Evaluating DEE Development Engineers Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at DEE Development Engineers Ltd and present you with the exclusive IPO details.

About the Issue:  

DEE Development Engineers Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 10. The IPO price range is set between Rs 193 and Rs 203 per equity share, resulting in a total issue size of Rs 418.01 crore at the upper price band.  

The IPO is scheduled to commence on June 19, 2024, and will conclude on June 21, 2024. The market lot size for the IPO is 73 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 949 shares or a total investment of Rs 1,92,647 assuming the upper price band.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Funding working capital requirements of the company

2. Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company

3. General corporate purposes

Promoter holding  

Krishan Lalit Bansal, Ashima Bansal and DDE Piping Components Private Ltd are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 100 per cent in the company.

Company profile  

With over three and a half decades of manufacturing experience, DEE Development Engineers Ltd is an engineering company that offers specialized process piping solutions for industries such as oil and gas, power (including nuclear), chemicals, and other process sectors through engineering, procurement, and manufacturing services.

It also manufactures and supplies piping products such as high-pressure piping systems, piping spools, high-frequency induction pipe bends, longitudinally submerged arc welding pipes, industrial pipe fittings, pressure vessels, industrial stacks, modular skids, and accessories, including boiler superheater coils, de-superheaters, and other customized components.

Currently, it is the largest provider of process piping solutions in India by installed capacity and is ranked among the leading global providers in terms of technical capability to address complex process piping requirements across multiple industrial segments.

Company has seven strategically located manufacturing facilities and had cumulative installed capacity of 70,875 MT, 94,500 MT per annum for the nine months ended December 31, 2023 and Fiscal 2023, respectively.

Recently, it has expanded into a new business vertical focused on the design, engineering, fabrication, and manufacturing of pilot plants. The company aims to provide a one-stop solution for pilot plant needs, offering services from conceptualization to commissioning. This includes 3-D modelling, process simulation, control engineering, design, fabrication, construction, and installation of the pilot plant at the customer's specified site.

Financials  

The company consistently achieved growth in revenue and profitability, with the exception of FY22, which saw a significant downturn. Although revenue rebounded strongly afterwards, net profit growth remained somewhat limited compared to FY21. However, the figures for the first nine months of FY24 were impressive, suggesting robust growth for the entire fiscal year if the current momentum persists.

Valuation and outlook  

The issue is priced with a P/BV ratio of 2.46 times, calculated using its Net Asset Value (NAV) of Rs 82.59 as of December 31, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 57.

Although the issue appears to be somewhat overpriced, the company's strong business model, niche products, market position, and limited competition will benefit it in the long run. Additionally, since 78 per cent of the proceeds from the issue will go to the company and be used to repay outstanding loans, the reduced interest burden will ultimately help boost profits. Hence, we advise investors to contemplate subscribing to the offering with a long-term perspective.