Paras Defence hits upper circuit twice, but analysts are unsure about the stock
₹305 crore from Larsen & Toubro. However, analysts are unsure about the optimism. The contract is to manufacture opto-electronic components for L&T’s close-in weapon system programme, a critical component of the Indian navy’s defence infrastructure.
The stock hit the upper 5% circuit on Monday to end at ₹1,268.75. It had reached the upper circuit on Friday, too. The shares fell 1.3% to ₹1,251 at 12:57 IST on Tuesday.
Analysts said investor optimism over the company’s valuation has already outpaced its fundamentals and it is only a matter of time before they realise this. Jyoti Gupta, a research analyst at Nirmal Bang Institutional Equities, recommended a “sell" rating on the stock following Paras Defence’s Q1 earnings this month, when it reported its highest quarterly revenue of about ₹84 crore. “The (defence) stocks, including Paras, peaked out in July.
Ever since then, the stock (Paras) has been falling," Gupta told Mint. “However, strong retail buying has stopped it from falling enough. It should be trading at a lower price right now." Both the stock and the benchmark Nifty India Defence index have fallen 5% in the past one month, according to Bloomberg data, indicating a broader correction in the sector.
However, analysts remain wary of the pockets of froth still building up in this sector. “Even though there is good earnings visibility for the overall sector, from here on, it is largely going to be a stock-specific play in the defence sector," Kranthi Bathini, director of equity strategy at WealthMills Securities, told Mint. “This is a sector where valuations have been stretched based on huge revenue and high return on capital expectations." However, companies including Paras Defence are yet to meaningfully execute
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