Defence stock: Buy Paras Defence shares for 25% upside, says Nirmal Bang

Nirmal Bang Institutional Equities has maintained a 'buy' rating on Paras Defence & Space Technologies Ltd, suggesting a bright outlook for the defence company. The domestic brokerage has set a target price of Rs 976 on the stock, indicating a potential upside of 24.7% from current levels. This optimistic view is attributed to the company's unique positioning and competitive advantage in the optical systems market across the Asia-Pacific region.

According to Nirmal Bang, revenue, Ebitda, and PAT for Paras Defence are likely to grow at 35%, 39%, and 41%, respectively, over FY25-FY27E, compounded annually The stock is currently trading at 52x FY27E EPS, broadly in line with its 3-year average P/E of 57x." This suggests a stable growth trajectory for Paras Defence, supported by its robust operational strategy.

Despite noting a "healthy Q1 topline growth," Paras Defence's profitability faced hurdles in the first quarter of the fiscal year. "Profitability was impacted by margin contraction—EBITDA margin declined from 29% in Q1FY25 to 24% in Q1FY26," Nirmal Bang noted. This decline can be attributed to increased employee costs and other expenses.

"Sequential earnings also fell due to a 30% rise in employee costs, and a 39% increase in other expenses, indicating muted operating leverage," the brokerage stated. However, the company's defence optics segment showed resilience, benefiting from government modernisation efforts.

Paras Defence anticipates around 40% revenue growth for FY26, surpassing previous estimates of 34.7%. The company has guided for significant order inflows and execution visibility over the coming years, with management optimistic about expanding its global reach.

The company recently secured a notable international order from Cerbair, France, for its proprietary drone anti-jamming technology, valued at Rs 220 million. This underscores Paras Defence's potential for future international opportunities, which management believes will enhance its global presence.

Nirmal Bang highlights that the stock's expected performance justifies the premium valuation due to Paras's role as the sole player in its market segment. "Maintained our BUY rating and assign a target P/E multiple of 62x Jun-27E EPS," the brokerage affirmed, underscoring confidence in the firm's long-term growth prospects.

Overall, Paras Defence's strategic initiatives and market position are expected to sustain its competitive edge, fostering growth and profitability in the years ahead.