Diffusion Engineers IPO Basis of Allotment

Our Company was incorporated under the provisions of the Companies Act, 2013 as "Diffusion Engineers Private Limited" pursuant to certificate of incorporation dated November 05,1982 issued by Central Registration Centre, Registrar of Companies. Subsequently, our Company has been converted into a public limited company and the name of our Company has changed to ‘ Diffusion Engineers Limited' pursuant to a special resolution passed at the Extra-Ordinary General Meeting of our Company held on May 17,1995 and afresh Certificate of Incorporation dated July 03,1995, consequent upon change of name and upon conversion to public limited company has been issued by the RoC. For details in relation to the changes, if any, in our Registered Office of our Company, see " History and Certain Corporate Matters" beginning on page 276 of the Prospectus dated September30,2024 filed with RoC.

Our Company has filed the Prospectus dated September 30,2024 with the RoC and the Equity Shares (as defined below) are proposed to be listed on the Main Board platform Stock Exchanges and the trading is expected to commence on October 04,2024.

INITIAL PUBLIC OFFER OF 9,405,000 EQUITY SHARES OF FACE VALUE OF Rs. 10 EACH ("EQUITY SHARES") OF DIFFUSION ENGINEERS LIMITED ("COMPANY OR "ISSUER") FOR CASH AT A PRICE OF Rs. 168 PER EQUITY SHARE (INCLUDING A SHARE PREMIUM O FRs. 158 PER EQUITY SHARE) ("ISSUE PRICE") AGGREGATING UPTO Rs. 1,579.64 MILLION ("ISSUE").

THIS ISSUE INCLUDED A RESERVATION OF 50,000 EQUITY SHARES OF FACE VALUE O FRs. 10 EACH AGGREGATING TO 8.00** MILLION (CONSTITUTING 0.13% OF THE POST-ISSUE PAID-UP EQUITY SHARE CAPITAL) FOR PURCHASE BY ELIGIBLE EMPLOYEES (THE "EMPLOYEE RESERVATION PORTION"). THE ISSUE LESS THE EMPLOYEE RESERVATION PORTION IS HEREINAFTER REFERRED TO AS THE "NET ISSUE". THE ISSUEAND THE NET ISSUE WOULD CONSTITUTE25.13%AND25.00%, RESPECTIVELY, OF OUR POST-ISSUE PAID-UP EQUITY SHARE CAPITAL. OURCOMPANYIN CONSULTATION WITH THE BRLM.OFFEREDA DISCOUNT OF 4.76% (EQUIVALENTTO Rs.8.00 PER EQUITYSHARE) TO THE ISSUE PRICE TO ELIGIBLE EMPLOYEES BIDDING IN THE EMPLOYEE RESERVATION PORTION ("EMPLOYEE DISCOUNT").

THE FACE VALUE OF EQUITY SHARES IS Rs. 10 EACH. THE ISSUE PRICE IS 16.80 TIMES THE FACE VALUE OF THE EQUITY SHARES. THE PRICE BAND, EMPLOYEE DISCOUNT AND THE MINIMUM BID LOT WILL BE DECIDED BY OUR COMPANY, IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGER AND WILL BE ADVERTISED IN ALL EDITIONS OF BUSINESS STANDARD AND ALL EDITIONS OF BUSINESS STANDARD (WHICH ARE WIDELY CIRCULATED ENGLISH DAILY NEWSPAPER AND HINDI DAILY NEWSPAPER, AND YUVARASHTRA DARSHAN EDITIONS OF THE MARATHI REGIONAL NEWSPAPER (MARATHI BEING THE REGIONAL LANGUAGE OF MAHARASHTRA, WHERE OUR REGISTERED OFFICE IS LOCATED), AT LEAST TWO WORKING DAYS PRIOR TO THE BID/ ISSUE OPENING DATE AND SHALL BE MADE AVAILABLE TO BSE LIMITED ("BSE") AND NATIONAL STOCK EXCHANGE OF INDIA LIMITED ("NSE", AND TOGETHER WITH BSE, THE "STOCK EXCHANGES") FOR THE PURPOSE OF UPLOADING ON THEIR RESPECTIVE WEBSITES INACCORDANCE WITH THE SECURITIES AND EXCHANGE BOARDOFINDIAfISSUEOF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2018, AS AMENDED (THE "SEBI ICDR REGULATIONS").

A DISCOUNT OF PER EQUITYSHARE WAS OFFERED TO ELIGIBLE EMPLOYEES BIDDING IN THE EMPLOYEE RESERVATION PORTION.

1. Dependence on domestic market for sales: Our Company is highly dependent on domestic market for its sales and any downturn in it could dent our business operations. For the Fiscals 2024, 2023 and 2022, our revenue from domestic sales were Rs. 2,307.76 million, Rs. 2,146.40 million, and Rs. 1,795.84 million, respectively, representing 89.75%, 87.94% and 91.74%, respectively of our revenue from operations as per restated standalone financials.

2. Risk in relation to objects of the Issue: Our Company proposes to utilize Rs. 713.80 million for the Proposed Expansion and Rs.303.85 million for the Proposed Facility to fund capital expenditure requirements which are subject to the risks of unexpected delays including in relation to receipt of approvals and implementation. If there are delays in setting up the Proposed Facility or Proposed Expansion or if the costs of setting up and the possible time or cost overruns related to them or the purchase of plant and machinery for the aforesaid Objects are higher than expected, it could have a material adverse effect on our financial condition business operations.

3. Risk related to sourcing of raw materials: Our business and profitability is substantially dependent on the availability and cost of our raw materials and any disruption to the timely and adequate supply or volatility in the prices of raw materials may adversely impact our business operations. For the Fiscals 2024,2023 and 2022, our total cost of raw materials were Rs.1,502.92 million, Rs.1,582.79 and Rs.1,302.04 million, respectively, representing 58.45%, 64.85% and 66.51%, respectively of our standalone revenue from operation.

4. Risk relating to insufficient cash flows: Our business is working capital intensive. Insufficient cash flows from our operations or inability to borrow to meet our working capital requirements may materially and adversely affect our business operations. As on July 31,2024, our aggregated sanctioned working capital facilities was Rs.700.00 million. We intend to utilize Rs.220.00 million (as part of the Net Proceeds) towards funding our incremental working capital requirements in Fiscal 2025. For the Fiscals 2024,2023 and 2022, our net working capital requirements stood at Rs.927.85 million, Rs.980.92 million and Rs.603.86 million, respectively.

5. Risk related to absence of long-term arrangements with suppliers: We do not have lona- term agreements with our suppliers for raw materials and an inability to procure the desired quality, quantity of our raw materials in a timely manner and at reasonable costs, or at all, may have a negative impact on our business operations. Purchases of raw materials are concentrated from a few suppliers with our top 10 suppliers contributing of our revenue from operations on restated standalone financial statement for Fiscals 2024, 2023 and 2022 amounted to Rs.869.11 million, Rs.719.94 million and Rs.603.03 million, respectively, representing 31.25%, 29.50% and 30.80%, respectively our revenue from operations as per restated standalone financials.

6. Risk related to leasehold property: Our Units I, II and III admeasuring in aggregate approx. 16,038 sq. mtrs. from where we operate have been given to us on long term lease by MIDC. In the event we lose or are unable to renew such leasehold rights or we are unable to adhere to or comply with the conditions of such lease, our business operations may be adversely affected.

7. Risk related to approvals: We are required to obtain several approvals, licenses, registrations and permits and comply with certain rules, regulations and conditions to operate our business, and failure to obtain, retain or renew such approvals and licenses in a timely manner or to comply with the requisite rules, regulations and conditions may adversely affect our business operations.

8. Negative cash flows from operating activities: We have incurred negative cash flows from operating activities of Rs.(47.37) million in the Fiscal 2023 as per restated consolidated financials. Any negative cash flows in the future would adversely affect our business operations.

9. Concentration on manufacturing facilities: Our business is dependent on four Manufacturing Facilities all of which are located in Nagpur, Maharashtra and therefore, any localized social unrest, natural disaster or breakdown of services or any other natural disaster in and around, Nagpur, Maharashtra or any disruption in production at, or shutdown of, all our manufacturing units could have material adverse effect on our business operations.

10. Dependence on the performance of certain other industries: We are dependent on the following five industries for deriving a major portion of our revenues. The following table sets forth revenues generated from the sale of products on restated standalone financial statement from other industries, forthe periods indicated:

11. Conflict of Interest with our Group Companies and Subsidiaries: Conflict of interest may arise as some of our Group Companies and Subsidiaries are authorized to carry on similar line of business as our Company which may lead to real or potential conflicts of interest for our Promoters or Directors.

12. Risk of default in payment of receivables: Our inability to collect receivables and default in payment from our customers could result in the reduction of our profits and affect our business operations. For the Fiscals 2024,2023 and 2022, our bad debts written off were Rs.9.56 million, Rs.3.88 million and Rs.1.39 million, respectively, representing 0.34%, 0.15% and 0.06%, respectively of our revenue from operations and further our disputed trade receivables for fiscals 2024, 2023 and 2022, were Rs.7.02 million, Rs.6.48 million and Rs.5.55 million, respectively, representing 0.25%, 0.25% and 0.26%, respectively of our revenue from operations.

13. The Price to Earnings ratio at the Floor Price is 14.53 times and the Cap Price is 15.53 times based on diluted EPS as per Restated Financial Statements for the fiscal 2024.

14. The BRLM associated with the Issue has handled 9 Main board public issues and 9 SME public issues in the past three years, out of which no issue has closed below the issue price on listing date.

15. Average cost of acquisition of our Promoters and Promoter Group Selling Shareholders as on the date of Prospectus:

*As certified by M/s. PGS & Associates, Chartered Accountants, our Statutory Auditors, by way of their certificate dated September 16,2024.

16. Weighted Average Return on Net Worth of our Company for Fiscals 2024, 2023 and 2022 is 17.40%.

17. The weighted average cost of acquisition of all Equity Shares acquired in last three years, 18 months and one year preceding the date of the Prospectus by are as follows:

* As certified by M/s. PGS & Associates, Chartered Accountants, our Statutory Auditors, by way of their certificate dated September 16,2024.

18. Weighted average cost of acquisition, floor price and cap price:

* As certified by M/s. PGS & Associates, Chartered Accountants, our Statutory Auditors, by way of their certificate dated September 16,2024.

The Issue was made in terms of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957, as amended ("SCRR") read with Regulation 31 of the SEBIICDR Regulations. The Issue was made through the Book Building Process in accordance with Regulation 6(1) of the SEBI ICDR Regulations, wherein not more than 50% of the Net Issue shall be available for allocation on a proportionate basis to Qualified Institutional Buyers ("QIB Portion'), provided that our Company, in consultation with the Book Running Lead Manager allocated up to 60% of the QIB Portion to Anchor Investors and the basis of such allocation will be on a discretionary basis by our Company, in consultation with the BRLM, in accordance with the SEBI ICDR Regulations (the ‘Anchor Investor Portion'), of which one-third shall be reserved for domestic Mutual Funds, subject to valid Bids was received from the domestic Mutual Funds at or above the price atwhich allocation was made to Anchor Investors (‘Anchor Investor Allocation Price"). In the event ofunder-subscription or non-allocation in the Anchor Investor Portion, the balance Equity Shares were added to the QIB Portion (other than the Anchor Investor Portion) (the ‘ Net QIB Portion'). Further, 5% of the Net QIB Portion shall be available for allocation on a proportionate basis to Mutual Funds only and the remainder of the Net QIB Portion shall be available for allocation on a proportionate basis to all QIB Bidders including Mutual Funds, subject to valid Bids being received at or above the Issue Price. Further, not less than 15% of the Net Issue shall be available for allocation to Nils ("NonR Institutional Category") of which one-third of the Non-lnstitutional Category shall be available tor allocation to Bidders with an application size of more than 70.20 million and up to 71.00 million and two-thirds of the Non-lnstitutional Category shall be available tor allocation to Bidders with an application size of more than 71.00 million and under-subscription in either of these two sub-categories of Non-lnstitutional Category was allocated to Bidders in the other sub-category of Non-lnstitudonal Category in accordance with the SEBI ICDR Regulations, subject to valid Bids being received at or above the Issue Price. Further, not less than 35% of the Net Issue was available tor allocation to Rlls (‘ Retail Category"), in accordance with the SEBI ICDR Regulations, subject to valid Bids being received from them at or above the Issue Price. Further, Equity Shares were allocated on a proportionate basis to Eligible Employees applying under the Employee Reservation Portion, subject to valid Bids received from them at or above the Issue Price. All Bidders (except Anchor Investors) shall mandatorily participate in this Issue only through the Application Supported by Blocked Amount (‘ASBA') process and shall provide details of their respective bank account (including UPI ID (defined hereinafter) in case of UPI Bidders (defined hereinafter) in which the Bid Amount will be blocked by the Self Certified Syndicate Banks ('SCSBs') or the Sponsor Bank(s), as the case may be. Anchor Investors are not permitted to participate in the Anchor Investor Portion through the ASBA process. Further, Equity Shares were allocated on a proportionate basis to Eligible Employees applying under the Employee Reservation Portion, subject to valid Bids received from them at or above the Issue Price. For details, see "Issue Procedure" on page 446 of the Prospectus.

The Bidding for Anchor Investors opened and closed on Wednesday, September 25,2024. The Company received 7 applications from 6 Anchor Investors for 4464680 Equity Shares. The Anchor Investor Issue Price was finalized at 7168 per Equity Share. A total of 28,06,500 Equity Shares were allocated under the Anchor Investor Portion aggregating to Rs. 47,14,92,000.

The Issue received 2737079 applications for 94,05,000 Equity Shares (including applications from Anchor Investors and prior to rejections considering only valid bids) resulting in 81.23 times subscription. The details of the applications received in the Issue from various categories (including Anchor Investors) are as under (before rejections):

Final Demand

A summary of the final demand as per NSE and BSE as on the Bid/lssue Closing Date at different Bid prices is as under:

The Basis of Allotment was finalized in consultation with the Designated Stock Exchange, being NSE on October 01, 2024.

A. Allotment to Retail Individual Bidders (After Rejections) (including ASBA Applications)

The Basis of Allotment to the Retail Individual Bidders, who have bid at cut-off or at the Issue Price of 7168 per Equity, was finalized in consultation with NSE. This category has been subscribed to the extent of83.84 times. The total number of Equity Shares Allotted in Retail Individual Bidders category is 32,74,250 Equity Shares to 37,207 successful applicants. The category-wise details of the Basis of Allotment are as under:

B. Allotment to Non-lnstitutional Investors (More than 7200,000 and up to 71,000,000) (after rejections)

The Basis of Allotment to the Non-institutional Investors (More than 7200,000 and up to 71,000,000), who have bid at the Issue Price of 7168 per Equity Share was finalized in consultation with NSE. The sub-category of the Non-institutional Portion comprising Non-institutional Investors Bidding (More than 7200,000 and up to 71,000,000) has been subscribed to the extent of 214.09 times (after rejections). The total number of Equity Shares Allotted in this category is 4,67,750 Equity Shares to 379 successful Non- Institutional Investors. The category-wise details of the Basis of Allotment are as under (Sample)

C. Allotment to Non-lnstitutional Bidders (more than 71 million)

The Basis of Allotment to the Non-lnstitutional Investors (More than 71,000,000), who have bid at the Issue Price of 7168 Equity Share was finalized in consultation with the NSE. The sub-category of the Non-lnstitutional Portion comprising Non-lnstitutional Investors Bidding above 1,000,000 has been subscribed to the extent of 201.84 times (after rejections). The total number of Equity Shares Allotted in this category is 9,35,500 Equity Shares to 759 successful applicants Non-lnstitutional Investors. The category-wise details of the Basis of Allotment are as under: (Sample)

D. Allotment to Eligible Employees (After Rejections) (including ASBA Applications)

The Basis of Allotment to the Eligible Employees, who have bid at the cut-off or at the Issue Price net of Employee Discount of Rs.8, i.e. Rs.168, was finalized in consultation with NSE. Overall Employee category has been subscribed to the extent of 1.37 times. The total number of Equity Shares allotted in this category is 50,000 Equity Shares to 146 successful applicants. The category-wise details of the Basis of Allotment are as under:

E. Allotment to QIBs (Excluding Anchor Investors) (After Rejections)

Allotment to QIBs (excluding Anchor Investors), who have Bid at the Issue Price of Rs.168 per Equity Share has been done on a proportionate basis in consultation with NSE. This category has been subscribed to the extent of 94.54 times of Net QIB Portion. As per the SEBI ICDR Regulations, Mutual Funds were Allotted 5% of the Equity Shares of Net QIB Portion available i.e. 93550 Equity Shares and other QIBs including Mutual Funds were Allotted the remaining available Equity Shares i.e. 1777450 Equity Shares on a proportionate basis. The total number of Equity Shares Allotted in the Net QIB Portion is 18,71,000 Equity Shares, which were allotted to 51 successful QIB Bidders. The category- wise details of the Basis of Allotment are as under:

F. Allotment to Anchor lnvestors

The Company, in consultation with the BRLM has allotted 28,06,500 Equity Shares to 5 Anchor Investors (through 7 Anchor Investor Application Forms, including 1 domestic Mutual Funds through 2 Mutual Fund schemes) at anAnchor Investor Issue Price of Rs.168 per Equity Share in accordance with theSEBI ICDR Regulations. This represents 60% of total QIB

The Board of Directors in its meeting held on October 01,2024 has taken on record the Basis of Allotment of Equity Shares approved by the Designated Stock Exchange, being NSE and allotment resolution was passed on OctoberOI, 2024. The AllotmentAdvice-cum-Unblocking intimations have been dispatched to the email id of the Investors as registered with the depositories. Further, the instructions to the Self Certified Syndicate Banks tor unblocking of funds, transfer to Public Issue Account have been issued on October 01,2024 and payments to non-Syndicate brokers have been issued on October 03, 2024. In case the same is not received within ten days, investors may contact the Registrar to the Issue at the address given below. The Equity Shares Allotted to the successful Allottees have been uploaded on October 03, 2024 for credit into the respective beneficiary accounts subject to validation of the account details with the depositories concerned. The Company filed the Listing application with NSE and BSE on October 03,2024. The Company has received listing and trading approval from NSE and BSE and the trading will commence on October 04,2024.

CORRIGENDUM: NOTICE TO INVESTORS

Potential Bidders may note the following as a corrigendum ("Corrigendum') to the red herring prospectus dated September 20,2024 ("RHP'), filed by our Company with SEBI and the Stock Exchanges:

1. On page 178 of the RHP, the last sentence under Note (3) shall be substituted as follows:

‘In case the total processing charges payable exceeds Rs.1.00 million, the amount payable would be proportionately distributed based on the number of valid applications such that the total processing charges payable does not exceed Rs.1.00 million (Based on valid Bid cum Application Forms)' .

2. On pages 284,285,286,287,288,289 and 290 of the RHP, the following paragraph below the Brief financial information table shall be substituted as follows:

"The audited financial statements Fiscal 2024 ,2023 and 2022 for our material subsidiary, if any, a re available at https://www.diffusionengineers.com/investors-relation.

The above changes are to be read in conjunction with the RHP and accordingly their references in RHP, as applicable stands updated pursuant to this Corrigendum. The information in this corrigendum supersedes the information in the RHP to the extent inconsistent with the information in the RHP. Please note that the changes pursuant to this Corrigendum has been included in the Prospectus.

Note: All capitalized terms used and not defined herein shall have the respective meanings assigned to them in the Prospectus.

INVESTORS PLEASE NOTE

These details of the Allotment made was hosted on the website o f Registrar to the Issue, BIGSHARE SERVICES PRIVATE LIMITED at www.bigshareonline.com.

All future correspondence in this regard may kindly be addressed to the Registrar to the Issue quoting full name of the First/ Sole applicant, Serial number of the Bid cum Application form number, Bidders DP ID, Client ID, PAN, date of submission of Bid cum Application Form, address of the Bidder, number of Equity Shares bid for, name of the Member of the Syndicate, place where the bid was submitted and payment details at the address given below:

 

THE LEVEL OF SUBSCRIPTION SHOULD NOT BE TAKEN TO BE INDICATIVE OF EITHER THE MARKET PRICE OF THE EQUITY SHARES ON LISTING OR THE BUSINESS PROSPECTS OF DIFFUSION ENGINEERS LIMITED.

DIFFUSION ENGINEERS LIMITED has filed the Prospectus with Registrar of Companies, Maharashtra at Mumbai. The Prospectus is available on the website of the SEBI at www.sebi.gov.in, the website of the BRLM to the issue at www.unistoneoapital.com and websites of BSE and NSE i.e, www.bseindia.com and www.nseindia.com, respectively and the website of the Company at www.diffusionengineers.com investors should note that investment in equity shares involves a high degree of risk and for details relating to the same, see section titled "Risk Factors" beginning on page 38 of the Prospectus. Potential investors should not rely on the DRHP for making any investment decision. Investors should instead rely on the information disclosed in the RHP and Prospectus.

The Equity Shares offered in the issue have not been and will not be registered under the U.S. Securities Act of1933, as amended (the "Securities Act') or any state securities laws in the United States, and unless so registered, may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any applicable U.S. state securities laws. There will be no public offering in the United States and the securities being offered in this announcement are not being offered or sold in the United States.