Best Defence Missile Stock: Bharat Dynamics vs Paras Defence and Space Technologies

India is the third largest military spender in the world and is becoming a manufacturing hub for global Original Equipment Manufacturers (OEMs).

The government's recent efforts, including the issuance of positive indigenisation lists, have restricted arms imports. This promotes domestic production and enhances India's role in the global supply chain for defence components.

As a result, India's defence exports reached a record high in FY24, with a significant increase in production.

In this fast-growing industry, two players are leading the race: Bharat Dynamics, Paras Defence, and Space Technologies.

Let's compare both companies across various parameters to see which is the better defence firm.

Business Overview

#Bharat Dynamics

Bharat Dynamics, a government of India enterprise, is engaged in manufacturing of guided missiles and allied defence equipment.

It has a diversified product profile including guided missiles, underwater weapons, airborne products, and allied defence equipment.

The company has three manufacturing facilities in India that it manufactures for all its customers, including the government of India.

Bharat Dynamics is focussing on the indigenisation of imports, and so far, it has indigenised 98 critical items which were previously imported.

It recently entered into a joint venture with Bharat Electronics, Hindustan Aeronautics, India Optel, and Tamil Nadu Industrial Development Corporation to develop defence testing infrastructure for electronic warfare systems.

#Paras Defence and Space Technologies

Paras Defence and Space Technologies is a private sector company engaged in designing, developing, manufacturing, and testing of a variety of defence and space engineering products and solutions.

It has a portfolio of over 40 products across two business verticals, namely defence engineering and optics and optronic systems.

The company's products in these verticals include flow-formed rockets, missile motor tubes, electromechanical assemblies, remote-controlled border defence systems, submarine periscopes and hyperspectral cameras.

It is also the sole Indian supplier of critical imaging components for space applications, including large-size optics and diffractive gratings.

Some of its major clients include HAL, ISRO, Godrej, Tata Power, Cochin Shipyard, and Bharat Electronics.

Through its subsidiary, Paras Anti-Drone Technologies, it has a presence in radio frequencies (RF) and microwave solutions, including jammers, SDR (software-defined radio), and drone detection systems.

Particulars	Bharat Dynamics	Paras Defence and Space Technologies
Market Cap (in Rs billion)*	454.9	43
Order Book (in Rs billion)**	188.5	8.5

Source: Equitymaster| * as of 24th January 2025| ** as of September 2024

In terms of market cap, Bharat Dynamics is leading with Rs 454.9 billion (bn), as against Rs 43 bn of Paras Defence. The company is also leading with an order book of Rs 188.5 bn as against Rs 8.5 bn of Paras Defence.

Bharat Dynamics's order book is majorly filled with domestic orders (87%), followed by export orders (13%). It has an order pipeline of Rs 200 bn for the next 2-3 years providing good revenue visibility.

For Paras Defence, the order book is mainly from domestic clients. In the last 18 months, the company added orders worth Rs 8.8 bn, majorly due to its efforts to continuously improve its product portfolio.

It expects more orders in the current financial year, providing revenue visibility in the medium term.

Between the two companies, Bharat Dynamics is leading with a 47.5% return in the last year, as against Paras Defence with a 37.8% return.

Both companies have beaten the market benchmark, the Nifty 50, which gave a 6.2% return in the last year.

#Revenue

Revenue and revenue growth are two of the primary parameters that any investor should assess. Consistent growth in revenue is considered a good sign for any business.

Bharat Dynamics earns the majority of its revenue from supplying equipment to the Indian government, followed by exports.

In the last five years, the company's revenue has shown a degrowth of 5.3% on a CAGR basis.

This is primarily because of the geopolitical situation in Europe and the Middle East, which have disrupted the company's supply chain for critical input materials, leading to delays in receiving certain imported raw materials and components, which led to a slowdown in order execution.

To address these supply chain issues, the company is focussing on indigenisation of imports. So far, the company achieved an average indigenisation level of 80-90%.

Going forward, the company plans to achieve 100% indigenisation to grow its revenue.

Coming to Paras Defence, the drone company earns 54% of its revenue from the defence engineering segment, followed by the optics and optronic systems segment (46%).

Its revenue has grown at a compound annual growth rate (CAGR) of 11.5% in the last five years on account of strong growth in the order book.

Going forward, strong growth in the order book and the company's efforts to grow its product portfolio will drive its revenue.

Revenue

Net Sales (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Bharat Dynamics	31,049	19,138	28,174	24,894	23,693	-5.30%
Paras Defence and Space Technologies	1,470	1,433	1,826	2,224	2,535	11.50%

Source: Equitymaster

#Profitability

The two parameters that help assess the profitability are earnings before interest tax depreciation and amortisation (EBITDA) and net profit.

It is important to assess the EBITDA and net profit growth and margins primarily to see whether the business is able to generate profits.

In the last five years, the EBITDA and net profit of Bharat Dynamics has grown at a CAGR of 1.3% and 2.8% despite a decrease in revenue.

This is primarily because the company has undertaken indigenisation efforts to address supply chain issues. This led to reduction in import costs and supply competitively priced products to Indian Armed Forces.

The EBITDA and net profit margin of Bharat Dynamics averaged 30.1% and 19.2%, respectively.

Paras Defence's EBITDA and net profit has grown at a CAGR of 8.2% and 8.8% in the last five years. This is primarily because the company's efforts to change its revenue mix to include more profitable products has paid off.

The EBITDA and net profit margin of the company averaged 28.1% and 12.3%, respectively.

Profitability

EBITDA (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Bharat Dynamics	8,444	4,401	8,386	5,646	8,989	1.30%
Paras Defence and Space Technologies	417	453	554	660	618	8.20%
PAT (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Bharat Dynamics	5,349	2,578	4,999	3,522	6,127	2.80%
Paras Defence and Space Technologies	197	158	271	359	300	8.80%
Gross Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Bharat Dynamics	27.20%	23.00%	29.80%	22.70%	37.90%
Paras Defence and Space Technologies	28.40%	31.60%	30.30%	29.70%	24.40%
Net Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Bharat Dynamics	17.20%	13.50%	17.70%	14.10%	25.90%
Paras Defence and Space Technologies	13.40%	11.00%	14.80%	16.10%	11.80%

Source: Equitymaster

#Debt Management

It is important to monitor the debt of the company as it is a fixed financial obligation. A high debt could mean the company has to shell out more money on interest and debt repayment than invest in the business.

Both Bharat Dynamics and Paras Defence are debt free companies. Bharat Dynamics was debt-free for a long time, whereas Paras Defence turned debt-free in the financial year 2022.

Bharat Dynamics is setting up four manufacturing facilities to manufacture surface-to-air missiles (SAM), new generation missiles, rockets and propellants with a capex of Rs 2,000 million (m). Thereafter, it plans to invest Rs 1,200 m in capex annually.

Moreover, the company plans to venture into new verticals such as guided bombs, drone-delivered payloads, and engines for cruise missiles.

Bharat Dynamics has sufficient liquidity to fund all its capex plans through internal accruals with no reliance on debt.

Paras Defence, on the other hand, has two manufacturing facilities. It recently launched an advanced optical systems testing facility and plans to invest Rs 5,000 m to develop India's first advanced optical systems development park.

As it doesn't have any debt obligations, it can take on some debt to fund its capex. However, it has sufficient cashflows to meet all its capex requirements.

Moreover, recently, the company completed a qualified institutional placement (QIP) of Rs 1,350 m which will help the fund its capex plans.

Debt Management

Debt to Equity Ratio (x)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Bharat Dynamics	0	0	0	0	0
Paras Defence and Space Technologies	0.2	0.1	0	0	0

Source: Equitymaster

#Financial Efficiency

We can measure the financial efficiency of a business by checking its return on equity (RoE) and return on capital employed (RoCE) numbers.

The five-year average RoE for Bharat Dynamics and Paras Defence is 14.9% and 8.3%, respectively, whereas the five-year average RoCE is 20.7% and 13.3%, respectively.

Financial Efficiency

ROCE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Bharat Dynamics	28.70%	12.90%	23.60%	15.20%	22.90%
Paras Defence and Space Technologies	15.30%	15.40%	11.90%	13.20%	10.80%
ROE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Bharat Dynamics	20.50%	9.60%	16.50%	11.00%	16.80%
Paras Defence and Space Technologies	11.40%	7.60%	7.20%	8.70%	6.80%

Source: Equitymaster

#Dividend

Companies share their profits with the shareholders in the form of dividends.

A high and consistent dividend is a good sign for a business as it indicates steady profitability.

Out of the two companies, only Bharat Dynamics pays regular and consistent dividends to its shareholders. Paras Defence, on the other hand, hasn't paid any dividends to its shareholders since listing.

In the last five years, the dividend per share of Bharat Dynamics grew by a CAGR of 2%, going from Rs 8.8 to Rs 9.7. Its dividend payout and dividend yield has averaged 2% and 88.7%, for the last five years.

Dividend

Dividend Per Share (Rs)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Bharat Dynamics	8.8	7.4	8.3	9.4	9.7	2.00%
Paras Defence and Space Technologies	0	0	0	0	0	NM
Dividend Yield	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Bharat Dynamics	4.80%	2.20%	1.50%	1.00%	0.60%
Paras Defence and Space Technologies	0.00%	0.00%	0.00%	0.00%	0.00%
Dividend Payout Ratio	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Bharat Dynamics	88.00%	73.50%	83.00%	93.50%	105.50%
Paras Defence and Space Technologies	0.00%	0.00%	0.00%	0.00%	0.00%

Source: Equitymaster

#Valuation

Valuation ratios help us estimate the intrinsic value of a company and also help us analyse whether a company's shares are overvalued or undervalued when compared to its peers.

The two popular valuation ratios are price to earnings (PE) and price to book value (PB). A high ratio indicates the shares are overvalued. A low ratio indicates the shares are undervalued.

The PE ratios of Bharat Dynamics and Paras Defence are 82.2 and 101.7, respectively. The PB ratios of Bharat Dynamics and Paras Defence are 12.2 and 7.6, respectively.

In terms of PE, the shares of Paras Defence are highly overvalued compared to those of Bharat Dynamics, and in terms of PB, the shares of Bharat Dynamics are overvalued compared to those of its peers.

However, when compared to their three-year averages and industry averages, both companies are overvalued.

Valuations	Bharat Dynamics	3-Year Average	Paras Defence and Space Technologies	3-Year Average
PE (x)	82.2	61.4	101.7	82.6
PB (x)	12.2	8.6	7.6	7.2

Source: Equitymaster

Which Defence Missile Stock is Better: Bharat Dynamics or Paras Defence?

Paras Defence is leading in terms of revenue growth and profit growth.

However, in terms of absolute revenue and profit numbers, profit margins, financial efficiency, and dividends, Bharat Dynamics is ahead.

Bharat Dynamics, being one of the country's most well-known defence players, has laid out a comprehensive plan for its growth.

It is establishing four new manufacturing facilities in India.

The company is also planning to expand its product portfolio to include new verticals such as guided bombs, drone-delivered payloads, warhead manufacturing, and engines for cruise missiles.

Moreover, the company's indigenisation efforts have helped it achieve almost 90% average. It plans to focus more on developing its products within the country to reduce the dependence on imports.

Paras Defence, on the other hand, is the sole Indian supplier of critical imaging components for space applications, including large-size optics and diffractive gratings.

It recently launched an advanced optical systems testing facility and plans to invest Rs 5 bn to develop India's first advanced optical systems development park.

The company has obtained patents for its EMP-protected rugged display, shock/vibration-proof heavy-duty console, and electromagnetic pulse-protected rack. This further puts the company in the sweet spot to manufacture these products exclusively.

Moreover, through its subsidiaries, the company has presence in the drone industry. It aims to be India's leading anti-drone company and among the top five drone companies by FY27.

All this shows that both companies are gearing up for their next leg of growth.

With the government prioritising the defence and aerospace sectors under the Aatmanirbhar Bharat initiative to foster indigenous manufacturing, both the companies are set to benefit.

However, if there is a delay in execution, revenue and profits can be affected. Hence, it is important to do thorough research before making any financial decisions.

Investors should also consider corporate governance as one of the criteria for due diligence before considering an investment.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here.