Clearer vision ahead with rising optical mix
Key Points
We hosted the management of Paras Defence and Space Technologies (PARAS) virtually on 8-Dec-25 to gain insights into their current business outlook. The company was represented by Amit Mahajan (Director, Technical and R&D) and Harsh Bhansali (CFO).
The order book is led by optics (60% or Rs5.5–6bn), covering periscopes and space-optics programs, while defence engineering, including EMP protection, tank electronics, and mechanical systems, contributes (40% or ~Rs4bn). Engineering orders execute faster, whereas optical programs have longer cycles. Margins have strengthened sharply with defence engineering EBITDA margins rising from 12% to 22% and optronics at 54%. As the optronics mix increases, overall margins should move above 29%, supported by Paras’ unmatched domestic capability in optical design and manufacturing. The company aims to build global competitiveness with Israel playing a key role in this progression.
Management Guidance
Management expects FY26 revenue in the range of Rs4.5–5bn. We have assumed the upper end of this guidance, as the company will begin delivering higher-value periscopes priced at Rs500mn each from 4QFY26, compared to the current periscopes being supplied at Rs300mn each. Orders in hand are sufficient to cover FY26 revenue, and additional inflows will support FY27 growth. Of the 36 periscopes, 24 will be replacements for existing platforms.
EBITDA margins are expected to remain stable at ~27% and with increasing share of optronics, margins could improve to 29% and beyond in the coming years.
The current order book of the company stands at ~Rs10bn. The order book consists of optics at more than 60% (Rs5.5–6bn), which includes periscopes and all space optics programs. Defence engineering, including EMP protection, tank electronics, and mechanical engineering, accounts for around Rs4bn.
The company expects orders worth Rs10bn in FY26 and expects to close FY26 with an order book of Rs11bn.
View and valuation: Revenue, EBITDA, and PAT CAGR for FY25–FY27E stands at 33%, 35%, and 37%, respectively. The company enjoys near-zero competition in key defence niches, while the defence engineering segment— despite lower margins—offers strong scalability. Paras’s move to Tier-1 supplier status is improving working capital cycles through higher customer advances. The stock trades at 44x FY27E EPS, below its three-year average of 56x. We maintain BUY with a valuation of 57x Sep-27E EPS and a TP of Rs977. The recent 13% correction offers 47% upside. Upside drivers include strong multi-year revenue visibility, margin expansion from higher-value products, improving working capital, and attractive valuations post-correction.
