| Price | Lot Size | Issue Date | Issue Size |
|---|---|---|---|
| ₹ 159 to ₹ 168 | 88 | 26th Sep, 2024 – 30th Sep, 2024 | ₹158.00 Cr |
About Diffusion Engineers Limited IPO
Incorporated in 1982, Diffusion Engineers Ltd. is engaged in the manufacturing of welding consumables, wear plates, wear parts, and heavy engineering machinery for core industries. The company specializes in the repair and reconditioning of heavy machinery and equipment and also trades in anti-wear powders as well as welding and cutting machinery. Through a forward integration strategy, the company manufactures special-purpose electrodes and flux-cored wires, which are used in the production of wear-resistant plates. These plates are crucial components in the manufacturing of large industrial equipment used in key sectors such as cement, steel, power, mining, engineering, oil & gas, and sugar industries. This forward integration allows the company to enhance production efficiency, gain a competitive edge, reduce product costs, improve supply chain management, and minimize dependency on third-party suppliers. Initially, after its incorporation, Diffusion Engineers traded in welding electrodes for super-conditioning. Over time, the company expanded its operations to four manufacturing units: Units I, II, and III located in Hingna, Nagpur, while Unit IV is situated in Khapri (Uma), Nagpur. Each unit specializes in producing different products. Diffusion Engineers Ltd. holds accreditation from the National Accreditation Board for Testing and Calibration Laboratories (ISO/IEC 17025:2017) for General Requirements for the Competence of Testing & Calibration Laboratories. Additionally, they conduct multiple stringent quality checks and hold Environment Management System (EMS) certification from TÜV SÜD South Asia Private Limited, Quality Management System (QMS) – ISO 9001:2015, Occupational Health and Safety Management Systems – ISO 45001:2018, and Environment Management System – ISO 14001:2015. Approximately 91% of the company’s revenue is derived from the domestic market, with the remaining 9% coming from exports to various countries. Its overseas presence includes subsidiaries in Singapore, Turkey, and the Philippines, as well as joint ventures and associates in the United Kingdom and Malaysia.
Objective of the Diffusion Engineers Limited IPO
The company proposes to utilize the net proceeds from the issue towards funding of the following objects:
- Funding capital expenditure requirements towards expansion of its existing manufacturing facility at Khapri (Uma), Nagpur (“Proposed Expansion”);
- Setting up of a new manufacturing facility at Hingna, Nagpur (“Proposed Facility”);
- Funding working capital requirements of the company; and
- General corporate purposes.
Rationale To Invest In Diffusion Engineers Limited IPO
Forward integration-driven synergistic model expands business scope
In 1993, Diffusion Engineers started manufacturing welding electrodes and gradually expanded into producing flux-cored wires in 1997. Over time, they diversified into manufacturing wear plates and wear parts using flux-cored wires which were further used for manufacturing heavy engineering equipment. This transition from manufacturing of basic components to producing specialized components reflects forward integration and has allowed it to broaden its scope in the industry. Over the years, the company expanded into providing welding services for core industries and is committed to meet customer needs for welding and anti-wear solutions, enhancing the longevity and performance of heavy equipment. The primary revenue drivers are the welding electrodes, wear plates, wear parts, and heavy engineering products, contributing around 90-93% of the company’s revenues in the last three fiscal years (FY22-FY24). Additionally, the manufactured special purpose electrodes and flux cored wire are consumed in-house as well as sold to domestic as well as international customers, ensuring economies of scale and minimal wastage. Forward integration has provided multiple benefits such as increased production efficiency, cost reductions, control over supply of raw materials, and decreased reliance on third parties.
Direct and long-standing industry relationships reduce business risks
Diffusion Engineers, with over four decades in business, have established long-standing relationships with both Indian and global customers. They cater to a diverse clientele including OEMs that service major players in the cement, steel, and power sectors, as well as direct customers. These OEMs, in turn, supply major companies within their respective industries, positioning Diffusion Engineers as a critical link in the OEM ecosystem of key industry players. Additionally, the company engages directly with core customers in the cement, steel, and power sectors, highlighting its capability to serve and meet the unique needs of these major players. The company believes that its focus on quality, customized solutions for customers, and timely delivery of products has enabled the company to establish and maintain long-term relationships, retain existing clients, and attract new ones. In FY24, customers with relationships exceeding five years contributed a significant 68.6% of total revenue, demonstrating the company’s ability to retain key clients and maintain steady income. The remaining revenue comes from new clients which reflects the company’s adaptability and growth potential.
Valuation of Diffusion Engineers Limited IPO
Diffusion Engineers operates in the manufacturing of welding consumables, wear plates, wear parts, and heavy engineering machinery for core industries. They also provide specialized and customized repair and reconditioning services for heavy machinery and equipment. Additionally, the company is involved in trading of anti-wear powders, as well as welding and cutting machinery. They follow a synergistic business model, focusing on forward integration by manufacturing both basic and specialized products, which gives them a competitive edge and broadens its scope in the industry. With a diverse customer base of OEMs and direct customers both domestically and internationally, Diffusion Engineers demonstrates its ability to meet specific needs of major players in sectors like cement, steel, and power. The company’s long-standing relationships with customers generate a significant portion of its revenue, ensuring steady income growth. As India continues to experience rapid industrialization and increasing demand for improved infrastructure, the welding consumables market is estimated at around Rs. 51 billion in FY24, with projections of Rs. 64-66 billion by FY27. To meet this growing demand, the company is strategically planning to expand its manufacturing activities. Diffusion Engineers ranks among the top three industry players in terms of CAGR for operating income, profitability, and EBITDA between FY21 and FY24. The company demonstrated substantial revenue growth from FY22 to FY24, with a CAGR of 16.6%. The company’s profit after tax (PAT) also rose significantly, from Rs. 170.5 million in FY22 to Rs. 308.0 million in FY24. The current issue is priced at a P/E ratio of 11.7x on the upper price band based on FY24 earnings, which is relatively lower compared to its peers. Therefore, we recommend a SUBSCRIBE rating for this issue with a medium to long-term investment perspective.
What is the Diffusion Engineers Limited IPO?
Diffusion Engineers IPO is a book built issue of Rs 158.00 crores. The issue is entirely a fresh issue of 0.94 crore shares. Diffusion Engineers IPO opens for subscription on September 26, 2024 and closes on September 30, 2024. The allotment for the Diffusion Engineers IPO is expected to be finalized on Tuesday, October 1, 2024. Diffusion Engineers IPO will list on BSE, NSE with tentative listing date fixed as Friday, October 4, 2024. Login to your account now.
How to apply for the Diffusion Engineers Limited IPO through StoxBox?
To apply for the Diffusion Engineers Limited IPO through StoxBox one can apply from the website and also from the app. Click here
When will the Diffusion Engineers Limited IPO open?
Diffusion Engineers Limited IPO is opening on 26th September 2024. .Apply Now
What is the lot size of the Diffusion Engineers Limited IPO?
The Lot Size of Diffusion Engineers Limited IPO is 88 equity shares. Login to your account now
When is the Diffusion Engineers Limited IPO allotment date?
The allotment Date for Diffusion Engineers Limited IPO is 01st October 2024. Login to your account now.
When is the Diffusion Engineers Limited IPO listing date?
The listing Date for Diffusion Engineers Limited IPO is 04th October 2024. Login to your account now
What is the minimum investment required for the Diffusion Engineers Limited IPO?
In the Retail segment the minimum investment required is Rs. 14,784. Login to your account now
What is the maximum investment allowed for the Diffusion Engineers Limited IPO?
In the Retail segment the maximum investment requirement is Rs. 192,192. Login to your account now
What are the risks associated with investing in the Diffusion Engineers Limited IPO?
- The company faces significant risks due to its reliance on several industries, including cement and power, which are vulnerable to economic downturns. Its increasing dependence on the domestic market and a small number of key customers, 20.81% of revenue from the top five and 29.43% from the top ten, heightens the risk of revenue loss if existing arrangements fail.
- The company faces significant risks related to obtaining necessary approvals, licenses, and permits, which could delay its capital expenditure plans. Additionally, the orders for the required machinery are still pending. These delays or cost overruns in setting up the Proposed Facilities may adversely impact its financial condition, operations, and growth prospects, putting overall project execution at risk.
- The company faces significant risks due to past non-compliance with the Companies Act, including incorrect filings and untraceable corporate records. These issues may result in penalties and adversely affect its reputation and financial condition. Additionally, ongoing regulatory scrutiny and the potential for future compliance failures pose risks to the company’s operations and growth prospects.
When will the Diffusion Engineers Limited IPO shares be credited to my Demat account?
The Diffusion Engineers Limited IPO be credited to the account on allotment date which is 03rd October 2024. Login to your account now
Where can I find the Diffusion Engineers Limited IPO prospectus?
The prospectus of Diffusion Engineers Limited IPO prospectus can be find on the website of SEBI, NSE and BSE
What are the important dates related to Diffusion Engineers Limited IPO?
| IPO Open Date | Thursday, September 26, 2024 |
| IPO Close Date | Monday, September 30, 2024 |
| Basis of Allotment | Tuesday, October 1, 2024 |
| Initiation of Refunds | Thursday, October 3, 2024 |
| Credit of Shares to Demat | Thursday, October 3, 2024 |
| Listing Date | Friday, October 4, 2024 |
| Cut-off time for UPI mandate confirmation | 5 PM on September 30, 2024 |
