Diffusion Engineers IPO - Issue Details, Financials, Strengths, Risks, Peer Comparison And More: Anand Rathi

Anand Rathi Report

Diffusion Engineers Ltd.'s IPO will be launched on Sept.26 and the offer closes for subscription on Sept.30. The manufacturer of welding consumables, wear plates and wear parts and heavy engineering machinery for core industries has fixed the price band in the range of Rs 159-168 per share. The minimum order lot for subscription is 88 shares.

The Rs 158 crore IPO consists only of a fresh issue with no offer for sale component.

Objects of the Issue

• Funding capital expenditure requirements towards Proposed Expansion of their existing manufacturing facility at Unit IV.

• Setting up of a new manufacturing facility at Sonegaon, Nagpur.

• Funding working capital requirements of the Company.

• General corporate purposes.

Key Strengths

• Synergistic business models focused on forward integration.

• Serving industry major players directly as well as through OEMs.

• Long-standing relationships with customers across industries.

• Consistent financial performance.

• Experienced promoters and strong management team.

• Strategically located manufacturing facilities.

Valuation & Outlook

Diffusion Engineers is specialized in manufacturing welding consumables, wear plates and heavy machinery for core industries. It provides repair and reconditioning services for heavy equipment and trades in wear protection powders and welding machines.

Over the coming years, the company plans to enhance its service delivery by robust growth and operational efficiency.

At the upper price band company is valuing at P/E of 20.4 times with a market cap of Rs 6,290 million post issue of equity shares and return on net worth of 18.5%.

On the valuation front, we believe that the company is fairly priced. Thus, we recommend a “Subscribe” rating to the IPO.

Key Risks

• Disruptions in the economic cycles and decreased demand in various sectors on a national and international level might have a negative impact on the earnings and financial health of the company.

• The company relies heavily on the domestic market for its sales, with a majority of revenues historically coming from local sales. Any downturn in the domestic market could dent the company's market share and financial performance.

• Delays or cost overruns in setting up these facilities, along with potential disruptions in the transportation of assets, could adversely affect financial performance.

• All manufacturing facilities of the company are situated in Nagpur, Maharashtra. Any localised social unrest, natural disaster, or disruption in production at these facilities could significantly impact the company's operations and financial condition.

• The company also faces challenges in obtaining necessary approvals and licences for the new facilities, which could further impact business operations and results.

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