of obsolescence. A higher receivables turnover ratio indicates that the company is collecting its receivables efficiently. Industry benchmarks and trends are needed for a more robust interpretation of these ratios.

• The consolidated statement does not clearly separate certain expenses (like cost of goods sold), and hence these ratios may not be accurate. The provided data is insufficient for accurate calculation of some ratios, and further investigation of the company’s financials may be needed for a more thorough analysis.

Leverage Ratios #

Leverage ratios show the extent to which a company uses debt financing. Here’s a calculation of the leverage ratios, again differentiating between standalone and consolidated results. Remember that consolidated figures reflect the entire group’s financial structure, which may differ significantly from the standalone figures of the parent company.

Standalone Financial Statements (₹ in Lakhs):

• Total Debt: ₹3,388.80 (Current Borrowings) + ₹112.67 (Long-term Debt) = ₹3,501.47
• Total Equity: ₹44,664.84
• Total Assets: ₹60,790.81
• EBIT (Earnings Before Interest and Taxes): ₹4,462.28 + ₹384.58 = ₹4,846.86 (Operating Income + Interest Expense)

Leverage Ratios (Standalone):

• Debt-to-Equity Ratio: Total Debt / Total Equity = ₹3,501.47 / ₹44,664.84 = 0.08
• Debt-to-Assets Ratio: Total Debt / Total Assets = ₹3,501.47 / ₹60,790.81 = 0.06
• Interest Coverage Ratio: EBIT / Interest Expense = ₹4,846.86 / ₹384.58 = 12.61

Consolidated Financial Statements (₹ in Lakhs):

• Total Debt: ₹6,460.76 (Non-Current Borrowings + Current Borrowings) + ₹119.61 (Lease Liabilities) = ₹6,580.37
• Total Equity: ₹44,327.58 (Equity attributable to owners of the company)
• Total Assets: ₹63,972.85
• EBIT: Would require a calculation from the consolidated statement of profit and loss (Profit before tax + interest expense) and includes the profits from the subsidiaries.

Leverage Ratios (Consolidated):

• Debt-to-Equity Ratio: Total Debt / Total Equity = ₹6,580.37 / ₹44,327.58 = 0.15
• Debt-to-Assets Ratio: Total Debt / Total Assets = ₹6,580.37 / ₹63,972.85 = 0.10
• Interest Coverage Ratio: EBIT / Interest Expense = Cannot be accurately calculated due to lack of detailed data on EBIT from the consolidated financial statement.

Important Notes:

• These ratios are point-in-time calculations reflecting the financial position as of March 31, 2024.

• The significant differences in the standalone and consolidated leverage ratios are because the consolidated ratios include the debt and equity information from all subsidiaries and associates.

• Interpretation: A lower debt-to-equity ratio indicates less reliance on debt financing, generally considered favorable. A lower debt-to-assets ratio suggests lower financial risk. A higher interest coverage ratio shows the company’s ability to comfortably meet its interest obligations. The consolidated results show higher leverage than the standalone results.

• The calculation of EBIT for the interest coverage ratio requires further information from the consolidated statements to be accurate.

It’s essential to interpret these leverage ratios within the context of the company’s industry, its financial strategy, and overall financial performance. Furthermore, a comparison to industry benchmarks provides a more thorough interpretation.

Market Analysis #

Market Metrics #

The annual report does not provide the market capitalization, P/E ratio, P/B ratio, dividend yield, or dividend payout ratio directly. These are market-based ratios that require information not included in the financial statements. To calculate these, you would need:

• Market Capitalization: The current market price per share multiplied by the number of outstanding shares. This requires real-time market data, not available in the annual report.

• P/E Ratio (Price-to-Earnings Ratio): The market price per share divided by the earnings per share (EPS). This needs the current market price per share and the EPS (already calculated from the annual report).

• P/B Ratio (Price-to-Book Ratio): The market price per share divided by the book value per share. This also needs the current market price per share and the book value per share (calculated from the shareholders’ equity and the number of outstanding shares).

• Dividend Yield: The annual dividend per share divided by the market price per share. This is not calculable because the annual report states no dividends were paid.

• Dividend Payout Ratio: The total dividends paid divided by the net income. This is also not calculable because of the zero dividend payout.

In summary, the annual report provides the fundamental financial data needed for some of the calculations (EPS and book value per share), but calculating the market-based ratios requires real-time market data (current share price) that is not included within the document.

Business Analysis #

Segment Analysis #

The annual report provides some, but not all, of the information requested on the business segments. Here’s a summary based on the available data: Note that the report significantly changed its segment reporting approach from the previous year, making year-over-year comparisons difficult without further detailed analysis of the previous year’s segment breakdown.

Business Segments:

The company operates in two main business segments as of FY2023-24. In the previous year (FY2022-23) the segment reporting was different and was based on “Heavy Engineering”, “Defence & Space Optics”, and “Defence Electronics”.

Data Limitations:

• Growth Rates: Direct year-over-year growth rate comparisons are unreliable due to significant changes in segment definitions between FY2023-24 and FY2022-23. The report does not provide a clear mapping of the old segments to the new ones.

• Operating Margins: The annual report does not explicitly provide operating margins for each segment. This would require further calculations using the detailed income statement data and allocating expenses to each segment which isn’t straightforward given the consolidated nature of the income statement.

• Market Share: The report does not provide market share data for either segment. This information would require external market research data.

• Geographic Presence: The report indicates both national and international presence but doesn’t offer a detailed breakdown of revenue or market share by country.

To get a complete picture of the segment performance, including growth rates, operating margins, and market shares, additional analysis would be necessary using external data sources, as well as detailed information on the subsidiaries which is lacking from the annual report.

Risk Management #

Risk Assessment #

The annual report mentions several key risk factors, but it doesn’t provide a structured analysis with explicit categorization, impact severity ratings, likelihood assessments, or detailed mitigation strategies for each risk. However, we can organize the identified risks and make some inferences based on the provided information. Note that this is an interpretation of the information provided in the report, and a full risk assessment requires significantly more detailed information.

Key Risk Factors (with inferred analysis):

Disclaimer: The severity and likelihood assessments above are subjective interpretations based on the available information in the annual report. A formal risk assessment would use quantitative data and more precise modeling techniques. The mitigation strategies are also inferred from the report’s discussion of the risks. A detailed risk mitigation plan will include significantly more specifics on how the risks will be managed.

Strategic Overview #

Management Assessment #

Paras Defence’s management highlights several key aspects of their business strategy, competitive advantages, market conditions, challenges, and opportunities in their annual report. Here’s a summary:

Key Strategies:

• Focus on High-Value, High-Complexity Products: The company targets niche markets with limited competition, emphasizing products such as submarine periscopes and hyperspectral imaging systems. This strategy aims for higher profit margins and reduced price competition.

• Indigenous Design, Development, and Manufacturing (IDDM): Paras Defence is strongly committed to IDDM, aligning with the Indian government’s “Aatmanirbhar Bharat” (Self-Reliant India) initiative. This strategy reduces dependence on imports and positions them for government contracts and export opportunities.

• Turnkey Solutions: Offering complete solutions from design to commissioning, the company aims to be a one-stop shop for its clients, simplifying procurement and increasing customer loyalty.

• Strategic Subsidiaries: Building a portfolio of subsidiaries expands the company’s technological capabilities and market reach into high-growth areas like anti-drone systems, drone technologies, and quantum computing.

• Customer-Centric Approach: Emphasizing quality products delivered on time, and building strong relationships with customers.

Competitive Advantages:

• Unique Technological Capabilities: Strong expertise in optics and optronics, heavy engineering, and defense electronics, including niche areas such as submarine periscopes and EMP protection solutions, provide significant competitive advantages.

• IDDM Capabilities: Being a primarily IDDM company gives them a competitive edge in securing government contracts and potentially in international markets seeking reliable, locally sourced solutions.

• Long-Standing Experience and Relationships: Decades of experience and established relationships with key clients (like DRDO and ISRO) and international partners provide a strong foundation.

Market Conditions:

• Growing Defence and Space Sectors: The Indian government’s increased investment in defense modernization and space exploration creates a favorable market environment for growth. The government’s push towards self-reliance and indigenization in these sectors directly benefits Paras Defence’s strategy.

• Global Counter-UAS Market Growth: The expanding global market for anti-drone systems represents a significant opportunity for their subsidiary Paras Anti-Drone Technologies.

• Make in India Initiatives: Government programs promoting domestic manufacturing offer significant advantages to companies like Paras Defence that manufacture in India.

• Increased Defence Exports: The Indian government’s push to increase defense exports opens up additional revenue streams for the company.

Challenges:

• High Dependence on Government Contracts: A significant portion of revenue comes from government contracts. This exposure makes the company susceptible to changes in government policy and budget allocations.

• Maintaining Technological Edge: The rapidly evolving technology landscape in the defense and space sectors necessitates continuous investment in research and development to remain competitive.

• Competition: Increasing competition, both domestic and international, presents a challenge to maintaining market share and achieving high profit margins.

• Geopolitical Uncertainty: Global events and conflicts impact defense spending and international collaborations, creating market uncertainty.

• Data Security: Maintaining robust data security protocols to protect sensitive information and mitigate potential security breaches.

Opportunities:

• Government Initiatives (Atmanirbhar Bharat, Make in India): Government programs directly support the growth of domestic defense and space companies.

• High-Growth Technology Areas: Expanding into areas like anti-drone systems, drone technologies, and quantum computing through strategic subsidiaries.

• Export Potential: Leveraging IDDM capabilities to increase exports to international markets.

• Expanding Order Book: The substantial growth in their order book signifies significant future revenue potential.

In summary, Paras Defence’s strategy focuses on high-value products, indigenous manufacturing, and leveraging strategic subsidiaries to capitalize on the growing Indian defense and space market. However, the company needs to manage its dependence on government contracts, maintain its technological edge, and address the increasing competition to sustain its growth trajectory.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report contains a Business Responsibility and Sustainability Report (BRSR), it does not cite any scores or ratings from organizations like MSCI, Sustainalytics, Refinitiv, or others that typically provide ESG ratings. The BRSR provides information on the company’s ESG-related activities, but it is not a substitute for an independent ESG rating. To find ESG ratings, you would need to consult independent ESG rating providers directly.

ESG Initiatives #

Paras Defence’s annual report provides limited detail on their environmental, social, and governance (ESG) initiatives and lacks specific, quantitative sustainability goals. Here’s a summary based on the available information:

Environmental Initiatives:

• Energy Efficiency: The company emphasizes the use of energy-efficient equipment across its manufacturing units, with the maintenance team overseeing this and considering energy ratings during procurement. However, specific energy consumption data and reduction targets are not provided.

• Waste Management: The report mentions having processes in place for waste management, including the sale of recyclable materials (aluminum and mild steel) and outsourcing e-waste recycling to authorized vendors. However, it lacks detailed information on the total waste generated, the amount recycled/disposed of, and any waste reduction targets.

• Water Management: The report provides data on water withdrawal, consumption, and discharge. However, there’s no mention of specific water conservation goals or strategies beyond stating that water is used conservatively and discharged after treatment. The report does not mention usage of rainwater harvesting techniques.

• Greenhouse Gas Emissions: Scope 1 and 2 emissions (14 MTCO2e and 2183.96 MTCO2e respectively) are reported. The report mentions a commitment towards reducing greenhouse gas emissions; however, any specific targets or plans for reducing emissions are not mentioned. No Scope 3 emissions are disclosed.

Carbon Footprint:

The report provides data only on Scope 1 and 2 greenhouse gas emissions, but lacks information about Scope 3 emissions (value chain emissions). There’s no clear indication of a comprehensive carbon footprint calculation or any reduction targets. The limited carbon footprint data prevents assessing its overall impact.

Social Initiatives:

• Employee Well-being: The report mentions employee benefits like health insurance, gratuity, and other programs, emphasizing employee satisfaction. However, detailed information regarding employee training on human rights and specific diversity, equity, and inclusion (DE&I) targets is absent. While the report provides limited detail regarding parental leave, there is no clear statement of the company’s policies regarding the same. Specific initiatives towards health and safety are reported, including safety trainings, audits and mock drills; however, no specific information on the number of accidents and injuries was provided.

• Community Engagement (CSR): The company undertakes Corporate Social Responsibility (CSR) activities focused on animal welfare, water conservation, healthcare, and education. While some amounts spent are mentioned, detailed information is not provided.

Governance Practices:

The annual report highlights compliance with various corporate governance requirements. It describes the structure and functioning of the Board of Directors and its committees. The company mentions having policies regarding conflict of interest, whistleblowing, and other governance-related matters, but detailed information is not provided.

Sustainability Goals:

The report lacks specific, quantified sustainability goals. While various ESG-related activities are described, there’s no clear articulation of measurable targets for reducing carbon footprint, improving water efficiency, achieving waste reduction, or enhancing social programs.

Overall Assessment:

Paras Defence’s ESG reporting is limited in scope and lacks quantitative data and specific targets for many key areas. The report focuses more on describing initiatives than on providing concrete evidence of impact or progress toward achieving sustainability goals. More detailed and comprehensive ESG reporting is needed to demonstrate the company’s commitment to sustainability and responsible business practices.

Additional Information #

Operational Metrics #

The annual report provides the following information regarding R&D expenditure and employee count:

• R&D Expenditure: The report does not explicitly state the total R&D expenditure for the year. While it mentions R&D efforts and the existence of R&D centers, a specific financial figure for R&D spending isn’t provided.

• Employee Count: As of March 31, 2024, the company had a total of 418 permanent employees. The report also mentions that there were 404 permanent employees on March 31, 2023. The report does not provide details of non-permanent employees.

To find the precise R&D expenditure, one would need to consult the company’s financial statements more closely; however, the total R&D expenditure is not clearly specified in the report.

Key Events #

The Paras Defence annual report highlights several significant events during FY2023-24:

• Record Defence Exports: India achieved record defence exports of ₹21,083 crore (approximately US$ 2.63 billion) in FY2023-24, showcasing the growth of the Indian defence sector and presenting opportunities for Paras Defence.

• Increased Government Allocation to Defence: The Indian government significantly increased its budgetary allocation for defence modernization and infrastructure, benefiting the domestic defence industry, including Paras Defence.

• Order Book Growth: Paras Defence’s order book nearly doubled year-on-year, indicating strong future revenue potential. Securing a significant order from the Defence Ministry for supplying optronic periscopes is specifically highlighted.

• INDUS-X Progress: The India-US Defence Acceleration Ecosystem (INDUS-X) initiative made significant progress, potentially creating future collaborative opportunities for Paras Defence with US companies.

• New Subsidiary Contributions: The report mentions the potential for revenue contributions from its recently established subsidiaries in the coming years, although specific financial details are not provided.

• Change in Company Secretary: The company appointed a new Company Secretary and Compliance Officer (Ms. Jajvalya Raghavan), replacing the previous one (Mr. Hemalkumar Hiranbhai Sagalia) during the year.

• Board and Key Management Personnel Reappointments: The report documents the reappointment of several key directors and management personnel for a longer term, signifying a degree of stability in company leadership.

• Approval of Material Related Party Transaction: The report mentions gaining approval for a material related party transaction with Controp-Paras Technologies Private Limited.

• Changes in Segment Reporting: The report notes that the method of monitoring and allocation of resources to business has changed during the year, resulting in the company adopting a new segment reporting format.

While the report mentions these events, it often lacks detailed financial specifics related to these occurrences. A deeper financial analysis will need to be undertaken to obtain more specific details.

Audit Information #

Auditor’s Opinion:

The independent auditor, Chaturvedi & Shah LLP, issued an unmodified (clean) opinion on both the standalone and consolidated financial statements. This means the auditors found the financial statements to be presented fairly in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. The audit report does, however, highlight key audit matters (KAMs) related to revenue recognition and inventory valuation (discussed in detail in the audit report). The auditors also express an unmodified opinion on the company’s internal financial controls.

Key Accounting Policies:

The annual report outlines several key accounting policies used in preparing the financial statements. These include but are not limited to:

• Property, Plant, and Equipment (PPE): PPE is recorded at historical cost less accumulated depreciation and impairment. Depreciation is calculated using the straight-line method over the useful life of the assets.

• Intangible Assets: Similar to PPE, intangible assets are recorded at cost less accumulated amortization. Amortization is also calculated using the straight-line method.

• Investment Property: Investment properties are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method. Fair value of investment properties is disclosed in the notes.

• Inventories: Inventories are valued at the lower of cost and net realizable value (NRV). Cost is determined using a weighted average cost method for raw materials and absorption costing for work-in-progress and finished goods.

• Financial Instruments: The company uses different measurement methods for financial assets and liabilities depending on their classification (fair value through profit or loss, fair value through other comprehensive income, amortized cost). The expected credit loss (ECL) model is used for impairment assessment of financial assets.

• Revenue Recognition: Revenue from contracts with customers is recognized when control of goods or services is transferred to the customer.

• Taxes on Income: Both current and deferred tax are recognized in accordance with applicable Indian tax laws.

• Employee Benefits: Short-term employee benefits are expensed in the period they are incurred. Defined benefit plans (like gratuity) are accounted for using the projected unit credit method, with actuarial gains and losses recognized in other comprehensive income.

• Provisions, Contingent Liabilities, and Contingent Assets: Recognized and disclosed in accordance with Ind AS 37.

• Foreign Currency Transactions: Transactions are recorded at the exchange rate prevailing on the transaction date, and monetary items are translated at year-end exchange rates.

• Related Party Transactions: Recognized and disclosed in accordance with Ind AS 24.

These are the most significant policies. The complete details of all accounting policies, including basis of preparation and significant accounting judgements, are described in detail in the notes to the financial statements. Always refer to the complete notes for a comprehensive understanding of the accounting methods used.